In ‘The UK Corporate Governance Code’, what issues are addressed within comments included in the preface?
The main issues addressed in the comments included in the preface are related to the benefits received by the society since the beginning of the usage of the Code and the specifics of the tasks and main duties of the boards. Such vital elements of the successful functioning of the board as comprehensive thinking, constructive dialog, the establishment of ethics and culture of the company, and openness are determined.
Why was there a need in the reissued code to include a ‘comply or explain’ section?
A “comply and explain” section was included because of the need to explain the meaning of this basic principle of the Code and determine the specifics of its application under various conditions. This section gives a concise information about the application of the principle in certain situations and demonstrates its flexibility.
What are the dangers and problems associated with dialogues between directors and shareholders?
The dangers and the Code’s problems associated with dialogues between directors and shareholders are related to the low engagement of the latter in communication with the former. Therefore, the Code addresses the reporting requirements aimed at engaging them in dealing with the issues of solvency, liquidity, risk management, executive remuneration, etc.
What are the strengths and weaknesses of the “comply or explain” philosophy?
The main strength of the “comply or explain” philosophy is its flexibility. The principle excludes the possibility of a rigid judgment of the company’s actions, as all companies are free to deviate from the Code as long as they can clearly explain the purpose of such strategy and justify it. Such philosophy takes into account the individual specifics of the companies and gives them an opportunity to adjust the rules to their needs that are warrantable.
The main drawback of the “comply or explain” philosophy is the vague requirements for the explanation part enabling many companies to present unsatisfactory explanations. The lack of sanctions attached to such principle is another disadvantage, as lack of clarity related to the consequences of not following the rules can encourage the companies to ignore them.
Why is it important for the chairman and chief executive to be separate individuals?
The importance of the separation of the roles of the chairman and the chief executive is related to the several factors. The first factor is executive remuneration, as when the chief executive is also the chairman, he/she is voting on his/her compensation. Besides, when the same person holds these two positions, more chances for abuse of the position arise. Several corporate governance scandals in the UK revealed that the separation of the roles of the chairman and the chief executive is crucial to preventing the frauds.
How persuasive are the arguments of EMI for having an executive chairman?
I think that the arguments of EMI for having an executive chairman are not persuasive enough, as many other companies analysed in the survey had the similar structure but managed to avoid the involvement of the chief executive in the chair matters.
In “The revised Combined Code and corporate governance” article, what are the author’s classification of explanations as “acceptable” or “unacceptable”?
The author regards explanations as acceptable if the Board can provide the evidence that though the non-executive in “technically” dependent, he/she is independent in the opinions and judgement. The author regards explanations as unacceptable in cases when the company’s chairperson is also a member of the Remuneration and Audit Committees. I think such classification is rather fair, as it corresponds to the main principles of the code relying on the assumption that the chairperson cannot be included in such committees.
Can non-executives really play a decisive role in company affairs?
The non-executives can play a significant role in company affairs by actively participating in strategic planning and constructively criticising its development and execution. They can contribute to improving the process of decision-making and offer the unbiased suggestions and judgments. However, the decisive role is usually left to the company’s leading institutional shareholders.