A guide to PLC's UK corporate governance materials

A guide to PLC's UK corporate governance materials.

What is corporate governance?

An overview of PLC's UK corporate governance materials

UK Corporate Governance Code

Section A: Leadership

Section B: Effectiveness

Section C: Accountability

Section D and Schedule A: Remuneration

Section E: Relations with shareholders

Institutional shareholders

Corporate responsibility

Corporate governance reporting

Governance for AIM companies

Governance in the financial services sector

European Commission's company law and corporate governance action plan

Governance in other jurisdictions

Key developments tracker

Useful weblinks

What is corporate governance?

The first version of the UK's code on corporate governance was produced by the Cadbury Committee in 1992 and contained what is still regarded today as the classic definition of corporate governance,

"Corporate governance is 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 structure is in place. The responsibilities of the board include setting the company's strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship."

Since 1992 there has been a code on corporate governance in the UK which has acted as a guide to a number of key components of effective board practice and has been based on the underlying principles of all good governance including accountability, transparency and the success of a company or group over the longer term.

A fundamental aspect of corporate governance in the UK is that of "comply or explain". The various corporate governance codes have not been a rigid set of rules and companies have been able to explain their reasons for non-compliance with certain aspects of it.

An overview of PLC's UK corporate governance materials

The diagram below provides an overview of PLC's corporate governance topics. A list of the PLC materials available under each topic is set out in the sections below.

UK Corporate Governance Code

The UK Corporate Governance Code (www.practicallaw.com/2-502-1888) was first published in May 2010 replacing the 2008 version of the Combined Code (www.practicallaw.com/9-107-5943). It applies to all companies with a premium listing (www.practicallaw.com/0-501-4233), regardless of whether they are incorporated in the UK or elsewhere, with reporting years beginning on or after 29 June 2010. On 28 September 2012, the FRC published a new version of the Code, which applies to financial years beginning on or after 1 October 2012, although the FRC encourages early adoption of the new provisions.

• Practice note, UK Corporate Governance Code: overview (www.practicallaw.com/9-502-0734)

• Practice note, Annotated UK Corporate Governance Code: Index (www.practicallaw.com/6-508-2403), which sets out the full text of the 2010 and 2012 versions of the Code and contains links to and summaries of institutional investor guidelines.

• Legal update, Corporate Governance Code: amendments to Code and Guidance on Audit Committees (September 2012) (www.practicallaw.com/9-521-6203)

• Legal update, Combined Code review: UK Corporate Governance Code is published (May 2010) (www.practicallaw.com/8-502-2682)

• Checklist, UK Corporate Governance Code: destination of Combined Code provisions (www.practicallaw.com/9-502-1842)

• Article, New UK Codes: corporate governance takes centre stage (www.practicallaw.com/5-503-1112) dated 2 September 2010

• Article, Corporate governance: a long way to go? (www.practicallaw.com/1-507-1652) dated 1 September 2011

Recent developments which have shaped the existing UK corporate governance environment are set out in Practice note, Corporate governance: global, EU and UK influences (www.practicallaw.com/3-107-4852).

Section A: Leadership

This section of the UK Corporate Governance Code deals with the role of the board, division of responsibilities and the role of the chairman and non-executive directors.

• Standard document, Annotated UK Corporate Governance Code: Section A: Leadership (www.practicallaw.com/3-505-5731), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Directors' duties: corporate governance influences (www.practicallaw.com/6-107-3870)

• Practice note, Matters reserved for the board (www.practicallaw.com/0-107-4721)

• Practice note, Directors' and officers' liability insurance (www.practicallaw.com/5-383-3973)

• Standard document, Letter of appointment for a non-executive director (www.practicallaw.com/2-200-3901)

• Standard document, Letter of appointment for a non-executive chairman (www.practicallaw.com/0-201-5641)

• Checklist, Information needed to draft letters of appointment for a non-executive director or a non-executive chairman (www.practicallaw.com/6-201-8321)

Section B: Effectiveness

This section of the UK Corporate Governance Code deals with the composition of the board, appointments to the board, commitment, development, information and support, evaluation and re-election.

