Corporate Governance: What does this mean for your business?

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Until recently, the phrase “Corporate Governance” was generally banished under the Board room table and was only allowed to emerge if so prompted when a corporate scandal hit the headlines. Remember, Northern Rock, Royal Bank of Scotland, Lehman Brothers, and Bernard Madoff?

Today, the tables have turned and corporate governance is now in the spotlight, (sitting in the middle of the table), following the indignity of the financial crisis experienced in 2008/09.

Corporate governance relates to the functions and application of management control vis-à-vis ownership; the distinction between Board and Shareholders’ responsibilities; and the separation and administration of power.

Good corporate governance primarily stems form internal structures in terms of board responsibilities, membership, appointments, remuneration and other matters specific to the Board. Processes relating to internal controls, financial reporting and controls, policies, corporate strategies, communication, structure and capital and other general business matters require unbiased consideration in order to command an efficient and profitable business.

Following the 2008 financial crisis, the Financial Reporting Council (FRC) ordered a review of the Combined Codes on corporate governance within the financial sector. Sir David Walker’s “Review of Corporate Governance of UK Banking Industry” is recommending greater transparency in the boardroom.

Good governance applies to all business sectors and implementation can positively affect your business’ development, strategic initiatives, long-term competition and profitability.

The following is a summary of some of the recommendations put forward for the revised UK corporate governance regime.

  • Publication of a corporate governance statement;
  • The Chair’s responsibility should be clear;
  • The Chair’s leadership role should be emphasised in terms of setting agenda, and ensuring directors are fully prepared to discharge their obligations;
  • The Chair should agree and review a development programme with and for each director;
  • Directors pro-activity and challenges should be welcomed norms;
  • Directors to be challenged on inability to participate or insufficient strength of character;
  • Non-executive directors (NEDs) to have dedicated information flows, ideally provided by company secretariat, on matters relevant to the business, so that they are ready, able and encouraged to challenge proposals put forward by their executive colleagues;
  • Board appointments should be drawn from a broad talent pool with the full Board representing a relevant balance of skills, experience and independence;
  • Directors should dedicate adequate time to perform their director duties effectively; and
  • Externally facilitated Board evaluation should be conducted every three years.

Be prepared! In 2010, the Company Secretary and effective governance go hand in hand. The Company Secretary should be used to assist the Board in the development and implementation of proposals, policies, best practices and to operate in compliance with the provisions of the Corporate Governance code when introduced later this year.

The Company Secretary plays a vital role in ensuring that the Board as a whole has access to timely and accurate information, building members confidence (particularly new members), recommending independent board evaluation, providing ongoing education to directors in the performance of their duties and many more aspects of Board membership and responsibilities.

Working within a clear governance framework, the Board of Directors can provide entrepreneurial leadership, effective controls and drive corporate performance to a new level of management. 

19 May 2010 

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About Throgmorton:
Throgmorton is one of the leading companies specialising in the provision of financial and administrative outsourcing to the UK SME financial services sector.

The information in this notice is intended for general guidance only. Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.