Corporate Governance - Background
"Corporate Governance is the system by which companies are directed and controlled" - Cadbury report, 1992.
Corporate Governance is broadly concerned with the relationships between company boards and the company's shareholders. Good governance should facilitate efficient, effective and entrepreneurial management that can deliver shareholder value over the longer term.
The framework for corporate governance in Ireland and the UK comprises
- company legislation
- regulation such as the listing rules for listed companies and
- corporate governance code
The UK Corporate Governance Code
The UK Corporate Governance Code (formerly known as the Combined Code on Corporate Governance) provides a principles based framework for corporate governance with a "comply or explain" approach. The Code sets out standards of governance for listed companies. Companies are required either to follow the Code or explain how else they are acting to promote good governance.
The UK Corporate Governance Code sets out principles of good governance under the headings of
The UK Corporate Governance Code was published in May 2010 and applies to financial years beginning on or after 29 June 2010. In Ireland the Irish Stock Exchange (ISE) requires Irish listed companies to comply or explain with the UK Corporate Governance Code with effect from 30 September 2010. ISE also requires Irish listed companies to comply or explain against additional corporate governance provisions set out in the Irish Corporate Governance Annex which supplement the provisions of the UK Corporate Governance Code. Irish listed companies with accounting periods commencing on or after 18 December 2010 are required to comply or explain against the Irish specific corporate governance provisions as well as the UK Corporate Governance Code. The additional provisions are contained in the ISE's Listing Rules.
Following a review and consultation by the Financial Reporting Council (FRC) the UK Corporate Governance Code updates and replaces the 2008 edition of the Combined Code.
The Combined Code was first publised in 1999 and it brought together and updated earlier reports on corporate governance matters including the Cadbury Report "The Financial Aspects of Corporate Governance (1992)" and the Greenbury Report in 1995 on remuneration of directors. The Combined Code was updated in 2006 and again in 2008. Other influential reports on corporate governance in the UK include Rutteman Report 1994, Hampel Report 1998, Myners Report 2001, Tyson Report 2003.
Guidance supporting the Code
Guidance which assists companies in following the principles of the Code includes:
FRC Guidance on Board Effectiveness - published in March 2011
"Guidance on Audit Committees" (the Smith Guidance) - published first in 2003 and revised in 2005 and again in 2008
"Internal Control: Revised Guidance for Directors on the Combined Code" (Turnbull guidance) - published first in 1999 and revised in 2005
"Review of the role and effectiveness of non-executive directors" (the Higgs Report) 2003
Role of the Financial Reporting Council (FRC) in Corporate Governance
The FRC has an objective of fostering high standards in corporate governance. The FRC has responsibility for the UK Corporate Governance Code and related guidance for audit committees, directors and internal control.
The UK Stewardship Code
The FRC UK Stewardship Code for Institutional Investors, published in July 2010, is complementary to the UK Corporate Governance Code of May 2010.