The uk corporate governance code pdf

These relationships will be successful and enduring if they are based on respect, trust and mutual benefit. The principle of collective responsibility within a unitary board has been a success and — alongside the stewardship activities of investors — played a vital role in delivering high standards of governance and encouraging long-term investment.

Nevertheless, the debate about the nature and extent of the framework has intensified as a result of financial crises and high-profile examples of inadequate governance and misconduct, which have led to poor outcomes for a wide range of stakeholders.

At the heart of this Code is an updated set of Principles that emphasise the value of good corporate governance to long-term sustainable success. By applying the Principles, following the more detailed Provisions and using the associated guidance, companies can demonstrate throughout their reporting how the governance of the company contributes to its long- term sustainable success and achieves wider objectives.

Achieving this depends crucially on the way boards and companies apply the spirit of the Principles. It is the responsibility of boards to use this flexibility wisely and of investors and their advisors to assess differing company approaches thoughtfully. The Listing Rules require companies to make a statement of how they have applied the Principles, in a manner that would enable shareholders to evaluate how the Principles have been applied.

The ability of investors to evaluate the approach to governance is important. It is important to report meaningfully when discussing the application of the Principles and to avoid boilerplate reporting. The focus should be on how these have been applied, articulating what action has been taken and the resulting outcomes. High-quality reporting will include signposting and cross-referencing to those parts of the annual report that describe how the Principles have been applied.

This will help investors with their evaluation of company practices. The effective application of the Principles should be supported by high-quality reporting on the Provisions. An alternative to complying with a Provision may be justified in particular circumstances based on a range of factors, including the size, complexity, history and ownership structure of a company. Explanations should set out the background, provide a clear rationale for the action the company is taking, and explain the impact that the action has had.

Where a departure from a Provision is intended to be limited in time, the explanation should indicate when the company expects to conform to the Provision. Explanations are a positive opportunity to communicate, not an onerous obligation. In line with their responsibilities under the UK Stewardship Code, investors should engage constructively and discuss with the company any departures from recommended practice.

While they have every right to challenge explanations if they are unconvincing, these must not be evaluated in a mechanistic way. Investors and their advisors should also give companies sufficient time to respond to enquiries about corporate governance. This should include providing information that enables shareholders to assess how the directors have performed their duty under section of the Companies Act the Act to promote the success of the company.

We encourage boards and companies to use this to support their activities. It is intended to stimulate thinking on how boards can carry out their role most effectively. Application The Code is applicable to all companies with a premium listing, whether incorporated in the UK or elsewhere. The new Code applies to accounting periods beginning on or after 1 January For parent companies with a premium listing, the board should ensure that there is adequate co-operation within the group to enable it to discharge its governance responsibilities under the Code effectively.

In addition, the Association of Financial Mutuals produces an annotated version of the Code for mutual insurers to use. A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

All directors must act with integrity, lead by example and promote the desired culture. The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed. In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.

The workforce should be able to raise any matters of concern. Provisions 1. The board should assess the basis on which the company generates and preserves value over the long-term. The board should assess and monitor culture. In addition to formal general meetings, the chair should seek regular engagement with major shareholders in order to understand their views on governance and performance against the strategy. Committee chairs should seek engagement with shareholders on significant matters related to their areas of responsibility.

The chair should ensure that the board as a whole has a clear understanding of the views of shareholders. When 20 per cent or more of votes have been cast against the board recommendation for a resolution, the company should explain, when announcing voting results, what actions it intends to take to consult shareholders in order to understand the reasons behind the result.

An update on the views received from shareholders and actions taken should be published no later than six months after the shareholder meeting. The board should then provide a final summary in the annual report and, if applicable, in the explanatory notes to resolutions at the next shareholder meeting, on what impact the feedback has had on the decisions the board has taken and any actions or resolutions now proposed.

If the board has not chosen one or more of these methods, it should explain what alternative arrangements are in place and why it considers that they are effective. There should be a means for the workforce to raise concerns in confidence and — if they wish — anonymously.

The board should routinely review this and the reports arising from its operation. It should ensure that arrangements are in place for the proportionate and independent investigation of such matters and for follow-up action. The board should take action to identify and manage conflicts of maintained by The Investment Association — www. Where directors have concerns about the operation of the board Regulations require directors to explain how they have had regard to various matters in performing or the management of the company that cannot be resolved, their their duty to promote the success of the company in concerns should be recorded in the board minutes.

On resignation, section of the Companies Act The chair leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information.

Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account.

The board, supported by the company secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently. Provisions 9. The chair should be independent on appointment when assessed against the circumstances set out in Provision The roles of chair and chief executive should not be exercised by the same individual. A chief executive should not become chair of the same company.

If, exceptionally, this is proposed by the board, major shareholders should be consulted ahead of appointment. The board should set out its reasons to all shareholders at the time of the appointment and also publish these on the company website. The board should identify in the annual report each non-executive director it considers to be independent. Where any of these or other relevant circumstances apply, and the board nonetheless considers that the non-executive director is independent, a clear explanation should be provided.

At least half the board, excluding the chair, should be non-executive directors whom the board considers to be independent. The board should appoint one of the independent non-executive directors to be the senior independent director to provide a sounding board for the chair and serve as an intermediary for the other directors and shareholders.

Non-executive directors have a prime role in appointing and removing executive directors. Non-executive directors should scrutinise and hold to account the performance of management and individual executive directors against agreed performance objectives. The chair should hold meetings with the non-executive directors without the executive directors present.

The responsibilities of the chair, chief executive, senior independent director, board and committees should be clear, set out in writing, agreed by the board and made publicly available. The annual report should set out the number of meetings of the board and its committees, and the individual attendance by directors.

Prior to appointment, significant commitments should be disclosed with an indication of the time involved. In addition, the comply or explain approach means that it is possible to expect more demanding standards than can be achieved through legislation. Requiring companies to report to shareholders rather than regulators means that the decision on whether a company's governance is adequate is taken by those in whose interest the board is meant to act.

What constitutes an Explanation? While a departure from the Code could achieve effective corporate governance, an explanation is necessary for effective transparency.

Companies should provide full and meaningful explanations so that shareholders and other stakeholders understand why a departure is necessary and how it achieves effective governance for the company. An explaination should clearly define the period for which it did not comply and discuss the rationale for the departure, any potential risks associated with it.

Most importantly, it must be understandable and persuasive for those reading the annual report. Additional information on what constitutes a good explanation is included in the FRC's paper Improving the Quality of 'Comply or Explain' Reporting published in February Share Twitter LinkedIn Email.

Developments in Corporate Governance and Stewardship.