Essentials of Corporate Governance

Appendix A. Guide to the Combined Code on Corporate Governance and its Similarities to Corporate Governance in the American Model

The Combined Code on Corporate Governance (2003) is a U.K. code that came into effect in late 2003. One of the most important factors of this code is that it operates on the principle of “if not, why not?” This principle is a statement of understanding that the code will be applied in all situations, except those where departure can be reasonably explained.

Code Of Best Practice

Section 1 Companies

Directors

The Board

This section of the code dictates the importance of establishing a board and lays out members’ general obligations and duties, which include:

• Regular meetings of all board members

• Regular meetings between the chairperson and the nonexecutive directors

• Publishing of an annual report

• The taking of meeting minutes

• Obtaining insurance for board members

Indemnities, although an attractive addition to compensation plans, are not a necessary component in the U.S. corporate structure. In fact, there is some argument that their inclusion could reduce the effectiveness of the fiduciary duties of board members.

The Chairman and Chief Executive

This section of the code mandates that the powers of chairperson and chief executive be held by two individuals. It further stipulates that the chairperson should meet the criteria of independence outlined in A.3.

Board Balance and Independence

This section states that the board should be balanced between executive and nonexecutive ...