The financial crisis which came to a head in 2008-09 triggered widespread reappraisal, locally and internationally, of the governance systems which might have alleviated it. Many of these reviews are ongoing.
The UK Stewardship Code was published in July 2010. It aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies to which the FRC believe institutional investors should aspire.
The FRC sees the UK Stewardship Code as complementary to the UK Corporate Governance Code for listed companies and, like that code, it should be applied on a ‘comply or explain’ basis.
The UK Stewardship Code is addressed in the first instance to firms who manage assets on behalf of institutional shareholders such as pension funds, insurance companies, investment trusts and other collective investment vehicles. The FRC expects those firms to disclose on their websites how they have applied the Code.
Disclosures made in relation to the Code will assist companies to understand the approach and expectations of their major shareholders. From October 2010 the FRC will list on their website all investors that have published such a statement. The FRC encourages all institutional shareholders to publish by the end of September 2010 a statement on their website of the extent to which they have complied with the Code, and to notify the FRC when they have done so and whenever the statement is updated.
The UK Corporate Governance Code (Code) applies to accounting periods beginning on or after 29 June 2010 and, as a result of the new Listing Regime introduced in April 2010, applies to all companies with a Premium Listing of equity shares regardless of whether they are incorporated in the UK or elsewhere.
The Code is not a rigid set of rules. It consists of principles (main and supporting) and provisions.
Chairmen are encouraged to report personally in their annual statements how the principles relating to the role and effectiveness of the board have been applied.
Smaller listed companies, in particular those new to listing, may judge that some of the provisions are disproportionate or less relevant to their case. Some of the provisions do not apply to companies below the FTSE 350.