Corporate Governance
Corporate Governance is the system by which companies are directed and controlled. It deals largely with the relationship between the constituent parts of a company - the directors, the board (and its sub-committees) and the shareholders.
Transparency and accountability are the most important elements of good corporate governance. This includes:
- the timely provision by companies of good quality information;
- a clear and credible company decision-making process;
- shareholders giving proper consideration to the information provided and making considered judgements.
The corporate governance framework in the UK operates at a number of levels:
- through legislation, particularly the Companies Act 2006;
- through the Listing Rules, the Disclosure and Transparency Rules and the Prospectus Rules which are made and enforced by the Financial Services Authority as the UK Listing Authority;
- through the UK Corporate Governance Code and the UK Stewardship Code for institutional shareholders, which is the responsibility of the Financial Reporting Council;
- through the Takeover Code, which is issued and administered by the Takeover Panel.
What's New?
Women on Boards
13 March 2012 - Lord Davies of Abersoch today published the first annual progress report on his ground-breaking review of Women on Boards. Further information including the report itself and press release can be found on the Women on Boards page.
The Kay Review of UK equity markets and long-term decision making
The Secretary of State for Business, Innovation and Skills, Vince Cable, announced on 22 June 2011 that Professor John Kay had been asked to examine investment in UK equity markets and its impact on the long-term performance and governance of UK quoted companies.
The review follows on from the Department’s call for evidence ‘A long-term focus for corporate Britain’ launched in October 2010, which explored issues of economic short-termism in the UK, and a number of broader corporate governance issues surrounding takeovers and executive pay. A summary of responses to this call for evidence was published in March 2011. The responses to the call for evidence found that there was evidence of short-termism in UK equity markets and of some agency problems in the investment chain. It was these findings which prompted the Kay Review.
On 15 September 2011, Professor Kay launched the Kay Review’s call for evidence at the National Association of Pension Funds (NAPF), where he outlined his philosophy and objectives for the review. The call for evidence paper built on the previously published terms of reference, and set out a range of issues and questions on which we sought evidence.
Following this, on 29 February 2012 Professor John Kay published the Interim Report of his independent review. The Interim Report summarises the responses to the review’s call for evidence and presents a broad discussion of the issues raised.
All information relating to the Kay Review can be found at the Kay Review page, which includes the reviews call for evidence document, the summary of responses to the call for evidence and the Kay Review Interim Report.
Executive remuneration
Last September, the Government issues a discussion paper looking at the issues surrounding executive remuneration. It built on the evidence received in response to A long-term focus for corporate Britain (PDF, 447 Kb), the existing body of research and conversations with business, shareholders and other stakeholders. The discussion paper can be found at the following: Executive remuneration discussion paper Executive remuneration discussion paper which closed on 25 November 2011.
The discussion paper stimulated a good debate and we received a large number of responses. A summary of the responses can be found here (PDF, 196 Kb) .
Having considered the evidence received, on 23 January the Secretary of State, Vince Cable, announced a package of measures to tackle the issue on four fronts:
• Greater transparency so that what people are paid is clear and easily understood.
• More shareholder power such as the introduction of binding votes, so they can hold companies to account.
• More diverse boards and remuneration committees to tackle the status quo.
• Encouraging employees to be more engaged by exercising their right to Information and Consultation Arrangements
• Best practice led by the business and investor community
The Government will bring forward primary and secondary legislation to implement the proposals.
23 March 2012 - Simpler reporting for the smallest businesses: discussion paper
On 25th August 2011, the Department for Business Innovation and Skills (‘BIS’) and the Financial Reporting Council (FRC) jointly published a discussion paper on ‘Simpler Reporting for the Smallest Businesses’. The paper set out ideas to reduce the amount of reporting micro-entities would be required to undertake.
A number of open meetings were held to enable interested parties to debate the issues raised by the discussion paper, and 90 written responses were also received. These responses include those from accountants and advisers, and from some small businesses themselves. BIS and the FRC are grateful for the number and quality of responses, and the breadth of interests represented.
In February 2012, the European Council agreed proposals for a significant simplification of accounts and reporting for micro-entities (now defined as; turnover of less than €700,000, net assets of less than €350,000 and employing no more than 10 people on average). This was a positive conclusion to the negotiations and one which was welcomed by the UK Government.
In principle, the UK Government intends to take advantage of the option now available to Member States under these revised arrangements, and will consult on implementation in due course. The responses received to the discussion paper on Simpler Reporting will now be used to help inform that work. This will allow Government to consider how, within the current EU framework, the financial reporting regime for the smallest companies can be made less burdensome and more informative.
Simpler reporting for the smallest businesses: discussion paper (PDF, 125 Kb)
Footnote: The attached (PDF, 15 Kb) corrigendum should be applied to all earlier versions of this document, printed prior to 23 September 2011.
European Commission Green Paper on 'The EU Corporate Governance Framework'
On 5th April 2011 the European Commission published its Green Paper on 'The EU Corporate Governance Framework'. Details of the consultation and Green Paper can be found at the Commission website. BIS contacted stakeholders and interested parties in order to inform the government response, which was published 22 July 2011.
A Long -Term Focus for Corporate Britain - call for evidence
On 25th October 2010 the Secretary of State for Business Vince Cable launched the first stage of a review into corporate governance and economic short-termism by issuing a call for evidence.
The document and further information can be found at http://www.bis.gov.uk/Consultations and http://www.official-documents.gov.uk/document/cm79/7915/7915.asp
The consultation has now closed. The Government will publish the next steps of its wider review of corporate governance in the summer.
