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Corporate Governance

Quoting http://www.lexology.com……….  “In November 2010, the Institute of Directors (loD) and the European Confederation of Directors’ Associations (ecoDa) published “Corporate Governance Guidance and Principles for Unlisted Companies in the UK”.  The UK Guidance is based on pan-European guidance published by ecoDa in March 2010.  The Guidance is applicable on a voluntary basis and is intended to provide practical advice to unlisted UK companies (such as founder and family-owned businesses) that wish to establish an effective corporate governance framework. 

The Guidance sets out 14 principles of good governance for unlisted UK companies taking into account the size, complexity and level of maturity of individual businesses.”  As head of Lanyon Bowdler’s Company/Commercial Department, I have studied the Guidance in some depth, and can sumarise the key principles as follows:

Principle 1: Shareholders should establish an appropriate constitutional and governance framework for their company.

Principle 2: Every company should strive to establish an effective board, which is collectively responsible for the long term success of the company, including the definition of the corporate strategy.

Principle 3: The size and composition of the board should reflect the scale and complexity of the company’s activities.

Principle 4: The board should meet sufficiently regularly to discharge its duties and be supplied in a timely manner with appropriate information.

Principle 5: Levels of remuneration should be sufficient to attract, retain, and motivate executives and non executives of the quality required to run the company successfully.

Principle 6: The board is responsible for risk oversight and should maintain a sound system of internal control to safeguard shareholder’s investment and the company’s assets.

Principle 7: There should be a dialogue between the board and the shareholders based on the mutual understanding of objectives.   The board as a whole has responsibility for ensuring that a satisfactory dialogue between shareholders takes place.   The board should not forget that all shareholders have to be treated equally.  

Principle 8: All directors should receive induction on joining the board and should regularly up date and refresh their skills and knowledge.

Principle 9: Family controlled companies should establish family governance mechanisms that promote coordination and mutual understanding amongst family members, as well as organising a relationship between family governance and corporate governance.

Principle 10: There should be a clear division of responsibilities at the head of the company between the running of the board and the running of the company’s business.    No one individual should have unfettered powers of decision.

Principle 11: Board structures vary according to business requirements and business norms.   However, all boards should contain directors with a sufficient mix of competencies and experiences.   No single person (or small group of individuals) should dominant the board’s decision making.

Principle 12: The board should establish appropriate board committees in order to allow a more effective discharge of its duties.

Principle 13: The board should undertake a periodic appraisal of its own performance and that of each individual director.

Principle 14: The board should present a balanced and understandable assessment of the company’s position and prospects for external shareholders and establish a suitable programme of stakeholder engagement.

For more information or a copy of the Guidance you can contact me on 01952 211046 (email richard.murrall@lblaw.co.uk) or contact Ruth James on 01952 211008 (email ruth.james@lblaw.co.uk).