The Development and the History of the UK Corporate Governance Code The roots of the code mainly come from the Catbird Committee Reports and its successor reports. (Mammalian, C. , 2010) There are five sections in the Code. They are Leadership, Effectiveness, Accountability, Remuneration and Relations with Shareholders. (FRR, 2010) Section A: Leadership A. L The Role of the Board An effective board is essential for every company to have long-term success. A. Division of Responsibilities There should be a clear division of responsibilities between the running of the board ND the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision. A. 3 The Chairman The chairman is responsible for leading the board and ensuring the effectiveness of the board on all aspects. A. 4 Non-executive Directors As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.
Section B Effectiveness 8. 1 The Composition of the Board The board and its committees should have the appropriate skills, experience, independence and knowledge in order to discharge their respective duties and responsibilities effectively. 8. 2 Appointments to the Board When appointing new directors to the board, there should be a formal, rigorous and transparent procedure. 8. 3 Commitment All directors should allocate sufficient time to discharge their responsibilities to the company effectively. 8. Development All directors should receive induction when Joining the board and should regularly update and refresh their skills and knowledge. The board should be supplied in a timely manner with information in a form and of a laity appropriate to enable it to discharge its duties. 8. 6 Evaluation A formal and rigorous evaluation should be undertaken annually based on the performance of the board and the performance of its committees and individual directors. 8. 7 Re-election Subject to the continued satisfactory performance of the board, all directors should be submitted for re-election at regular intervals.
Section C; Accountability C. I Financial and business reporting An understandable and balanced assessment which includes a company’s position and prospects should be presented by the board. C. 2 Risk Management and Internal Control The board should develop internal control systems and a risk management system to determine the nature and extent of the significant risks. C. 3 Audit Committee and auditors Corporate reporting, risk management and internal control systems should be established and applied in a formal and transparent way by the board.
The board should maintain an appropriate relationship with the company’s auditor. Section D: Remuneration D. L The level and components of remuneration Executive directors’ remuneration depends on the corporate and individual performance. The purpose of the remuneration is to attract, retain and motivate erectors of the quality required to run the company successfully. However, a company shouldn’t pay more than it is necessary. D. 2 Procedure There should be a formal and transparent procedure for developing policy on executive remuneration.
It is forbidden for any director be involved in deciding his or her own remuneration. Section E: Relations with shareholders E. I Dialogue with shareholders It is responsible for the board to ensure a satisfactory dialogue with the shareholders E. 2 Constructive use of the GM The GM is used by the board to communicate with the investors and encourage their participation. FRR, 2010) The development of Corporate Governance Catbird Report 1992 The Catbird Report is entitled ‘The Report of the Committee on the Financial Aspects of Corporate Governance’, following the recommendations of the Catbird Committee. Catbird, A. , 1992) Greenberg Report 1995 During the sass’s the issue of director’s remuneration was becoming a primary concern for investors and the public at large. Specifically, the levels of remuneration of directors in privatized industries were rising and remuneration packages were failing to provide the necessary incentives for directors to perform better. Greenberg, R. , 1995) Hamper Report 1998 The Hamper Committee was established in 1996 to review and revise the earlier recommendations of the Catbird and Greenberg Committees.
The Final report emphasized principles of good governance rather than explicit rules in order to reduce the regulatory burden in companies and avoid ‘box-ticking so as to be flexible enough to be applicable to all companies. It was recognized that good corporate governance will largely depend on the particular situation of each company. This emphasis on principles would survive into the Combined Code. (Hamper, R. 1998) Combined Code 1998 The Combined Code consolidated the principles and recommendations of the Catbird, Greenberg and Hamper reports.