corporate governance committees uk

7/30/2019 Corporate Governance Committees UK

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Corporate Governance

Committees in U.K.


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The Beginning:

Initial corporate governance developments in the UKbegan in the late 1980s and early 1990s in the wake ofcorporate scandals such as Polly Peck and Maxwell.Financial reporting irregularities led to the

establishment of the Financial Aspects of CorporateGovernance Committee led by Sir Adrian Cadbury.

The resulting Cadbury Report published in 1992outlined a number of recommendations around theseparation of the role of an organization's chief

executive and chairman, balanced composition of theboard, selection processes for non-executive directors,transparency of financial reporting and the need forgood internal controls.
http://www.icaew.co.uk/index.cfm?route=116205http://www.icaew.co.uk/index.cfm?route=116205http://www.icaew.co.uk/index.cfm?route=116205http://www.icaew.co.uk/index.cfm?route=116205


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Glance at The Cadbury Report:

The Cadbury Report included a Code of Best Practiceand its recommendations were incorporated into theListing Rules of the London Stock Exchange.

Following Cadbury, a Working Group on InternalControl was established to provide guidance tocompanies on how to comply with Principle 4.5 of theCadbury Code reporting on the effectiveness of thecompanys system of internal control. This led to the

publication of the Rutteman Report in 1994 on InternalControl and FinancialReporting.


4/18

The Greenbury Report:

The Greenbury Report recommended

extensive disclosure in annual reports on

remuneration and recommended the

establishment of a remuneration committee

comprised of non-executive directors. Again,

the majority of the recommendations were

endorsed by the Listing Rules.
http://www.ecgi.org/codes/documents/greenbury.pdfhttp://www.ecgi.org/codes/documents/greenbury.pdf


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Hampele Committee & Comb. Code of

Corp. Gov.:

In January 1996, the Hampel Committee wasestablished to review the extent to which the Cadburyand Greenbury Reports had been implemented andwhether the objectives had been met.

The Hampel Report led to the publication of theCombined Code of Corporate Governance (1998)covering areas relating to structure and operations ofthe board, directors remuneration, accountability and

audit, relations with institutional shareholders, and theresponsibilities of institutional shareholders.
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The 1998 Combined Code applied to all listed

companies from 31 December 1998 untilreporting years commencing on or after 1November 2003 until it was superseded by therevised Code in 2003. It was appended to

Listing Rule 12.43A requiring companies toprovide in their annual reports a narrativestatement of how they have applied the Codeprinciples and state that they have compliedwith the Code provisions or, if not, why notand for what period.


7/18

Turnbull Committee:

Establishment of Turnbull Committee in 1998, by theInstitute of Chartered Accountants in England & Wales(ICAEW) which then resulted in the Turnbull Guidance,Internal Control: Guidance for Directors on the

CombinedCodepublished in September 1999.

The Guidance is a Securities & Exchange Commission(SEC) approved framework for management to showthat they have adequate internal control structures and

financial reporting procedures in place in order tocomply with section 404 of the Sarbanes-Oxley Act.
http://www.icaew.co.uk/index.cfm?route=120907http://www.icaew.co.uk/index.cfm?route=120907http://www.icaew.co.uk/index.cfm?route=120907http://www.icaew.co.uk/index.cfm?route=120907


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Directors Remuneration Report:

In 2002, the Directors Remuneration ReportRegulations were introduced to furtherstrengthen the powers of shareholders in relation

to directors pay.The regulations increased the amount ofinformation shareholders are given on directorsremuneration, certain disclosures, as well as

performance graphs. Shareholder may vote in anadvisory capacity to approve the directorsremuneration report.
http://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htmhttp://www.legislation.hmso.gov.uk/si/si2002/20021986.htm


9/18

Higgs Report:

In July 2002, the Department of Trade and Industry (DTI) andHM Treasury instigated a review of the Combined Codefollowing a review of company law. It initiated the HiggsReport on The Role and Effectiveness of Non-ExecutiveDirectors which was published in January 2003.

