3)1) The UK Corporate Governance Code Flashcards
1.1 What is Corporate Governance?
The system by which companies are directed and controlled
Boards of directors are responsible for governance
1.1 What is the shareholders’ role in Corp governance?
Shareholders’ role is to appoint directors and auditors to satisfy corp governance
1.1 What is the board’s responsibilities?
Responsibilities include:
- setting the company’s strategic aims
- providing the leadership to put them into effect
- supervising the management of the business
- reporting to shareholders on their stewardship
1.1 Who is the UK Corporate Governance Code (the Code) published by?
The Financial Reporting Council (FRC)
1.1 What were the FRC’s main conclusions following their review of the Code?
More attention should be paid to following the spirit of the code, as well as the letter
The impact of shareholders in monitoring the Code could and should be enhanced by better interaction between the boards of listed companies and their shareholders
1.1 Who does the UK Corporate Governance Code apply to?
All companies with a premium listing of equity shares in the UK, regardless of whether they are incorporated in the UK or overseas
1.1 What changes does the latest edition of the Code, published in 2018, make?
Broadens the definition of governance and emphasises the importance of:
- positive relationships between companies, shareholders and stakeholders
- a clear purpose and strategy aligned with healthy corporate culture
- high-quality board composition and a focus on diversity
- remuneration, which is proportionate and supports long-term success
It is designed to:
- set higher standards of corporate governance to promote transparency and integrity in business
- attract investment in the UK for the long-term, benefitting the economy and wider society
1.2 Is the Code mandatory?
It is not a set of rules, but rather guidance.
However, the Listing Rules require all companies with a premium listing in the UK to include a corp governance report (the disclosure statement) in their annual report and accounts
1.2 What should a company’s corporate governance report include?
Describe how they have complied with the main principles of the Code
Show whether the company has or has not complied with all of the provisions, which, if any, it has not complied with, and for those that are of a continuing nature, the period in which, if any, it did not comply with some or all of these provisions, and the reasons for non-compliance
These descriptions should give shareholders a clear and comprehensive picture of the company’s governance arrangements in relation to the Code as a criterion of good practice
1.2 When is it acceptable for a company to not follow specific provisions?
If good governance can be achieved through other means
Reasons for non-compliance should be explained to shareholders whose voting intentions may shift as a result
This approach has been in operation since the Code’s beginnings in 1992, and the flexibility it offers is valued by both company boards and investors
1.2 Who is the Code voluntary for?
Standard listed companies or companies quoted on AIM or the Aquis Growth Market
These companies are encouraged to follow the Code, however
1.2 Who are the Association of Investment Companies Corporate Governance Code and Guide used for?
Externally managed investment companies with a different board structure
1.2 What are the 5 sections of the Code?
- Board Leadership and Company Purpose
- Guidance on leadership, strategy and policy from and of the board - Division of Responsibilities
- within the board - Composition, Succession and Evaluation
- within the board - Audit, Risk and Internal Control
- policies of the company and the board - Remuneration
- of the board
1.2.1 What are the main principles under section 1. Board Leadership and Company Purpose?
- successful company comes from effective and entrepreneurial board, role is to promote long-term sustainable success, generating value for shareholders and wider society
- board should establish company purpose, values and strategy, and align company culture with these. Directors must act with integrity and lead by example
- board should ensure that necessary resources are in place for company to meet its objectives and measure performance against them.
- board should establish a framework of prudent and effective controls, which enable risk to be assessed and managed
- for company to meet responsibilities to shareholders and stakeholders, the board should ensure effective management with, and encourage participation from, these parties
- workforce policies and practices are consistent with the company’s values and support long-term sustainable success. Workforce should be able to raise any concerns
1.2.2 What are the main principles under section 2. Division of Responsibilities?
Note, independence of a director referenced by other current or recent connections to the company or its exec directors, such as employment, shareholdings, commercial arrangements or familial relations
- the chair leads the board and is responsible for overall effectiveness in directing the company. Should demonstrated objective judgement and promote a culture of openness and debate.
- the chair facilitates constructive board relations and effective contribution of all NEDs, and ensures all directors receive accurate, timely and clear info
- the board should include an appropriate combination of exec and non-exec (and, in particular, independent non-exec) directors, such that no one individual or small group of individuals dominates the board’s decision-making. There should be a clear division of responsibilities between the leadership of the board and the exec leadership of the company’s business
- NEDs should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account
- The board, supported by the company secretary, should ensure that it has the policies, processes, info, time and resources it needs in order to function effectively and efficiently