• Standard document, Annotated UK Corporate Governance Code: Section B: Effectiveness (www.practicallaw.com/0-507-0304), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Board committees: nomination, remuneration, audit (www.practicallaw.com/2-107-3867)

• Practice note, Nomination committee terms of reference (www.practicallaw.com/0-107-3905)

• Practice note, Nomination committees and the role of non-executive directors (www.practicallaw.com/8-107-4859)

• Practice note, Independent directors (www.practicallaw.com/3-107-4668)

• Practice note, Company secretary: appointment, role and responsibilities (www.practicallaw.com/6-384-9539)

• Practice note, Gender diversity in boardrooms (www.practicallaw.com/9-507-0502)

• Practice note, Performance evaluation: assessing board effectiveness (www.practicallaw.com/6-519-2538)

• Legal updates, Corporate governance: ABI report on board effectiveness (September 2011) (www.practicallaw.com/3-508-5530) and Corporate governance: ABI report on board effectiveness (December 2012) (www.practicallaw.com/6-523-1083). The purpose of the report is to focus on board diversity, succession planning, board evaluation and the role of the chairman, the areas the ABI believes can help ensure an effective board and ultimately contribute to the success of the company.

Section C: Accountability

This section of the UK Corporate Governance Code deals with financial and business reporting, risk management and internal control and audit committee and auditors.

• Standard document, Annotated UK Corporate Governance Code: Section C: Accountability (www.practicallaw.com/3-506-4981), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Board committees: nomination, remuneration, audit (www.practicallaw.com/2-107-3867)

• Practice note, Audit committee terms of reference (www.practicallaw.com/3-107-3904)

• Practice note, Audit committees, non-financial reporting and the role of non-executive directors (www.practicallaw.com/4-107-4899)

• Practice note, Internal control: the Turnbull guidance (www.practicallaw.com/0-107-3873)

• Practice note, Overview of directors' health and safety responsibilities (www.practicallaw.com/8-200-2140)

• Practice note, Mandatory environmental reporting for companies (www.practicallaw.com/5-501-2161)

Section D and Schedule A: Remuneration

This section of the UK Corporate Governance Code deals with the level and components of remuneration and procedure for developing remuneration policy. Schedule A of the UK Corporate Governance Code deals with provisions on the design of performance-related remuneration for executive directors.

• Standard document, Annotated UK Corporate Governance Code: Section D: Remuneration (www.practicallaw.com/1-507-9931), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Standard document, Annotated UK Corporate Governance Code: Schedule A: The design of performance-related remuneration (www.practicallaw.com/5-508-2366), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Directors' remuneration: corporate governance issues (www.practicallaw.com/8-107-4675)

• Practice note, Board committees: nomination, remuneration, audit (www.practicallaw.com/2-107-3867)

• Practice note, Remuneration committee: duties and terms of reference (www.practicallaw.com/8-107-4722)

• Practice note, Remuneration committees and the role of non-executive directors (www.practicallaw.com/8-107-4897)

• Practice note, Directors' service agreements and regulatory issues (www.practicallaw.com/0-200-3271)

• Practice note, Directors' service contracts: notice periods and compensation for loss of office (www.practicallaw.com/2-107-3872)

• Practice note, Shares for non-executive directors (www.practicallaw.com/5-206-3984)

• Ask the Team: Clawback of employee shares and bonuses (www.practicallaw.com/9-385-5289)

• Standard document, Letter of appointment for a non-executive director (www.practicallaw.com/2-200-3901)

• Standard document, Letter of appointment for a non-executive chairman (www.practicallaw.com/0-201-5641)

• Standard document, Non-executive director: sample letter of appointment from Higgs Report (www.practicallaw.com/8-107-3906) (not maintained)

• Checklist, Information needed to draft letters of appointment for a non-executive director or a non-executive chairman (www.practicallaw.com/6-201-8321)

• Legal update, ABI remuneration principles: new version published (November 2012) (www.practicallaw.com/5-522-6384)

Section E: Relations with shareholders

This section of the UK Corporate Governance Code deals with dialogue with shareholders and constructive use of the AGM.

