Analysis of UK Corporate Governance Code and Executive Remuneration

This report provides a detailed analysis of the UK Corporate Governance Code, focusing on the principles, policies, and practices required for effective corporate governance. It examines the responsibilities of the board of directors, including ensuring accountability, transparency, and risk management. The report explores the reporting requirements related to executive remuneration and the powers granted to shareholders regarding "say on pay." It also discusses the implications of corporate governance failures, using Enron as a case study, and emphasizes the importance of ethical conduct and adherence to the code. The report further references relevant legal cases, such as Bunge Corp v Tradax Export SA and Prest v Petrodel Resources Limited, to illustrate key principles. The overall focus is on providing insights for companies seeking to expand their businesses while maintaining sound corporate governance practices.

Report

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Full extent of the principles, policies and practices that are required by the UK Corporate
Governance Code.........................................................................................................................1
What Reporting requirements are required in relation to executive remuneration, and what
powers are given to company shareholders to have a “say on pay..............................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Corporate governance can be defined as the combination of rules, sets and procedures which
needs to be followed by business in order to grow adequately. In this company’s decision can
also be affected by stakeholders. In the present report it has been analysed that The Board wishes
to adopt a strategy of expanding the business and intends to finance this expansion by a mix of
equity and debt finance i.e. issuing new ordinary shares and borrowing from the company’s
existing lenders and on the financial markets. They know about how other companies have
expanded and have become insolvent. Present report will lay emphasis on full extent of the
principles, policies and practices that are required by the UK Corporate Governance Code.
Assignment will also lay focus on what reporting requirements are required in relation to
executive remuneration, and what powers are given to company shareholders to have a “say on
pay.
MAIN BODY
Full extent of the principles, policies and practices that are required by the UK Corporate
Governance Code
In the present case study, it has been evaluated that Board has adopted strategy for expanding the
business by making use of equity and debt finance. Board knows that it is a risky strategy to be
adopted during the time of novel corona virus pandemic. In this the Board is expected to have
full knowledge related to principles, policies and practices which are been required by UK
corporate governance code. It includes the following:
Main objective of corporate governance is that there is a better management so that
company can go for long term success. In this company is been directed and managed by the
board of directors and they are held responsible for every decision which is been taken in
company. The code can act as a guide so that there is an effective board practices and also it is to
make sure that principles of corporate governance which is accountability, transparency, honesty
and integrity are been followed by board of directors. Main principles of the code include that
company must be governed by responsible board so that they can implement long term success
of organisation. In this there should also be clear division of responsibilities so that no miss-
understanding exists in the first place. The chair man is held responsible for effective leadership
so that better decision is been taken by organisation. The board and other members must possess
appropriate skills so that better decisions can be taken. It is responsibility of all directors to
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allocate sufficient time to company so that success can be gain by company. Board must be fair
in their working and must also be engaged in knowing about the extent of risk which is been
taken by them. They should have proper risk management and better internal control system. The
board should also be engaged in delivering the timely information and also there must be an
appropriate discharge of the duties. In this the main responsibilities is of chairman that every
person in board receives timely and accurate information. In this the board must make sure that
directors and non executive directors should have proper information related to expenses of
company and where they are being investing. All directors must be given right to have access
related to services of organisation. So in the present case situation, the board is responsible to
include all the directors related to decision of investing and risk which they are going to take.
The board should also be involved in doing the formal and annual rigorous evaluation.
The performance must be evaluated at every level. In the evaluation of board, company must
make sure that members have adequate skills and also the board must work together on basis of
it. Result of evaluation and the performance level must be maintained. The chairman also needs
to be involved in analysing the strength and weakness of the members. In the annual report board
must be engaged in making sure that performance evaluation is been mentioned. They need to be
transparent in every type of dealing which is been done by them. Evaluation of the board of
FTSE 350 companies must be done in at-least the period of three years. The external facilitator
also needs to be shown on annual report which has been published. Chairman should also be
engaged in taking in thoughts of every director which is been followed in taking decision. All the
directors also need to be subjected to annual general meeting after the first time they have been
appointed. The non executive directors who have served longer than nine years also must be
subjected to annual re-election. This is necessary principle in corporate governance code of
conduct.
The United Kingdom corporate governance code has implied various policies which need
to be implemented by company1. In this statement the board should disclose about the ways
about how they operate. They also need to mention about decisions which will be solely taken by
management. The board of director should also be engaged in disclosing about the name of chair
1 The UK is a global leader in corporate governance, with the UK Corporate Governance Code
(‘The Code’) setting out how premium listed companies can achieve sustainable success over
the long term.
https://www.iod.com/.../details/UK-Corporate-Governance-Code-July-2018
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man, the chief executive and independent director. They should also have been engaged in
disclosing about the number of meeting which is been held by board. The statement also needs to
be published related to evaluation of performance. They should also mention about the impact of
any significant change which has been adopted by the board members. The explanation from
directors and other members also needs to be taken, this is being done on the decision which has
been taken up by them. A statement also needs to be taken by directors whether they consider
appropriate the going concern basis of accounting.
