Chapter 2 - Corporate Governance in the UK Flashcards
What relevance does knowing the historical development of corporate governance have for advising on today’s governance practices?
It is important to know the historical development of corporate governance as only by knowing why the practices have
developed can a company decide whether to comply or explain with the practice, and also to know what structures, polices and processes to put in place to ensure the spirit of the practice is achieved.
For example, the practice of separating the roles of the chair and CEO is in response to individuals dominating decision-making and using the company’s resources in their interests, not in the best interests of the company. It is assumed that by having two individuals in senior positions and separating the responsibilities between them this domination can be avoided.
If a company decides to combine the roles, other checks and balances need to be put in place to ensure that one individual does not dominate. A senior independent director could be appointed, for instance.
What type of UK companies can be listed?
Only public limited companies can be listed.
What is the difference between a public and a private company in the UK?
The main difference is that public companies are able to offer their shares to the public whereas private companies are
not.
What new requirements are included in the UK Corporate Governance Code 2018?
The 2018 UK Corporate Governance Code includes new requirements for boards to consider the needs and views of a wider range of stakeholders (employees,
customers and suppliers), integrity and corporate culture, diversity and how the
overall governance of the company contributes to its long-term success
What is the difference between principles and provisions in the UK Corporate Governance Code?
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 and supporting guidelines for the Code.
Who enforces the requirements of the UK Corporate Governance Code?
The company’s shareholders enforce the requirements of the code through dialogue with the company and voting at general meetings.
- Which corporate governance code(s) applies to:
- UK listed companies;
- UK unlisted companies.
The 2018 UK Corporate Governance Code applies to listed companies. Many AIM listed companies adopt as their corporate governance standards the Quoted Companies Alliance (QCA) Corporate Governance Guidelines 2018.
The Wates Corporate Governance Principles for Large Private Companies 2018 can be applied to any large private company.
Many private companies have selected to follow the Institute of Directors Corporate Governance Guidance and Principles for Unlisted Companies (2010) for their corporate governance arrangements.
The guidance is voluntary and seeks to ensure the long-term survival and sustainability of the company as it develops and matures.
What are the arguments for and against the application of corporate governance codes of best practice to large private companies?
The owners of private companies are often their managers, so the issue of protecting the investor does not tend to exist.
As corporate governance in the UK was traditionally aimed at creating and protecting shareholder value where there
was a separation of ownership and control, it was argued that it was not appropriate for private companies where this separation did not exist.
Recent high-profile corporate scandals, elating to large private companies, for example at British Home Stores (BHS),
have raised a different concern to that of protecting the investor for private companies.
This is the protection of a wider stakeholder group, which includes employees, former employees and suppliers of the company.
The enhanced shareholder value approach to governance has led to arguments for large listed companies following corporate
governance requirements.