• Standard document, Annotated UK Corporate Governance Code: Section E: Relations with shareholders (www.practicallaw.com/1-508-3377), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Shareholder and stakeholder liaison (www.practicallaw.com/0-107-4900)

Institutional shareholders

UK Stewardship Code

The UK Stewardship Code is a code setting out good practice for institutional investors when engaging with UK listed companies and is based on the ISC Code on the Responsibilities of Institutional Investors. On 28 September 2012, the FRC published a revised version of the UK Stewardship Code.

• Practice note, UK Stewardship Code (www.practicallaw.com/6-502-2065), a note setting out the Financial Reporting Council's (www.practicallaw.com/7-107-5755) development of a stewardship code setting out good practice for institutional investors.

• Legal update, Stewardship Code: amendments (September 2012) (www.practicallaw.com/6-521-6209)

• Practice note, Environmental reporting for companies: mandatory: reporting requirements for pension funds and other institutional investors (www.practicallaw.com/5-501-2161)

• Article, New UK Codes: corporate governance takes centre stage (www.practicallaw.com/5-503-1112)

Institutional investor guidelines

Certain institutional investor bodies, such as the ABI (www.practicallaw.com/4-107-6445), NAPF  (www.practicallaw.com/9-107-6297) and PIRC (www.practicallaw.com/3-107-6988) have published corporate governance guidelines which are designed to assist shareholders and others in interpreting the UK Corporate Governance Code and resolutions proposed when considering voting decisions at company meetings.

• Practice note, Annotated UK Corporate Governance Code: Index (www.practicallaw.com/6-508-2403), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Corporate governance requirements of institutional shareholders (www.practicallaw.com/5-107-3875)

• Practice note, A toolkit for AGMs: forms of resolutions proposed at AGMs (www.practicallaw.com/6-501-6168), contains links to the institutional investor guidelines published in relation to certain resolutions usually proposed by listed companies at their AGMs.

• Practice note, ABI and NAPF February 2008 joint statement on executive contracts and severance (www.practicallaw.com/4-380-8766)

• Practice note, Corporate governance: NAPF corporate governance policy and guidelines on voting  (www.practicallaw.com/0-379-7741)

• Corporate governance: PIRC UK shareholder voting guidelines 2013 (www.practicallaw.com/9-524-3169)

• Legal update, ABI remuneration principles: new version published (November 2012) (www.practicallaw.com/5-522-6384)

• Legal update, Corporate governance: ABI report on comply or explain: investor explanations and market practices (December 2012) (www.practicallaw.com/2-523-1462)

• Legal updates, Corporate governance: ABI report on board effectiveness (September 2011) (www.practicallaw.com/3-508-5530) and Corporate governance: 2012 ABI report on board effectiveness (December 2012) (www.practicallaw.com/6-523-1083). The purpose of the report is to focus on board diversity, succession planning and board evaluation, the areas it believes can help ensure an effective board and ultimately contribute to the success of the company.

Corporate responsibility

Corporate responsibility, also referred to as corporate social responsibility or CSR, generally refers to responsibly-grounded business decision-making that considers the broad impact of corporate actions on people, communities and the environment. Certain companies are required to report on corporate responsibility issues in the enhanced business review (www.practicallaw.com/7-381-0490) and many will also report externally on their corporate responsibility to a wider stakeholder group.

• Practice note, Corporate responsibility (www.practicallaw.com/9-502-2097)

• Checklist, Corporate responsibility: business review: quoted companies (www.practicallaw.com/2-502-2562)

• Practice note, Environmental reporting for companies: mandatory (www.practicallaw.com/5-501-2161)

• Practice note, Environmental reporting for companies: voluntary (www.practicallaw.com/1-501-2747)

• Practice note, Environmental policies (www.practicallaw.com/3-500-7783), a note on drafting an environmental policy for a company or other organisation.

• Practice note, Climate change issues for investors, shareholders and insurers (www.practicallaw.com/8-501-7176)

• Corporate Governance and Directors' Duties Multi-jurisdictional Guide: Country Q&A tool (www.practicallaw.com/4-501-7404), this tool aims to give a structured overview of the key practical issues. In addition, answers to questions can be compared across a number of jurisdictions. Question 34 asks whether it is common for companies to report on social, environmental and ethical issues.

