Governance in the UK
UK shareholders enjoy more rights than investors in many other jurisdictions. There is a universal one-share, one-vote standard, shareholders may put forward their own resolutions and nominate candidates at annual general shareholder meetings (AGMs).
In general, shareholders can mainly exercise their influence through the AGM - shareholders in the UK may themselves convene AGMs.
The rights of shareholders in the UK are detailed in many different areas, including provisions of the Companies Act 2006, in each individual company’s articles of association, in the terms of issue of the shares, and in any shareholders’ agreements.
Standard rights of shareholders are:
- to attend general meetings
- to vote at general meetings
- preemptive rights over new share issues
- to themselves convene AGMs
- to remove directors with a simple majority vote (which is in contrast to practices in many other countries)
- to a share in the company’s profits
- to receive a final distribution on the winding up of the company
- to receive a copy of the company’s annual accounts
Shareholders have played a crucial role in driving forward changes in remuneration reporting. legislation has recently been passed which gives shareholders the responsibility of reviewing and approving, by a binding shareholder vote, on a listed copmany’s remuneration policy at least every three years. As such, shareholders will have much more power to hold companies and directors to account.
Boards of Directors
Having evolved over a long period of time, the UK Corporate governance system is complex, involving many different sets of requirements, which cover behaviours of company leadership as well as reporting requirements. The UK has become known as a leader in the "comply or explain" corporate governance regime – which means that which companies can follow by either complying with the provisions or explaining why they have not complied in the annual report.
The key players are shareholders, the board of directors including sub-committees, and regulators. Together they inform how corporate governance is interpreted and applied in the UK.
Beginning with the Cadbury Code in 1992, these recommendations have been added to at regular intervals since that date. In 1995 the Greenbury Report set out recommendations on the remuneration of directors. In 1998 the Cadbury and Greenbury Reports were brought together by the Hampel Report and the Combined Code was issued. In 1999 the Turnbull Guidance on internal control was issued for directors. Following the Enron and WorldCom scandals the Combined Code was updated in 2003 to include the recommendations of the Higgs Report on non-executive directors and the Smith Report on audit committees. Further small amendments have been made to the Combined Code in 2006 and 2008, but the "comply or explain" regime has been retained throughout.
Now, governance for listed entities is largely covered by the UK Corporate Governance Code (“the Code”, recently revised September 2012), though reporting requirements for listed entities are covered by a multitude of different documents including:
UK Listing Authority Rules (“Listing Rules”)
Revised Guidance for Directors on Internal Control (formerly the “Turnbull” Guidance)
the Guidance on Audit Committees (“the Guidance”)
The primary source of company legislation in the UK is the Companies Act 2006. The Companies Act broadly covers laws around company accounts, director’s duties and responsibilities and shareholder rights.