High quality corporate governance contributes to long-term company performance. The UK has excellent standards of corporate governance, which makes the UK equity market attractive to new investment. The UK Corporate Governance Code ('the Code') has been instrumental in spreading best boardroom practice throughout the listed sector since it was first issued.
The first version of the Code, published in 1992 by the Cadbury Committee, defined corporate governance as ‘the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.’
This remains true today, but the environment in which companies, their shareholders and wider stakeholders operate continues to develop rapidly. The Code is therefore updated periodically to ensure it stays relevant. Any changes are subject to extensive consultation and dialogue with the market. The most recent UK Corporate Governance Code was published in July 2018 and sets out good practice covering issues such as board composition and effectiveness, the role of board committees, risk management, remuneration and relations with shareholders and broader stakeholders.
In addition to the Code the FRC publishes a series of guidance notes intended to assist companies address specific aspects of governance and accountability. They cover board effectiveness, the role of audit committees and risk management, internal control and assessing and reporting on whether the business is a going concern.
In addition to promoting high standards of corporate governance, we expect asset managers and owners to demonstrate the quality of their stewardship, by reporting against the updated UK Stewardship Code (PDF), issued by the FRC in October 2019 and which took effect from 1 January 2020. In a similar way to the UK Corporate Governance Code, the UK Stewardship Code aims to make investors more accountable to their clients and beneficiaries. Good governance and good stewardship should go hand in hand.