The UK Corporate Governance Code Coursework Example | Topics and Well Written Essays - 2750 words

The UK Corporate Governance Code - Coursework Example From the research it can be comprehended that 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 governance 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. The board’s actions are subject to laws, regulations and the shareholders in general meeting. The Code guides the board towards more effective practice. Its underlying principles are all those of good governance, they include accountability, transparency, probity and focus on the steady success of an entity over long term. The code is continuously changing to incorporate the alterati ons in the socio-economic environment. It has been reviewed in 2005, 2007 and 2010 in the recent past. The new code applies to the accounting periods beginning on or after 29 June 2010 and is applied to all the companies whether they are incorporated in UK or not. The approach that is followed since the beginning of the Code is to comply with it or explain why it is not being followed. It is referred to as â€Å"Comply or Explain†. ... According to the latest report on UK Corporate Governance Code by the FRC, the main principles for The Code are: Leadership. The board should be led by an effectively. The responsibility of heading the board by the Non-executive directors and the responsibility of heading the company’s operations by the executive directors should be equally divided. The Chairman is the head of the board as a whole whereas the executive directors are also led by the Chief Executive Officer (CEO) of the Company. The Chairman is responsible for the effective functionality of the board. He is responsible for ensuring the clear and efficient flow of information between the shareholders and the board. As per new reforms passed in 2011, female directors will also be introduced into the board structure (FRC, Consultation Document 2011). The board of directors has the power to hire fire and compensate senior management. Their purpose is to resolve the issues, specially relating to conflicts of interest s, between the decision makers and the risk bearers. Their control resolves the issue of high agency costs and facilitates the existence of an open corporation. Recent economic theory implies that the balanced structure of the board of directors is a crucial part of good governance (Baysinger, Butler, 1985). According to agency theory, shareholders interests are better protected if there is segregation between the duties of CEO and the Chairman. Where as, stewardship theory argues that the shareholders interests are maximized if both the roles are entitled to the same person. According to the author, a few test results show that stewardship theory is supported more than the agent theory (Donaldson, Davis 1991).