The Development and the History of the UK Corporate Governance Code
The roots of the code mainly come from the Cadbury Committee Reports and its successor reports. (Mallin, C., 2010)
There are five sections in the Code. They are Leadership, Effectiveness, Accountability, Remuneration and Relations with Shareholders. (FRC, 2010)
Section A: Leadership
A.1 The Role of the Board
An effective board is essential for every company to have long-term success.
A.2 Division of Responsibilities
There should be a clear division of responsibilities between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision.
A.3 The Chairman
The chairman is responsible for leading the board and ensuring the effectiveness of the board on all aspects.
A.4 Non-executive Directors
As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.
Section B Effectiveness
B.1 The Composition of the Board
The board and its committees should have the appropriate skills, experience, independence and knowledge in order to discharge their respective duties and responsibilities effectively.
B.2 Appointments to the Board
When appointing new directors to the board, there should be a formal, rigorous and transparent procedure.
All directors should allocate sufficient time to discharge their responsibilities to the company effectively.
All directors should receive induction when joining the board and should regularly update and refresh their skills and knowledge.
B.5 Information and Support
The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.
A formal and rigorous evaluation should be undertaken annually based on the performance of the board and the performance of its committees and individual directors.
Subject to the continued satisfactory performance of the board, all directors should be submitted for re-election at regular intervals.
Section C; Accountability
C.1 Financial and business reporting
An understandable and balanced assessment which includes a company’s position and prospects should be presented by the board.
C.2 Risk Management and Internal Control
The board should develop internal control systems and a risk management system to determine the nature and extent of the significant risks.
C.3 Audit Committee and auditors
Corporate reporting, risk management and internal control systems should be established and applied in a formal and transparent way by the board. The board should maintain an appropriate relationship with the company’s auditor.
Section D: Remuneration
D.1 The level and components of remuneration
Executive directors’ remuneration depends on the corporate and individual performance. The purpose of the remuneration is to attract, retain and motivate directors of the quality required to run the company successfully. However, a company shouldn’t pay more than it is necessary.
There should be a formal and transparent procedure for developing policy on executive remuneration. It is forbidden for any director be involved in deciding his or her own remuneration.
Section E: Relations with shareholders
E.1 Dialogue with shareholders
It is responsible for the board to ensure a satisfactory dialogue with the shareholders about the mutual objectives.
E.2 Constructive use of the AGM
The AGM is used by the board to communicate with the investors and encourage their participation. (FRC, 2010)
The development of Corporate Governance
Cadbury Report 1992
The Cadbury Report is entitled ‘The Report of the Committee on the Financial Aspects of Corporate Governance’, following the recommendations of the Cadbury...
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