Corporate Governance — Structures and Roles
What Is Corporate Governance?
Corporate governance refers to the systems that direct and control companies. It:
- Balances the interests and requirements of different stakeholders
- Ensures long-term company success
- Holds management accountable to shareholders and wider society
Key Governance Structures
Board of Directors
- Manage most companies day-to-day
- Appointed and re-elected by shareholders at the AGM
- Consist of a chairman and several executive and non-executive directors
Auditors
- External auditors are independent and appointed by shareholders at the AGM
- Large companies may have internal auditors checking compliance with control procedures
- Ensure financial statements are prepared in accordance with legal and regulatory frameworks and give a true and fair view
Remuneration Committee
- Recommends and reviews salary and benefits of senior management
- Ensures remuneration policy fits short- and medium-term business plans
- Recommends the level and structure of remuneration
Corporate Social Responsibility (CSR)
Obligations to staff and environment; policies covering:
- Environment
- Responsible product sourcing
- Workplace conditions for employees
- Supporting the local community
Regulatory Bodies
| Body | Role |
|---|
| Financial Reporting Council (FRC) | Independent statutory regulator; promotes business transparency and integrity; sets UK framework for corporate governance; publishes, monitors and enforces codes and standards; monitors financial statements and audit quality |
| Department for Business, Energy and Industrial Strategy (DBEIS) | Government support for productivity and competitiveness; assists businesses seeking finance and preparing business plans; interacts with Companies House |
Ethical Test Elements
When making business decisions, three ethical tests should be applied:
- Transparency — would you be comfortable if this decision were made public?
- Effect — who is affected by this decision, and how?
- Fairness — would a reasonable person consider this decision to be fair?
Code of Ethical Conduct
An organisation's code of ethical conduct provides guidance for making decisions compatible with the organisation's values. For a code to be effective:
- It must be promoted and championed throughout the organisation
- Managers and staff at all levels must have necessary training and support
- The code must be supported by disciplinary and whistle-blowing/speak-up procedures
- The 'tone at the top' must permeate through the organisation — the code must be owned by everyone