Good governance is necessary for effective, entrepreneurial and prudent management that can deliver the long-term success of a company.
Effective governance involves supervising the management of a company and managing risks so that business is done competently, with integrity and with due regard to the interests of all stakeholders. It embraces regulation, structure, best practice and board ability.
In the UK, the Companies Act 2006 is the overarching legislation which sets out the legal requirements for corporate decision making, and the consequences of getting it wrong.
The UK Corporate Governance Code (the Code) then sets out standard of good practice aims to achieve more open and rigorous procedures, and requires all companies with a premium listing of equity shares in the UK to report on their application of the Code in their annual report and accounts.
The UK Corporate Governance Code is complemented by the UK Stewardship Code which sets out the principles of effective stewardship by investors and in so doing, assists institutional investors to better exercise their stewardship responsibilities.
The Financial Reporting Council (FRC) monitors the Codes and publishes an annual report on their impact and implementation. The FRC requires listed companies to disclose how they have applied the principles and whether they have complied with the provisions – a ‘comply or explain’ approach.
The Code provides a guide to a number of key components of effective board practice including:
All of this helps boards to think comprehensively about their responsibilities and the implications of board decisions, for both stakeholders and individuals. This can help ensure that the business operates in accordance with applicable laws and regulatory frameworks.
For company directors, it can also help reduce the risk of personal liability arising out of breach of the various duties that directors owe under the Companies Act 2006. The Act sets out a number of obligations including duties to:
Articles of Association
This page was last updated on 20/02/2018