Corporate governance lessons related to failure: Enron Corporation was the biggest failure
related to bankruptcy in late 2001. When the company failed there were reasonable questions
which were raised related to corporate governance practices. The reason because of Enron failed
was that auditors are too closed to their clients and it was a failure of business. So by this it is
suggested to board of directors that they must be engaged in following good board room
practices. It includes the following:
 Legislations must be engaged in implementing strict rules and regulations for accessing
information from relevant agencies. Model related to UK audit commission must be
implemented; this will assist in delaying the tactics and minimising cost.
 Criminal penalties and large fines need to be implicated in the concealment of
documentation. These procedures must be followed2.
 They should be engaged in implementing more inclusive stakeholder model and decision
must be taken by every stakeholder which is engaged in planning.
 Auditors need to be engaged in implementing the fair accounting principles in each of the
situation.
 Auditors need to be involved in adopting out the stakeholder orientation in lieu of the
current stakeholder one.
 All ramifications which are been related to audit independence must be assessed and they
should also need to have proper risk management strategies related to risk which has been
adopted by them.
 In this the role of internal audit should be kept mandatory and also the rotation issues
must be addressed in balanced. The external report must also be protected in the public
interest.
2 code is published by the Financial Reporting Council (FRC).
https://www.icaew.com/technical/corporate-governance/codes-and-reports/uk-corporate..
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 In these board members also needs to be trained properly and must be inducted and
developed adequately. It has also been analysed that there needs to be more company
sponsored practical research on governance. Business ethics also needs to be followed
and proper code of conduct related to corporate governance needs to be followed. They
should also measure up the opportunities which is been provided and also risk associated
with it.
 In this the global set of principles has also been implemented by ACCA. In this they need
to be engaged in implementing the global set of financial reporting standards and also the
global code of corporate governance. The auditors must be revised with the strategy of
more transparency. This code of conduct is necessary for the implementation of better
strategies. Auditors also need to be involved in being transparent so that better decisions
can be taken. In this the board must make sure that directors and non executive directors
should have proper information related to expenses of company and where they are being
investing.
 All these code of conduct principles and policies related to corporate governance needs to
be followed by company and board of directors, this is necessary so that better success
can be gained by them. It has also been analysed that all directors and sub directors needs
to be involved in process of decision making, it will help in success of company.
Criminal penalties and large fines need to be implicated in the concealment of
documentation. These procedures must be followed. All these rules and regulations needs
to be followed when taking any major decision of the company. This can assist them in
making better decisions. It has also been analysed that this will assist firm in gaining
success.
 For the corporate governance issues auditors need to be involved in knowing about the
multi-facet implement of every solution. Having in depth knowledge about these
problems can assist them in taking better decisions3.
3 THE UK CORPORATE GOVERNANCE CODE
The first version of the UK Corporate Governance Code (the Code) was published in 1992 by the
Cadbury Committee. It 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 ...
https://www.frc.org.uk/.../2018-UK-Corporate-Governance-Code-FINAL.PDF
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So the board of directors needs to take all these matters into consideration and they must invest
in the things by laying emphasis on all these code of conducts.
Bunge Corp v Tradax Export SA 1981: It is based on English law and there is a right to
terminate the contract. Bunge Corp has sued Tradax export. They sued them as they have given
the supply them with 5000 tonne soya bean by giving the notice four days late. In this case study
Tradax argued this was a breach and purported to terminate and recover damages for the
difference between the contract price and the market price. So according to this case situation
every information must be passed to other person who is been involved in any type of contract.
This can assist them in making sure that company will be able to be successful in future. it was
held that the buyer’s duty to provide sufficient notice of readiness to load was of the essence to
the contract. Indeed, in a strict fob contract a buyer must nominate a vessel from a nominated
port at a time which is reasonably sufficient to enable the seller to perform his part of the
agreement within the shipment period. In this they need to make sure that every information is
been passed and also there is no fraudulent dealing in any such type of cases. The transactions
must be done by following the concepts of corporate governance which is necessary
Prest (Appellant) v Petrodel Resources Limited and others (Respondents): In this case
law Supreme Court has been involved in overturning the appeal related to case and they have
also identified that Mr. Prest has been engaged in beneficially holding the resources of Petrodel
resources Limited company4. This was because they have contributed to their purchase price. In
this there needs to be a situation for implementing the corporate veil. Court has also given the
decision that half of the property needs to be transferred to Mrs. Prest. In this MR. Prest was
asked to avoid any complications which was been associated in the process of divorce. In the
effect of fraud the transactions will become fraud able in certain situation. The case took a U turn
and that the court had made decision that Mr. Prest was been engaged in holding up the assests
of the Petrodel Limited company. In this the individual was been engaged in holding up the
property and their resources in fraudulent way and this court has analysed and given their
decision on the basis of it.
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What Reporting requirements are required in relation to executive remuneration, and what
powers are given to company shareholders to have a “say on pay.
There are various reporting requirements which is been related to executive remuneration.
