UK COMBINED CODE

UK Combined Code of 2003



UK Combined Code of 2003

Introduction

The United Kingdom published in July 2003 the new Code of Practice for Corporate Governance (Combined Code), effective November 1, 2003. The code is the result of extensive consultation with stakeholders led by Derek Higgs who was mandated by the authorities to prepare a study of the effectiveness of non-executive directors.

Like the previous Combined Code of 1998, the new code is based on the terms and principles which constitute a set of recommendations to raise standards of corporate governance and improve the effectiveness of boards and strengthen investor confidence (Armour, 2003). Companies will make a statement of application in their annual reports. Those that do not apply certain recommendations should give reasons (principle of comply or explain).

Requirements of the new code in terms of overall independence of boards have improved considerably: at least 50% of independent directors is now recommended, while the code of 1998 recommended a minimum of one third of non-executive a majority of independents (Becht, 2005). Furthermore, the code includes for the first time a definition of director independence. In addition to criteria commonly used in the definitions of director independence (eg, not having been employed by the company during the last five years, have no family ties with a member of management, does not represent a major shareholder), the code innovates with respect to codes of good practice in other countries by stating that a director is not independent if the seat in the council for over nine years.

Discussion

Other important points can be mentioned: more transparent procedures and stringent requirements for the appointment of directors, the formal evaluation by the board of its performance, strengthening the role of the audit committee and independence of the external auditors, as well as limiting the number of directors' mandates. The role of Corporate Governance or Government called companies, has acquired great importance in recent decades both nationally and internationally (Berle, 2003). The various scandals that have taken place in recent years (Enron, Parmalat, Tyco, WorldCom, Lehman Brothers, Madoff, AIG ...) have generated a growing concern in this area, which has triggered the development of various recommendations and regulations on Corporate Governance are reflected in various reports in the international context. That is why since the nineties has been observed an important trend in the development so-called codes of conduct or best practice worldwide.

The concern for issues within the scope of social responsibility and corporate governance has attracted increasing interest in academia, the which has been reflected in a growing number of publications in this area, trying to address the problem of corporate governance and social responsibility from various prospects (Berle & Means,1932). Not However, other papers posed the question in a more overall, reflecting on the role of corporate governance and the various models implanted in the countries. A comparison between the model Anglo-American corporate system and the German-Latin-Japanese.

This is reflected by the previous review, many authors are interested in impact of the implementation of ...