Recommendations from Higgs included a definition ofindependence and the proportion of independent non-executive directors on the board and its committees; anexpansion on the role of the senior independent director toprovide an alternative channel to shareholders and lead

evaluations on the chairmans performance; added emphasison the process of nominations to the board through atransparent and rigorous process and evaluation of theperformance of the board, its committees and individualdirectors.
http://www.icaew.co.uk/index.cfm?route=118873http://www.icaew.co.uk/index.cfm?route=118873http://www.icaew.co.uk/index.cfm?route=118873http://www.icaew.co.uk/index.cfm?route=118873http://www.icaew.co.uk/index.cfm?route=118873http://www.icaew.co.uk/index.cfm?route=118873


10/18

Smith & Tyson Report:

Around the same time, the Financial Reporting Councilpublished the Smith Report, Guidance on AuditCommittees. Both the Higgs and Smith Reports werepublished in January 2003 followed by the Tyson

Report on the recruitment and development of non-executive directors commissioned by the DTI.

The recommendations from the Higgs and SmithReports led to changes in the Combined Code ofCorporate Governance published in July 2003. It

applied to all companies listed on the primary marketof the London Stock Exchange for reporting yearscommencing on or after 1 November 2003.
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11/18

Turnbull Review Group:

In 2004, the Financial Reporting Council

established the Turnbull Review Group to

consider the impact of Internal control:

Guidance for Directors on the CombinedCode

and to determine whether the guidance

needed to be updated. Accordingly, Internal

Control: Revised Guidance for Directors on theCombined Code was published by the

Financial Reporting Council in October 2005.
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12/18

Corp. Gov. & Company Law Action

Plan:

The European Union also significantly influencescorporate governance in the UK. The EuropeanCommissions Corporate Governance and CompanyLaw Action Plan (May 2003) proposed a mix of

legislative and regulatory measures which would affectall member States relating to:

disclosure requirements;

exercise of voting rights;

cross- border voting;

disclosure by institutional investors; and

responsibilities of board members.


13/18

Sarbanes-Oxley Act

The Enron Scandal took place in the year 2001

and hence , new regulations and legislation

were enacted to expand the reliability of

financial reporting for public companies. The

Sarbanes-Oxley Act was introduced in 2002 to

increase the accountability of auditing firms to

remain objective and independent of theirclients.


14/18

Need for a Regulatory Framework???

Collapse of the Lehman Brothers in September, 2008prompted governments across the world to re-evaluatetheir financial regulatory framework, to try to tackle thecauses of, and fallout from, the global downturn.

The UK Government commissioned Lord Turner in October2008 to review the causes of the global financial crisis. TheTurner Review, issued in March 2009, was a UK regulatoryresponse to the global banking crisis. The Turner Reviewoutlines recommendations on the redesign of regulationand supervisory approach needed to create a more robust

banking system for the future.The Review also focuses on the improvements in theeffectiveness of internal risk management and corporategovernance.


15/18

Walker Review:

In February 2009 Sir David Walker, ex-Cityregulator had been asked by the Prime Ministerto review corporate governance in UK banks in

the light of the experience of critical loss andfailure throughout the banking system. TheWalker Review published in November 2009recommends more transparent pay and bonus

structures for all high earners following a seriousand ongoing corporate governance failings in thefinancial sector.


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Walker Recommendations:

The review examines corporate governance in the UK banking industryand makes recommendations on:

the effectiveness of risk management at board level, including theincentives in remuneration policy to manage risk effectively;

the balance of skills, experience and independence required on the

boards of UK banking institutions; the effectiveness of board practices and the performance of audit, risk,

remuneration and nomination committees;

the role of institutional shareholders in engaging effectively withcompanies and monitoring boards; and

whether the UK approach is consistent with international practice and

how national and international best practice can be promoted.


17/18

The Combined Code and associated guidance :

The Combined Code on Corporate Governance sets outstandards of good practice in relation to issues such asboard composition and development, remuneration,accountability and audit and relations with shareholders.

All companies incorporated in the UK and listed on theMain Market of the London Stock Exchange are requiredunder the Listing Rules to report on how they have appliedthe Combined Code in their annual report and accounts.The Combined Code contains broad principles and morespecific provisions. Listed companies are required to report

on how they have applied the main principles of the Code,and either to confirm that they have complied with theCode's provisions or - where they have not - to provide anexplanation.


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The Outcome- UK Corp. Gov. Code:

In March 2009 the FRC announced a review ofthe Combined Code, as a result of which itproposes to make a number of revisions to theCode. Consultation on these proposals ends on 5

March 2010.

Subject to the outcome of consultation it isintended that the revised Code - which will be

known as the UK Corporate Governance Code -will apply to financial years beginning on or after29 June 2010.
http://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdfhttp://www.kingstoncitygroup.co.uk/includes/docs/corp_gov_docs/2009%20Review%20of%20the%20Combined%20Code.pdf

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