2018 UK Corporate Governance Code

The UK corporate governance code provides principles of upright practice for the United Kingdom registered companies on development, remuneration, board structure shareholder relations, audit and accountability (Council, 2012). The corporate governance code is issued by the FRC. The first version of the governance code was issued in 1992, which referred to the corporate governance as the structure over which the companies are organized and focused (Council, 2012). The role of shareholders has been to appoint the auditors and directors to satisfy the needs for successful corporate governance. This has remained true to date despite the fact that the corporate governance environment has continued to develop rapidly over time. Over the years, the code has been expanded and revised to take responsibility for the changing framework for corporate governance (Council, 2012). The collective responsibility principle within a unitary board has been successful over time as well as stewardship activities for the investors which have played a significant role in supporting long term investment and delivery of quality standards of governance.

The 2018 UK corporate governance code has been established to set high corporate governance standards in the UK in order to promote integrity and transparency in businesses as well as attract more investments in the UK which will benefit the wider society and the economy at large (Yeoh, 2019). The 2018 code has put emphasis on the significance of constructive relationship amongst the stakeholders and investors and a strong strategy and purpose associated with appropriate business culture and healthy board structure with an effort of diversity and maintain relationships with stakeholders which enables long term business success.

The 2018 code has focused on the application of principles of good corporate governance within the business to build a positive relationship between different stakeholders (Yeoh, 2019). 2018 UK corporate governance code partly is an update of the agreed principles that have emphasized the value of efficient of good corporate governance. Through the application of the principles with a detailed provision and use of allied guidance, businesses will reveal through reporting on how the control of the company has enabled positive relations thus long term sustainable success of their business (Belcher, 2018).

As indicated, the new code is shorter and precise since most of the supporting principles have been incorporated in the new guidance on the effectiveness of the successful relationship within the business (Yeoh, 2019). Companies that are bound by the code have been required to rely on the principles on the basis of “explain or comply” and how they applied the provisions. The new code has broadened the definition of corporate governance and emphasized the importance of:

• Positive relationship between stakeholders, shareholders, and companies
• A clear strategy and purpose aligned with health corporate culture
• Focused on diversity and improved board composition quality
• Remuneration which supports long term accomplishment.

Leadership and purpose

The principle of stakeholder engagement has been maintained in the code which requires that the board ensures effective engagement and participation of the key stakeholders. This section has comprised of principles and provisions that have emphasized the need for the boards to promote and determine the culture of their company and engage the shareholders and stakeholders (Coulson-Thomas, 2018). The board is required to ensure that the workforce practices and policies are consistent and support the long term sustainable success and value of the company. The board is required to establish the values, strategy, and purpose of the company and promote the desired company culture. Relatively, they are expected to guarantee that the essential assets within the company are put in position for the business to measure their performance as well as meet their objectives.

The principle has ensured workforce engagement where companies are expected to choose a combination of various methods of gathering workforce views (Yeoh, 2019). Additionally, it has offered ways through which the workforce can raise concerns anonymously and in confidence. The principle has supported long term success for the company not only through the stakeholder engagement but on the basis of contributing to the society (Du Plessis, Hargovan and Harris, 2018).

Division of Responsibilities

This principle has reflected on the well-understood concepts regarding a clear division of responsibilities independence to ensure that the company’s board is effective and encourages constructive and open discussion (Yeoh, 2019). This section of the corporate governance code has emphasized on the appropriate combination of directors (non-executive and executive) as well as separation of duties within the board and the non-executive director’s role. It has also offered guidance on the independence of directors on the board. This has set out the role of the chair such as demonstrating objective judgment by their responsibility to ensure that directors are able to receive timely, accurate and clear information (Belcher, 2018). The code has emphasized on the chair independence and director independence and the appropriate combination of the non-executive and executive directors in the company business.

