Apr 15, 2016

Good corporate governance is ultimately about people. Effective and robust boards are an essential feature of successful companies. Consequently much is included in corporate governance frameworks in relation to the composition and role of the boards of companies. 

The UK Corporate Governance Code and directors

The UK Corporate Governance Code puts an emphasis on:

  • Board composition and the way in which boards work
  • The leadership of the chairman, the responsibility of the non-executive directors to provide constructive challenge, and the time commitment expected of all directors.
  • The need for board appointments to be made on merit and against objective criteria reflecting the specific requirements and circumstances of the company and with due regard for the benefits of diversity, including gender diversity.
  • The need for chairmen to ensure that directors receive accurate, timely and clear information and that directors continually update their skills and knowledge of the company so as to be able effectively to discharge their responsibilities.
  • The importance of objectively evaluating the performance of directors, both individually and collectively, and, where necessary, taking action to address weaknesses identified. FTSE 350 companies should have externally facilitated board effectiveness reviews at least every three years. All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.
  • Remuneration policies should be designed with the long-term success of the business in mind.

Company Law 

There are also important company law requirements including statutory duties of directors in addition to fiduciary duties.  Members are advised to consult companies acts in relation to same.

Important guidance for directors

The FRC has published the following important updates for directors of listed companies in the UK:

In March 2011 the FRC issued "Guidance on Board Effectiveness" to assist companies in applying the principles of the UK Corporate Governance Code. It replaces ‘Good Practice Suggestions from the Higgs Report’ (known as “the Higgs Guidance”), which was last issued in 2006.

"Building Better Boards" published by UK Department of Trade and Industry, December 2004. This best practice guide offers recommendations and tools to help companies improve recruitment and performance in the boardroom.

Non-Executive Directors : Ethics Case Studies

The Chartered Accountants Regulatory Board (CARB) together with the other CCAB bodies, has developed a number of illustrative case studies on common ethical issues encountered by professional accountants working as non-executive directors. These case studies can also be accessed from the Ethics Resource Centre.