CG in the UK Flashcards
Give 6 examples of recommendations in the Cadbury Report (1992)
Which companies did these apply to?
How have recommendations evolved?
- Board of Directors = should be a separate chairman and CEO
- NEDs = should be sufficient NEDs for their views to carry weight (most should be independent)
- EDs = service contracts should not exceed 3 years without shareholder approval
- The Audit Committee = Listed companies should establish an AC
- A ‘going concern’ statement should be included in annual report and accounts
- Internal financial controls = Directors should report to shareholders on the company’s system of internal controls
some of them applied to FTSE 350 companies
Evolved into UK Corporate
Governance Code (2010) updated every 2 years by FRC = 2018 is the latest code
What relevance does knowing the historical development of corporate governance have for advising on today’s governance practices?
Why should the chair and CEO not be combined?
Important to understand how CG has developed to be able to advise boards on their governance practices.
= designed to counter the power of one dominant individual who runs the company for their own benefit. If governance advisor is aware of this = can advise board wishing to combine the roles what other practices should be put in place
e.g. appointing a majority of INEDs or a SID
What do the Listing Rules say about the UK CG Code?
Which companies don’t have to comply with the UK CG Code?
What must they do instead? (2)
All companies with a premium listing on the LSE must comply with the UK CG Code or explain their noncompliance in a governance statement in the company’s annual report and accounts. = comply or explain regime
Companies listed on AIM do not have to comply with the UK CG Code
But they do have to:
1. Adopt a set of governance standards = most choose Quoted Companies Alliance (QCA) Code
2. Make a statement on the code they have adopted, how they have applied it, and explain reasons for departure
What is the difference between principles and provisions in the 2018 UK CG Code?
(There are 18 principles and 41 provisions)
What are Listed companies required to do in their annual report and accounts?
The Principles state what a company should be aspiring to.
The Provisions provide guidance on how the principles could be achieved.
Listed companies are required to make a statement in their annual report and accounts on how they have:
* applied the spirit of the Principles;
* complied with, or explain why they have not complied with, the provisions
What is the QCA?
What is their CG Code?
What must companies adopting this code do?
= Quoted Companies Alliance (QCA) = a body that represents smaller quoted companies
Quoted Companies Alliance Corporate Governance Code = QCA CG Code = consists of 10 principles that are similar to the UK CG Code for listed companies, but are less rigorous
Companies adopting the QCA Code must issue an annual statement on how they have complied with the code and provide justifications for any departures from it
Name 5 of the 10 principles of the QCA CG Code.
- Establish a strategy which promotes long-term value for shareholders
- Seek to understand and meet shareholder needs and expectations
- Consider wider stakeholders and social responsibilities for long-term success
- Embed effective risk management throughout the organisation
- Maintain the board as a well-functioning balanced team
- Ensure directors collectively have the necessary up-to-date skills
- Evaluate board performance, seeking continuous improvement
- Promote an ethical corporate culture
- Maintain governance processes that are fit for purpose
- Communicate with stakeholders how the company is governed and its performance
What did The Companies (Miscellaneous Reporting) Regulations 2018 do for large private unlisted companies?
Which companies are considered large?
What are the 2 CG requirements under this regulation?
Introduced CG arrangements for large private unlisted companies
Large = those with more than 2,000 employees or with turnover of more than £200 million and a balance sheet of more than £2 billion
- Must include a statement as part of their director’s report stating:
* Which CG code they are following
* Explain any deviations
* Or explain why not following a code and what CG arrangements have been applied instead - Must also provide a s.172 statement within their strategic reports = describing how directors have had regard to the matters in s.172 CA2006
What are the 6 principles of The Wates Corporate Governance Principles for Large Private Companies (2018)?
- Purpose and Leadership = Directors’ ensure values, strategy and culture align with the company purpose;
- Board Composition = size of the board should be guided by the scale and complexity of company
- Director Responsibilities = BoD should understand the need for accountability and their directorial responsibilities
- Opportunities and Risk = BoD promote long-term success of company… establish oversight for identifying and mitigating risks
- Remuneration = BoD should promote remuneration structures aligned to the long-term success of company taking into considerations conditions and pay elsewhere in the company
- Stakeholder Relationships and Engagement = Directors should foster effective stakeholder relationships