Composition, Succession, and Evaluation

This principle has required that the rigorous, formal and transparent procedures of board composition and succession on gender composition, ethnic and social diversity, as well as the length of service and mix of experience and skills, be followed. The principle has aimed at facilitating effective succession plan as well as diverse development of the board. In this case, the board appointments are subject to a formal transparent and rigorous procedure as well as effective succession plan that will be maintained for the senior management as well as the board (Nachemson-Ekwall and Mayer, 2018). The board and its committees are required to have a combination of experience, knowledge and skills and the consideration on the length of service on the board should be considered (Nachemson-Ekwall and Mayer, 2018). Annual re-appointment of the board should reconsider the diversity, composition and how effective members have worked to achieve the organizational goals. The role of the nomination committee has been expanded to ensure that the plans for succession and appointment are in place for effective senior management and board management as well as orderly succession and to oversee the development of a diverse succession pipeline.

Audit, Risk and Internal Control

The principle re-state the relevance of transparent and formal procedures and policies for effectiveness and independence of external and internal audit duties to maintain the company’s integrity on financial statements as well as improve on strategies to reduce business risks (Yeoh, 2019). The audit committee is expected to offer advice in a fair, understandable and balanced manner on the annual report as well as account information so as to offer necessary information to the shareholders who assess the company’s performance and position, strategy and business model. In this case the board is expected to offer transparent and formal procedures and policies that will ensure effectiveness and independence of external and internal audits, risk management procedures, overview of the framework of internal governance as well as evaluate the extent and nature of the business risks that the business is willing to undertake so as to attain long term success.

Remuneration

The principle has focused on the relevance of remuneration practices and policies which contribute to the company strategic objectives as well as the sustainable and long term success of the business. The corporate governance code has offered a more demanding measure for remuneration practices and policies. This entails a clear reporting on remuneration and how it delivers success and company scheme as well as the alignment of workforce remuneration (Driver and Thompson, 2018). The remuneration committee is essential in overseeing policies and remuneration in respect of the senior management, board, and the workforce. Richer reporting on remuneration and their delivery on the company’s strategy through reviewing the remuneration of the workforce and senior management.

The effectiveness of 2018 UK Corporate Governance Code.

In drafting the 2018 code, the FRC aimed at improving the governance structure to improve the relationships through increased diversity within the organization. The code has emphasized on the importance of diversity and corporate culture and the need for the company to engage with key stakeholders which create a positive relationship thus contributing to long term success of the company. The principles of 2018 code emphasize efficient corporate governance to promote integrity and transparency in the business. Diversity in the boardroom will create a positive relationship and improve the quality of decision making thus lowering the risk of negative group thinking (Shaukat and Trojanowski, 2018). With input from the shareholders, the company will be able to increase opportunities for success. Development of an increased level of diversity and great transparency will create a positive relationship within the company thus creating better engagement for the long term success of the company.

Conclusion

In conclusion, it is important to understand that companies do not exist in isolation. sustainable and successful business relationship underpins the society and economy through bringing propensity and job opportunities. Thus, for long term success within the company, companies have to lead and uphold positive relationships with a number of investors. These relations are important as well as successful on the basis of mutual benefit, respect, and trust. 2018 UK corporate governance code will contribute to successful relationships through increased diversity, improved engagement with stakeholders, effective succession and remuneration policies and procedures which will contribute to positive relations and long term-sustainable success of the company.

References

Belcher, A. (2018, November). Corporate Culture: Changing Board Responsibilities and Changing Governance Rhetoric. In Proceedings of the 11th International RAIS Conference on Social Sciences (pp. 1-7). Scientia Moralitas Research Institute.

Coulson-Thomas, C. (2018). Corporate Leadership and Governance for Increasing Stakeholder Involvement and Developing Stronger Connections. Effective Executive, 21(1), 7-25.

Council, F. R. (2012). The UK corporate governance code. London, September.

Driver, C., & Thompson, G. (Eds.). (2018). Corporate Governance in Contention. Oxford University Press.

Du Plessis, J. J., Hargovan, A., & Harris, J. (2018). Principles of contemporary corporate governance. Cambridge University Press.

Nachemson-Ekwall, S., & Mayer, C. (2018). Nomination Committees and Corporate Governance: Lessons from Sweden and the UK.

Shaukat, A., & Trojanowski, G. (2018). Board governance and corporate performance. Journal of Business Finance & Accounting, 45(1-2), 184-208.

Yeoh, P. (2019). Corporate Governance Codes in the UK: The Risk of Over-Reliance?. Business Law Review, 40(1), 19-27.