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The Analysis of Corporate Governance Code and the Stewardship Code of UK

The UK corporate governance code was first established in 1992 by the Cadbury Committee formed especially for this purpose. This is why the UK corporate governance code is also referred to as the Cadbury Code till date. The corporate governance code of UK is a comprehensive code to manage, direct and control the companies in an effective manner.

The corporate governance code of UK covers many aspects varying from the composition of the board of directors to their remuneration and formation of different committees.

A Stewardship Code was also introduced later in order to safeguard the rights of shareholders in a better manner. The main purpose behind the introduction of Stewardship code of UK was to maximise the returns for all the capital providers and stakeholders of the company. This essay analyses whether these codes are effective in achieving their objectives or not. If not, then the reasons will also be analysed.

As stated by the Financial Reporting Council, the corporate governance code of UK is designed in a manner so that it protects the rights of shareholders in specific. The shareholder is the actual owner of the company who holds some common equity shares of the company.

There are several rights of a shareholder to the management that can be exercised at different stages and situations for the company (Council, 2012a; Council, 2012b). Each shareholder has a right to vote in AGM for key decisions of the company and appointment of directors etc.

The shareholders are the actual owners of the company, so their rights are weak in the case company goes bankrupt; these shareholders are paid from the residual amount after the payment to debt holders and preferred stockholders (Council, 2012a; Council, 2012b).

The UK Stewardship code also defines several duties and rights of the shareholders towards the company. The nature of share ownership of the companies listed on London Stock Exchange is public limited or private limited as the shares are owned by either general public or institutional investors (Council, 2012a; Council, 2012b).

As analysed, the UK corporate governance framework has significant value for the shareholders as each and every rule or regulation of the UK corporate governance code is focused on safeguarding the rights of its shareholders. The stewardship code of UK also focuses on the interests of other key stakeholders of the company, but the most important stakeholder is the shareholder of the company.

The legal framework of the UK also states that basic rights of the shareholders must be safeguarded by the management, and the directors’ duty is to ensure that these are being safeguarded, and there is no conflict of interest by directing and controlling management.

While analysing the UK Stewardship Code, one can easily understand that the corporate governance code of the UK is based on “Comply or Explain” rule. It means that the companies need to comply with all the sections of corporate governance code, and if they are not able to comply due to some genuine reason, then they can get the compliance certificate by explaining the reasons to the relevant authorities.

The authorities believe that this rule makes it convenient for companies to seek the compliance (Keay, 2014). However, my personal view on the “Comply or Explain” rule is different, and I look at it as a limitation of the corporate governance code of the UK.

As per my analysis, I believe that in many cases, companies have explained the non-compliance inappropriately or in other words, they have misrepresented the reasons, and the explanation has been accepted by the relevant authorities. Therefore, the companies have achieved the compliance without properly complying with the corporate governance code of the UK.