“Companies whose standards of corporate governance are high are the more likely to gain the confidence of investors and support for the development of their businesses”.

In order to answer this question, I will discuss about the origins and development of the concept of corporate governance in the UK, evaluate the influence that the Combined Code and earlier Codes of Practice have had upon the conduct and culture of companies in the UK, and the relationship that exists in the UK between the legal rules, and the new Companies Bill/Act (the Companies Act of 1985 which amended by Companies Act of 1989, and the Draft Model Articles of Association).The reason to discuss these to gain the confidence of investors and support for the development of their businesses

Q. The origins and development of the concept of corporate governance in the UK.

Ans.: “Corporate governance is the system by which companies are directed and controlled.” Report of the Committee on the Financial Aspects of Corporate Governance (the UK Cadbury Code), London, 1992.

UnitedKingdom-CorporateGovernance:For the past decade, the United Kingdom has led the worldwide movement toward more effective corporate governance and possesses one of the world’s most developed capital markets and company law regimes. These characteristics of the UK business environment have combined to create a strong governance tradition. Prominent capital markets create incentives for companies to develop strong governance practices by rewarding and well-governed companies.

The Corporate Governance guidelines and codes of best practice arise in the context that differing national frameworks of law, regulation and stock exchange listing rules, and differing societal values. There is no single agreed system of good governance.

The Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance provides the framework for the work of IFC, identifying the key practical issues and the Company law creates the baseline rules, which define the relationships between various constituencies in the corporate structure like directors, management, shareholders, employees and the responsibilities of the Board of Directors. The OECD Principles are universally applicable good corporate governance contributes sustainable economic development.

Corporate Governance Matters for IFC Clients:

Improving access to capital: It is important to increase all capital flows to the companies in UK, from domestic and global capital, equity and debt, and from public securities markets and other private capital sources.

Improving performance

Corporate Governance Matters for IFC:

Adding value: IFC add value to clients to the benefits for individual client companies to improve corporate governance more broadly. And it’s mission to promote sustainable private sector investment in developing countries.

Reducing investment risk: It is possible by improving the governance of investor of the companies. IFC works also in the worst corporate governance environments, poor standards and weak enforcement to attract more investors and to increase valuation of companies in the market.

Avoiding reputation risk: IFC takes on not only investment risk, but also a reputation risk. The reputation risk is particularly serious while stakeholders and equity investors stand to lose from governance abuses, like banks and insurance companies.

Developing capital markets: IFC contributes to improving corporate governance to the development of the public and private capital markets. Most recently, poor corporate governance contributed to the spread of corruption and fraud that led to the dramatic corporate failures in US and Western Europe

IFC’s Comparative Advantage in Corporate Governance:

#IFC’s experience: IFC has worked on the key issues of the corporate governance at the grass-roots level for decades structuring client companies, nominating Board members, and appraising investment opportunities, although the term corporate governance has only become widely used in recent years. These practical experiences allow IFC to tailor global principles to the realities of the private sector in developing countries. Development banks and investors working in emerging markets now look to IFC for leadership on corporate governance issues in developing countries.

#Global leaderships: IFC plays a leading role in the global policy dialogue on corporate governance. It provides technical assistance to regulators, stock markets and others. IFC manages a set of large donor-funded technical assistance projects for Soviet Union, China, the Middle East and elsewhere. It co-sponsored the OECD Roundtables in Latin America, Eastern Europe and helped establish networks of Institutes of Directors in East Asia, Central and Eastern Europe, and Latin America.


Recent developments, typically a broad review which will discuss and to make proposals on key areas of corporate governance and ensure that improving that will be a continual focus of the UK’s legal and business communities. UK institutional investors have supported the UK corporate governance landscape. The attention that important UK investors have paid to the governance practices in which they invest has both influenced the UK’s notions of good governance and extended those ideas to foreign investments as well.

This article describes the key features of corporate governance in the UK as of June 2000 contained in the Combined Code, most recent significant corporate governance code, key aspects of preceding codes where they differ from the Combined Code, endeavours to point out important aspects of UK company law, and looks forward to the likely future of British company law.Q.Evaluate the influence that the Combined Code and earlier Codes of Practice have had upon the conduct and culture of companies in the UK.


In order to evaluate these issues it is necessary to have a clear knowledge about Combined Code and earlier code of practice, relation between them, and the conduct and culture of companies in the UK. In the March 2005 White Paper, Company Law Reform (Cm 6456), and in June 2006, the Draft Model Articles of Association for Public Companies were published to certain the conduct and culture of companies in the UK.

A company is committed to conducting business with honesty and integrity, and the conduct of every employee is vital in achieving their goal. The Code of Conduct provides an appropriate guideline for employees of the company. And it provides a framework within which employees can address ethical issues which may arise through the regular business of the company, includes compliance with legislative and industrial obligations but not intended to cover all issues. It concern about ability in a diligent, impartial and conscientious manner.

Board Responsibilities:

Mainly governance guidelines and codes of best practice assert that the board assumes responsibility for the stewardship of the corporation and that board responsibilities are separate and distinct from management responsibilities. Guidelines and codes differ in the level of detail with the board’s role. For example, France’s Vienot Report, Canada’s Dey Report, Malaysia’s Report on Corporate Governance, Exchange Code all specifies the following board functions:

#Strategic planning, #Risk identification and management, #Succession planning, #Communication with shareholders,# Integrity of financial controls, and #General legal compliance.

The Combined Code and earlier Codes of Practice:

Combined Code consists of a preamble, set of principles of good corporate governance (Code principles) and a code of best practice (Code provisions). Both are divided into two sections. One is pertaining to companies and one is pertaining to institutional shareholders. The Combined Code, synthesis of the principles and recommendations of the Cadbury, Hampel and Greenbury reports. It also makes several important advances on the preceding body of UK corporate governance codes.

