The UK Corporate Governance Code

Introduction to the UK Corporate Governance Code

Throughout the 1990s there was a real attempt by the accountancy profession and the London Stock Exchange to point out the problems of poor corporate governance mentioned before. A Code of Best Practice on Corporate Governance came out in year 1992. This was regarded with accountability and financial reporting. In year 1995, a separate code of practice came out which dealt with pay and conditions of directors.

These two codes were modified, 'fine tuned' and amalgamated to generate the Combined Code that was issued in year 1998. Every few years, the influence and efficiency of the Code has been reviewed and this has resulted in revisions being made. In year 2010, the Combined Code altered its name to the 'UK Corporate Governance Code'.

The UK Corporate Governance Code has the support of the London Stock Exchange. The meaning of this is that companies that listed on the London Stock Exchange have to 'comply or explain'. i.e., they must comply with the needs of the UK Code or must provide their shareholders good reason why they do not. Breakdown to do one or other of these can lead to the shares of company being suspended from listing.

Strengthening the framework of rules according to this way has been usually agreed to have enhanced the quality of information presented to shareholders, resulted in better checks on the powers of directors, and given greater transparency in corporate affairs. Though, rules can just be a partial answer. A balance must be struck among the requirement to protect shareholders and the requirement to encourage the entrepreneurial spirit of directors - that could be stifled within a welter of rules. This includes that rules should not be too tight, and so unscrupulous directors might still find ways around them.

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