The UK has adopted a “comply or explain” code-based approach to corporate governance which companies can follow by either complying with the provisions or explaining why they have not complied in the annual report. More information on the UK approach to Corporate Governance is contained on the FRC website.
The key players are shareholders, the board of directors including sub-committees, and regulators. Together they inform how corporate governance is interpreted and applied in the UK.
The following sources of material form the framework for governance in the UK:
- UK Listing Authority Rules (“Listing Rules”);
- UK Listing Authority Disclosure and Transparency Rules (“DTR”);
- UK Corporate Governance Code (“the Code”); and the
- UK Stewardship Code (link to FRC website)
The Code Timeline
The UK has become known as a leader in the "comply or explain" corporate governance regime. Beginning with the Cadbury Code in 1992, these recommendations have been added to at regular intervals since that date. In 1995 the Greenbury Report set out recommendations on the remuneration of directors. In 1998 the Cadbury and Greenbury Reports were brought together by the Hampel Report and the Combined Code was issued. In 1999 the Turnbull Guidance on internal control was issued for directors. Following the Enron and WorldCom scandals, the Combined Code was updated in 2003 to include the recommendations of the Higgs Report on non-executive directors and the Smith Report on audit committees. Further small amendments were made to the Combined Code in 2006 and 2008. In 2010 the Code was renamed the UK Corporate Governance Code. The 2012 Code introduced new regulations, including diversity disclosures to support the recommendations arising from the Lord Davies report. The revised Code 2014 Code, introduced some new requirements in relation to directors' remuneration and requires companies to make a new statement regarding the 'prospects of the company'. The "comply or explain" regime has been retained throughout.
In June 2016, the FRC issued the 2016 UK Corporate Governance Code, the revised Guidance on Audit Committees, the Ethical Standard 2016 and revised International Standards on Auditing (UK) arising from the UK implementation of the EU Audit Regulation and Directive. These complete the FRC’s implementation of the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order.