Those involved in the UK’s Company Law Review have recognized the value of corporate governance codes. The Combined Code strengthens the enforcement role of the capital markets by providing investors with sufficient information and to take appropriate action. This market enforcement has advantages and disadvantages over those associated with legislation. It allows the special circumstances of individual companies to be taken into account and resulting in appropriate responses by the market instead of inflexible legal responses likely to be prompted by legislation.

Principles of Good Governance and Code of Best Practice, most recently the London Stock Exchange committee on corporate governance issued it. And it compiled corporate governance principles from preceding codes and included new standards of corporate governance best practice.

Like the Cadbury Code before it, the Combined Code has been linked to the London Stock Exchange (LSE). The Combined Code has been appended to the listing rules. The listing rules themselves were amended to require every listed of the company to disclose in its annual report how it has applied the Combined Code’s principles and whether it has complied with its specificcode provisions.

The variations in societal values lead different nation to view the corporate aim or mission in different ways. In the Anglo-Saxon nations (Australia, the UK, Canada, and the US), maximising the value of the owners’ investment is considered the principal objective, governance guidelines and codes tend to emphasise. The duty of the board is to represent shareholders’ interests and maximise shareholder value.

Codes v legislation:

As the UK while its governance disclosure requirements and its relationship to the LSE’s listing rules make it very influential. The Combined Code does not provide any legal enforcement mechanism or even assign any liability. Only statutory or common law can serve authoritative sources of governance requirements.

There has various views on corporate governance is related to the different cultural contexts, intellectual backgrounds and interests of scholars. For example, workers in the field come from different academic disciplines. Here is frequently small, or incomplete, integration between the various disciplines. These overlap of corporate governance with other disciplines is rarely articulated or recognised. To provide an overview of the topic, some examples are considered and indicate different viewpoints.

UK scholars developed the theory of the company during the height of the ideological contest between capitalism and communism. It would have been unpatriotic to entertain the possibility that markets were not the natural order. The failure of communism has reinforced the control of market ideology with widespread political interest in privatisation based on the UK model of a firm.

The committee was established to control damage initiative by the City of London some high profile failures of publicly traded corporations. For seek scope of the inquiry into ‘The Financial Aspects of Corporate Governance’ was created the committee chaired by Sir Adrian Cadbury (1992). Owners and others concerned directors in the affairs of the company, including creditors, debt financiers, analysts, auditors and corporate regulators have wider concerns reflect the audience for company financial reports.

The problem is illustrated for the more likely to gain the confidence of investors and support for the development of their businesses to the people by their reference who sink the capital. These are; Subscribing new shares by investors, shareholders purchase existing shares from others, and bankers who lend money and so on.

Q. The relationship that exists in the UK between the legal rules that govern directors’ duties and the principles of corporate governance, and reflect upon the extent to which the new Companies Bill/Act appears to reflect the philosophy underpinning the precepts of Corporate Governance:


Most of the British company law is contained in the Companies Act of 1985, which amended, by Companies Act of 1989. In March 1998, the UK Department of Trade and Industry introduced an important initiative to identifying and addressing problems. In March 2000, the steering group of the Company Law Review published and analyzed a consultative paper to represent proposals the possible future of British company law and potential new development. In June 2006, the Draft Model Articles of Association for Public Companies were published to certain the conduct and culture of companies in the UK.

These Draft Model Articles is only a first draft. Though the public company articles are essentially longer and more complex than the model articles for private companies limited by shares, every effort has been made to draft the public company articles, as far as possible, in clear and simple language which those investing in and managing public companies will be readily able to understand without legal advice.

At present, model articles are prescribed for all companies limited by shares in contained in the Companies Regulations 1985. If a company limited by shares has not registered articles of its own devising with the registrar of companies, or if it has registered articles, but they do not exclude all the provisions. Section 35 of Company Act 1985 certain the duty of directors and others.

The Board of Directors:

The board of directors should have full and effective control over the company, power to monitor the executive management and lead the company. He will arrange an effective board, including regular meetings, a formal schedule of matters for decision, adequate training of new directors key appointments, and standards of conduct.

 General duties of directors:

# must comply company’s constitution and by-laws,# run for benefit of the company,# maintain independence of judgment,# to avoid profiting personally and to avoid conflicts, and# take reasonable care and skill in exercising all their functions.

Chairman and CEO:

There should be a clearly accepted division of responsibilities at the head of the company to ensure a balance of power and a public justification for this decision and identified in the company’s annual report. In its Company Law Review the steering group has echoed the need for separation of these top two corporate responsibilities.

Non-executive directors:

The review states that non-executive directors have two key functions:

# evaluating company stretchy from a dispassionate viewpoint; and

# monitoring the performance of the company’s management and if necessary, it’s seeking their removal from office.

Financial reporting:

The role of the board is in overseeing management, internal auditors and external auditors in the financial reporting to maintaining high quality financial reporting. And this process has become one of the most widely discussed issues of corporate governance in the UK, as elsewhere. The CR states that the annual audit is one of the cornerstones of corporate governance.

UK company law has balanced companies’ freedom to make their own rules for 150 years, by providing model articles in legislation. It is not essential for a company is obliged to adopt the provisions of these model articles, but they provide useful guidance and, in some cases. The Draft Model Articles of Association for Public Companies provides directors’ powers and responsibilities, delegation of directors’ powers and responsibilities, decision-making by directors, calling directors’ meetings, appointment of directors, and termination of director’s appointment. It also provides restrictions on members’ rights, shares not held in certificated form and forfeiture of rules and regulation of the company.

The Bill does not change the principle of model articles. It does give the Secretary of State power (in clause 19) to make regulations prescribing model articles for different descriptions of company.


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