#OVERSIGHT PROCESS OF CORPORATIONS FULL#
While a departure from the Code could achieve effective corporate governance, an explanation is necessary for effective transparency.Ĭompanies 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. What constitutes an Explanation?Įxplanations are key to the ‘comply or explain’ nature of the Code.
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. In addition, the comply or explain approach means that it is possible to expect more demanding standards than can be achieved through legislation. If shareholders are not content, or they consider that the explanation is unsatisfactory, they can use their rights – including the power to appoint and remove directors – to hold the company to account. This approach recognises that one type of approach does not necessarily fit all companies, while allowing shareholders to consider the explanation and discuss this with the company where necessary. This will allow investors to take a more considered view of the governance of the company, particularly where explanations have been provided.
Carefully considered corporate governance policies and practices along with high levels of transparency can lead to improved levels of trust. Under the Financial Conduct Authority (FCA) Listing Rules, listed companies are expected to align their business with the Principles of the Code but may choose whether or not to comply with its Provisions. The Code operates on a ‘Comply or Explain’ basis. The UK Corporate Governance Code 2016 (PDF) remains in place for those companies whose year ends occured before 1 January 2019. See the relevant section of the Listing Rules. The Code focusses on the application of the Principles and reporting on outcomes achieved. It also promotes the importance of establishing a corporate culture that is aligned with the company purpose, business strategy, promotes integrity and values diversity.Īll companies with a Premium Listing of equity shares in the UK are required under the Listing Rules to report in their annual report and accounts on how they have applied the Code. It places greater emphasis on relationships between companies, shareholders and stakeholders. The UK Corporate Governance Code 2018 (PDF) applies to accounting periods beginning on or after 1 January 2019.
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