Uk Cg Code

Topics: Board of directors, Corporate governance, Non-executive director Pages: 40 (11324 words) Published: March 4, 2013
Corporate Governance

Financial Reporting Council

September 2012

The UK Corporate Governance Code

The FRC does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.


Governance and the Code




Comply or Explain


The Main Principles of the Code


Section A: Section B: Section C: Section D: Section E:

Leadership Effectiveness Accountability Remuneration Relations with shareholders

8-10 11-16 17-20 21-23 24-25

Schedule A: The design of performance-related remuneration for executive directors 26 Schedule B: Disclosure of corporate governance arrangements 27-34

Financial Reporting Council

Governance and the Code
1. The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company. 2. The first version of the UK Corporate Governance Code (the Code) was produced in 1992 by the Cadbury Committee. Its paragraph 2.5 is still the classic definition of the context of the Code: Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting. 3. Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and is to be distinguished from the day to day operational management of the company by full-time executives. 4. The Code is a guide to a number of key components of effective board practice. It is based on the underlying principles of all good governance: accountability, transparency, probity and focus on the sustainable success of an entity over the longer term. 5. The Code has been enduring, but it is not immutable. Its fitness for purpose in a permanently changing economic and social business environment requires its evaluation at appropriate intervals. 6. The new Code applies to accounting periods beginning on or after 1 October 2012 and applies to all companies with a Premium listing of equity shares regardless of whether they are incorporated in the UK or elsewhere.

Financial Reporting Council 1

1. The FRC’s review of the implementation of the Code in 2011 reinforced the two principal conclusions reported in the preface to the 2010 edition. First, that much more attention needed to be paid to following the spirit of the Code as well as its letter. Secondly, that 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. The UK Stewardship Code, which provides guidance on good practice for investors, should be seen as a companion piece to this Code. 2. Nearly two decades of constructive usage have enhanced the prestige of the Code. Indeed, it seems that there is almost a belief that complying with the Code in itself constitutes good governance. The Code, however, is of necessity limited to being a guide only in general terms to principles, structure and processes. It cannot guarantee effective board behaviour because the range of situations in which it is applicable is much too great for it to attempt to mandate behaviour more specifically than it does....

References: to shareholders in this section also apply to intermediaries and agents employed to assist shareholders in scrutinising governance arrangements
4 The UK Corporate Governance Code (September 2012)
6 The UK Corporate Governance Code (September 2012)
The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives
8 The UK Corporate Governance Code (September 2012)
10 The UK Corporate Governance Code (September 2012)
Section B: Effectiveness
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