Corporate governance reporting

Companies with a premium listing are required by the Listing Rules to include in their annual report a statement of how they have applied the main principles of the UK Corporate Governance Code, in a manner that would enable shareholders to evaluate how the principles have been applied and whether they have complied with the UK Corporate Governance Code's provisions and to explain and justify any non-compliance.

In addition, specific corporate governance disclosures are required, usually in the annual report, by the UK Corporate Governance Code and the Disclosure and Transparency Rules (www.practicallaw.com/8-209-4955).

• Practice note, UK Corporate Governance Code: disclosure statement in annual reports (www.practicallaw.com/6-502-5356)

• Checklist, UK Corporate Governance Code: corporate governance disclosures (www.practicallaw.com/7-502-1838)

• Standard document, Annotated UK Corporate Governance Code: Schedule B: Disclosure of corporate governance arrangements (www.practicallaw.com/1-508-2231), which sets out the full text of the Code and contains links to and summaries of institutional investor guidelines.

• Practice note, Environmental reporting for companies: mandatory (www.practicallaw.com/5-501-2161)

• Practice note, Environmental reporting for companies; voluntary (www.practicallaw.com/1-501-2747)

• Annual reporting and AGMs 2012: FTSE 350: What's Market practice? (November 2012) (www.practicallaw.com/4-522-5525) A PLC report on the key trends and issues from the 2012 reporting and AGM season. The report is based on a review of the notices of AGM and annual reports of the 298 FTSE 350 premium equity commercial companies.

Governance for AIM companies

Companies admitted to AIM are not required to include a statement of compliance, or non-compliance, with the UK Corporate Governance Code and there is no corporate governance regime that AIM companies are formally required to adhere to. Therefore, in July 2005 the Quoted Companies Alliance (www.practicallaw.com/0-203-1165) published a set of voluntary Corporate Governance Guidelines for AIM companies.

• Practice note, Corporate governance and AIM companies (www.practicallaw.com/6-202-2295)

• Legal update, What's Market: 2010 AIM admissions and corporate governance analysis (www.practicallaw.com/4-504-0046), which is a round up of AIM admissions added to What's Market during 2010 and an analysis of the corporate governance codes and guidelines such companies have stated they intend to follow.

• What's Market: AGMs: AIM 50: 2011: Compliance with a corporate governance code, which links to all the AIM 50 companies that included, in their 2011 annual report, a statement of compliance with the Combined Code, UK Corporate Governance Code or other corporate governance guidelines (including the QCA's Corporate Governance Guidelines for Smaller Quoted Companies).

Governance in the financial services sector

There are various initiatives to strengthen corporate governance in financial services companies at UK, EU and international level. These include the review of corporate governance in banks and other financial institutions carried out by Sir David Walker in 2009, the FCA's increasing focus on senior management responsibility and individuals performing significant influence functions in regulated firms, and measures to control remuneration policies and arrangements in the financial services sector.

• Practice note, Hot topics: Corporate governance in financial services firms (www.practicallaw.com/2-386-3914), this overview gives a brief explanation of why corporate governance has become a "hot topic" in the financial services sector, outlines the key UK, EU and international developments in this area, and contains a timeline setting out milestones for future development of these initiatives.

• Practice note, The Walker Review: status of recommendations (www.practicallaw.com/4-517-2145), for information about the status of each of the Walker Review recommendations.

• Practice note, Walker Review: all listed companies: further reading (www.practicallaw.com/6-502-0735), for a list of PLC's materials produced on the Walker Review.

• Practice note, Senior Management Arrangements, Systems and Controls: overview (www.practicallaw.com/9-214-1980), this note provides a high level overview of the FCA's requirements for directors and senior management, as set out in the part of the FCA Handbook entitled Senior Management Arrangements, Systems and Controls.

• Practice note, FSA's expectations of non-executive directors in ensuring effective corporate governance (www.practicallaw.com/4-383-4242), this note looks at the FSA's (since renamed FCA) expectations of non-executive directors (NEDs) and outlines its recent proposals relating to NEDs which are aimed at improving corporate governance within regulated firms.