United Kingdom has set up adequate rules and regulations related to disclosure requirements
taking in-lieu the compensation based on management5. Under the Companies Act 2006 and the
UK Listing Rules, the publically traded company must be listed in on London Stock exchange.
They need to disclose the executive information on company’s annual report. In this they need to
discuss about salary fees, bonus and remuneration which is been given. They also need to
disclose about the long term incentives and plans related to pension. All these needs to be done
and followed by board of directors. In this annual balance sheet and profit and loss statement
also needs to be maintained by the companies. They need to have qualitative description related
to compensation. All these needs to be followed for the executive remuneration. In this the board
of directors needs to be engaged in following the ethical code of conduct and they should also be
transparent and fair when been involved in dealing.
The design of performance-related remuneration for executive directors
In this there is a responsibility of remuneration committee to determine adequate balance
between the performances related immediate and deferred remuneration. In these conditions of
performance and non financial metrics also needs to be taken into account. The incentives related
to remuneration must be based on policies related to risk and also the system which is being
followed by company6. It is the responsibility of remuneration committee to be involved in
making sure whether the directors are eligible for long term incentives or benefits or not. There
is also shared based remuneration which can be opted. In this the incentive schemes which are
long term in nature needs to be approved by share holders. In order to provide the share based
remuneration it is really necessary for committee to check upon where the share holders have
adequate and minimum number of shares with them or not. They should hold on to share for
particular period of time, including the period in which they will tend to leave company. The
grants of share can be appropriate for the long term period and transparency needs to be followed
while granting. In this the remuneration committee is also been provided with the duty to analyse
5 (UK Corporate Governance Code, 2020)
6 (UK Corporate Governance Code, 2020)
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pension consequences, they need to lay emphasis on this and also on specially the directors
which are going to be retired soon.
The disclosure of remuneration in corporate governance United Kingdom has been displaced
at three places. The LR 9.8.6 R, 9.8.7 R and 9.8.7A R and the Code apply to issuers of Premium
listed equity shares only. The disclosure and transparency rules need to be followed by Board of
directors. DTR 7.1.1 R has provided the details that the requirement related to independence and
competence must be related to performing the functions. It needs to be satisfied by the members
who are been involved in the relevant body. The issuer also needs to make sure that the statement
related to remuneration which has been published by them is issued in published and it is been
disclosed properly. The corporate governance statement also needs to be published in director’s
report. It should also have a proper reference to code of corporate governance. DTR 7.2.5 R has
also published that corporate governance statement must contain the features related to
company’s internal risk control and system. In this it is really necessary to make sure that
corporate governance statement needs to be published by medium and large sized companies.
The issuer needs to implement the requirements which are really necessary when disclosing the
remuneration.
Powers are given to company shareholders to have a “say on pay
There are various powers which is been given to share holders on company say on pay. The
share holders have greater power to say upon the managerial remuneration which is been
provided to them. They need to also be engaged in considering share holders when the decision
is been taken by company7. It has also been analyzed that the amount which is been given to
share holders for remuneration should also be disclosed transparently. It has also been evaluated
that all disclosure must be done and proper and ethical code of conduct related to corporate
governance must be followed. It has also been analyzed that if the governance is poor than
company performance can be impacted. They must ensure that proper corporate governance is
been followed and also they need to make sure that proper policies related to same also must be
followed.
7 (Directors I Corporate Governance and Stewardship I UK Corporate Governance Code I
Financial Reporting Council, 2020)
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CONCLUSION
From the above study it has been summarised that the United Kingdom works on various
policies and procedures and code of conduct which needs to be followed by medium and large
size organisation. In this statement the board should disclose about the ways about how they
operate. They also need to mention about decisions which will be solely taken by management.
When the company failed there were reasonable questions which were raised related to corporate
governance practices. It has also been analysed from the report that directors need to be
accountable and transparent in their working. In this they need to discuss about salary fees,
bonus and remuneration which is been given. It has also been analysed that every information
must be properly disclosed and also after considering every director in the board the decision has
to be taken. Company also needs to learn from the failure of other companies. It has assisted
them in gaining success. They should be engaged in implementing more inclusive stakeholder
model and decision must be taken by every stakeholder which is engaged in planning.
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REFERENCES
Books and Journals
Council, F.R., 2017. Proposed revisions to the UK corporate governance code. London: FRC.
Elmagrhi, M.H. and et.al., 2017. Corporate governance and dividend pay-out policy in UK listed
SMEs. International Journal of Accounting & Information Management.
Gorman, L. and Ward, A.M., 2020. The UK Corporate Governance Report (2010).
In Encyclopedia of Sustainable Management (p. 1). Springer Nature.
Klumpes, P. And et.al., 2017. Incentives facing UK-listed companies to comply with the risk
reporting provisions of the UK Corporate Governance Code. British Actuarial
Journal, 22(1), pp.127-152.
Zalata, A. and Roberts, C., 2016. Internal corporate governance and classification shifting
practices: An analysis of UK corporate behavior. Journal of Accounting, Auditing &
Finance, 31(1), pp.51-78.
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