#15680 - Corporate Governance Code - Public Limited Companies

What is the UK Corporate Governance Code?

• How to run a business with a view to improving accountability to shareholders and the market

• It guides the relationship between the board and the shareholders

• Do not have to comply

  • There may be other justifiable ways of achieving these ends

  • Must be able to justify parting from the code

Company going for listing thinking “let’s not bother”

• The company may not even get the listing

  • FCA can refuse an application if it doesn’t think it’s in the interest of investors s75 FSMA

  • The FCA could also place conditions on the listing

• Assuming we can list, will investors be interested in a company not complying?

  • Shareholders are powerful – pressure they can bring to bear on average company usually brings the board to tow and share price may drop

  • LR 9.8.6R – Comply or explain

    • LR9.8.7R – Overseas company with premium listing must include in its annual report and accounts the information in LR9.8.6R

  • DTR 7.2 – Requires an issuer to include a corporate governance statement in annual report:

    • Which code

    • Where its available

    • Practices and departures from that code

    • Comply or explain

    • Main features of the code

    • Risk management

  • Sanctions s91 FSMA

Composition of the Company Board

• A2 CGC – Chair and chief exec should be different people (or justify and explain)

• B1.2- Half of the board should be NEDs if FTSE350

  • Only need 2 otherwise

• B1.1 - The NEDs must be independent

  • Close family ties may not count (may be able to justify independence)

• A1.2 – Set out attendance of directors in annual report (flags non-attendees to SH)

CEO selects directors and decides their pay

• B2 – Formal, rigorous and transparent procedure for selection

  • A nomination committee

  • Policy for diversity

  • Process for appointment

• LR 9.6.11 – Any change in the board has to go to the RIS

• D1 – Formal transparent policies for remuneration of directors

  • Remuneration committee for executive pay and benefits

  • Shareholders normally decide NED pay

    • This can be changed in the articles

Re-election of directors by shareholders at the AGM

“We retire by rotation every 3 years and have rolling contracts”

• Executives must retire and be up for re-election every year in FTSE350 companies

  • Smaller companies can do it every 3 years

  • NEDs shouldn’t really be around for more than 9 years

• Under Table A, NEDs...