• Practice note, Approved persons regime: overview (www.practicallaw.com/1-201-3397)

• Practice note, Controlled functions (www.practicallaw.com/2-201-4103), this note looks at the controlled functions which underpin the FCA's approved persons regime.

• Practice note, Approved persons regime: applying for approval (www.practicallaw.com/7-201-3399)

• Practice note, Approved persons regime: the fit and proper test (www.practicallaw.com/3-201-3396)

• Practice note, FSA's expectations of non-executive directors in ensuring effective corporate governance (www.practicallaw.com/4-383-4242), looks at the FSA's (since renamed FCA) expectations of non-executive directors and outlines its recent proposals relating to NEDs which are aimed at improving corporate governance within regulated firms.

• Practice note, Approved persons regime: Statements of Principle and Codes of Practice for Approved Persons  (www.practicallaw.com/2-201-3392)

• Practice note, Role of the MLRO (www.practicallaw.com/2-202-0076), this note sets out the applicable law and regulations applying to a firm's money laundering reporting officer (MLRO) and the MLRO's key functions.

• Practice note, FSA Business Plan 2012/13 (www.practicallaw.com/6-518-6373) (not maintained).

• Practice note, Remuneration: key developments tracker (www.practicallaw.com/7-384-2387), monitors the progress of the key financial services regulatory developments at UK, European and international level that impact on remuneration policies and arrangements in the financial services sector.

European Commission's company law and corporate governance action plan

On 21 May 2003, the European Commission released for consultation an action plan on European company law and corporate governance (2003 Action Plan). A number of the initiatives set out in the 2003 Action Plan have been adopted.

On 5 April 2011, the European Commission launched a public consultation based on a green paper, The EU Corporate Governance Framework. The consultation focused on three areas: improving the effective functioning of boards; enhancing shareholders' engagement and improving monitoring and enforcement of the existing national corporate governance codes.

On 12 December 2012, the European Commission published an action plan on European company law and corporate governance.

• Legal update, European company law and corporate governance: Commission action plan (December 2012) (www.practicallaw.com/7-522-7504)

• Practice note, Corporate governance: global, EU and UK influences: European Action Plan on Company Law and Corporate Governance (www.practicallaw.com/3-107-4852)

Governance in other jurisdictions

PLC provides comparative information on regulatory and contractual practices in jurisdictions around the world.

• Corporate Governance and Director's Duties Multi-jurisdictional Guide, a multi-jurisdictional guide that brings together country-specific Q&As on corporate governance law and practice, and details of recommended corporate governance lawyers and law firms in jurisdictions around the world.

• Corporate Governance and Directors' Duties Multi-jurisdictional Guide: Country Q&A tool (www.practicallaw.com/4-501-7404), this tool aims to give a structured overview of the key practical issues including, for example, rules relating to directors, company meetings, internal controls, accounts, auditing and the role of institutional investors and shareholder groups. In addition, answers to questions can be compared across a number of jurisdictions to assist in the management of cross-border transactions.

Key developments tracker

UK listed companies

• Practice note, Corporate governance: key developments tracker (www.practicallaw.com/9-501-8811), monitors the progress of key corporate governance developments at UK, European and international level that impact on UK listed companies. It contains links to key primary source material and related PLC Legal updates relating to these developments.

• Practice note, Environmental reporting for companies: mandatory: Climate Change Act 2008 (www.practicallaw.com/5-501-2161), tracks what the government is doing in terms of deciding whether to introduce a duty to report on climate change via the Climate Change Act 2008.

Financial services sector

• Practice note, Hot topics: corporate governance in financial services firms: timeline: what next? (www.practicallaw.com/2-386-3914), which sets out details of the forthcoming key milestones in UK, EU and international developments that will impact on corporate governance policies and arrangements in the financial services sector.

• Practice note, Remuneration: key developments tracker (www.practicallaw.com/7-384-2387)

Useful weblinks

External websites relevant to corporate governance.

• Help and information notes, Corporate Governance: useful websites (www.practicallaw.com/0-502-5514)