Chapter 2 - Test yourself Q&A's - Corporate Governance in the UK

Question 1

What relevance does knowing the historical development of corporate governance have for advising on today’s governance practices?

Answer 1

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 or explain with the practice, and also to know what structures, policies 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 interest, 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 combines the roles, then other checks and balances need t be put in place to ensure that one individual does not dominate. A senior independent director could be appointed, for instance.

Question 2

What type of UK companies can be listed?

Answer 2

Only public limited companies can be listed.

Question 3

What is the difference between a public and private company in the UK?

Answer 3

The main difference is that public companies are able to offer their shares to the public whereas private companies are not.

Question 4

What new requirements are included in the UK Corporate Governance Code 2018?

Answer 4

The 2018 UK Corporate Governance Code includes 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.

Question 5

What is the difference between principles and provisions in the UK Corporate Governance code?

Answer 5

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:
1. applied the spirit of the Principles
2. complied with, or explain why they have not complied with the provisions and supporting guidelines for the code.

Question 6

Who enforces the requirements of the UK Corporate Governance Code?

Answer 6

The company’s shareholders enforce the requirements of the code through dialogue with the company and voting at general meetings.

Question 7

Which corporate governance code(s) applies to:
1. UK listed companies
2. UK unlisted companies

Answer 7

1. The 2018 UK corporate governance code applies to listed companies. Many AIMs listed companies adopt as their corporate governance standards the Quoted Companies Alliance (QCA) Corporate Governance Guidelines 2018.
2. The Wates Corporate Governance Principles for large private companies 2018 can be applied to any large private company.
3. 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.