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Shareholders responsibilities:
The chairman should ensure effective communication with
shareholders joining the board directors should avail themselves of
opportunities to meet major shareholders. The chairman of the
board should ensure that the company maintains contact as required
with its principal shareholders about remuneration. There should be
a dialogue with shareholders based on the mutual understanding of
objectives. The board as a whole has responsibility for ensuring that
a satisfactory dialogue with shareholders takes place.
The chairman should ensure that the views of shareholders are communicated to the board as a
whole. The chairman should also discuss governance and strategy with major shareholders. Non-
executive directors should be offered the opportunity to attend scheduled meetings with major
shareholders and should expect to attend meetings if requested by major shareholders. The senior
independent director should attend sufficient meetings with a range of major shareholders to listen
to their views in order to help develop a balanced understanding of the issues and concerns of
major shareholders.
12. Corporate control:
The UK Corporate Governance, the board of a listed company should establish procedures to
manage risk, oversee the internal control framework, and determine the nature and extent of the
principal risks the company is willing to take in order to achieve its long-term strategic objectives.
The UK Corporate Governance Code also states that the audit committee should review the
company's internal financial controls and internal control and risk management systems, unless
expressly addressed by a separate board risk committee composed of independent directors, or by
the board itself.
The Disclosure Guidance and Transparency Rules sourcebook (DTRs) requires listed companies
to provide a description of their internal control and risk management systems in their corporate
governance statements.
Further guidance is given in the Financial Reporting Council's (FRC's) Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting and its Guidance on
Audit Committees.
13. Issuance of new shares:
Deciding on a share issue before starting to allot shares, take a final look at the reasons why you
want to issue shares and make sure you’re comfortable with them. It’s possible, for example, that
you might be able to achieve the same business objectives without raising funds. If money is tight
in the short term but beyond that the business is likely to be profitable, are there actions that can
be taken to avoid the need to raise funds? For example, you might consider deferring some costs
until later, reviewing payment terms and chasing those who already owe the business money.
Even if a capital injection is required, however, give serious thought to whether an allotment of
shares is the right way to go particularly if doing so will mean giving up a level of control. You
might look at alternatives such as:
Bank loans
Use of an overdraft facility
Loans from the directors
Borrowing against assets
Sale and lease back of assets or other equipment
Companies will issue further shares in an existing share class. If new shares are to have different
voting or other rights to existing shares, they will need to form a new class of shares. Before
continuing with the issue of shares, there are several such legal areas that need to be investigated.
The directors may refuse to register the transfer of a share which is not fully paid to a person of
whom they do not approve and they may refuse to register the transfer of a share on which the
company has a lien. They may also refuse to register a transfer unless:
(a) It is lodged at the office or at such other place as the directors may appoint and is accompanied
by the certificate for the shares to which it relates and such other evidence as the directors may
reasonably require to show the right of the transferor to make the transfer.
(b) It is in respect of only one class of shares.
If a vendor wanted to transfer the beneficial ownership of shares they need not execute a transfer.
this is not an ideal solution to overcome these transfer restrictions, the purchaser of the beneficial
ownership would have entitlement to future dividends and sales proceeds just as they would if
their name was on the Register of Members.
The CPO is confirmed, the purchasing authority must serve a Notice to Treat within three years,
and a Notice of Entry within a further three years. It may take possession of the land not less than
14 days after serving the Notice of Entry. The Notice to Treat requires the land's owner to respond,
and is usually the trigger for the land's owner to submit a claim for its value. If no claim is
submitted within 21 days of the Notice to treat, the acquirer can refer the matter to the Lands
Tribunal. If the land's owner cannot be traced and does not respond to a Notice to treat affixed to
the land, then the purchasing authority must pay the compensation figure to the Court.
All directors must act in what they consider to be the best interests of the company, consistent with
their statutory duties. The annual report should include a statement of how the board operates,
including a high level statement of which types of decisions are to be taken by the board and which
are to be delegated by to management.
As part of their role as members of a unitary board, non-executive directors should constructively
challenge and help develop proposals on strategy.
If no action is taken by the board UK law essentially leaves it to private parties to take any action
against the miscreants. The parties who can take action are the shareholders of the miscreant
director’s company, and they must do so pursuant to a derivative action. This might be seen as the
primary private enforcement mechanism used in the UK when directors commit breaches. This is
in line with the UK’s general approach to fostering a private rather than a public approach to
corporate governance. It appears that there have been relatively few derivative actions commenced
by shareholders, probably because of the many disincentives that confront shareholders. Given
this state of affairs the aim of this paper is to investigate whether there is a need for the public
enforcement of duties so that there is an enhancement of corporate governance in the UK. This
then leads to us asking whether it is feasible and desirable to grant powers to a public authority to
take enforcement action in appropriate cases.
The UK Corporate Governance Code sets out its own view of the duties of the board. This can be
summarized as:
Setting strategy.
Ensuring the human and financial resources are available to achieve objectives.
The chairman
The chairman leads the board, sets its agenda and ensures it is an effective working group at the
head of the company. He must promote a culture of openness and debate and is responsible for
effective communication with shareholders but note the role of the senior independent director as
well. And he must ensure that all board members receive accurate, timely and clear information.
The chairman may not always be a part-time non-executive: many are full time and describe
themselves as executive chairman, but the roles of chairman and CEO are at least distinct. In
addition to the responsibilities described above, the chairman ensures there is a good working
relationship between the executive and non-executive directors and sufficient time to discuss
strategic issues.
Scrutiny of management’s performance in meeting agreed goals and objectives and the
The non-executive directors should convene regularly, as a body, with the chairman, but without
their executive colleagues and at least once a year they should meet on their own under the
leadership of the senior independent director to appraise the chairman’s performance.
Non-executives who are independent and those who are not. To qualify for the former category,
an individual must not only have the necessary independence of character and judgment but also
be free of any connections that may lead to conflicts of interest.
They have been an employee of the group within the previous five years.
They have a ‘material business relationship’ with the company or have had one within the
participate in the company’s share option or performance-related pay schemes or they are
members of the pension scheme.
They have close family ties with any of the company’s advisers, directors or senior
employees.
They hold cross-directorships or have significant links with other directors through
The constitution may authorize directors to delegate the exercise of their powers to a committee
consisting of one or more directors, or to a managing director, or other executive director.
However, this does not absolve directors of all their responsibility for the management of the
company. The company may also appoint others to act or undertake particular actions (company
employees) or to undertake a wide class of activities (persons employed as managers). However,
this does not relieve the directors of their ultimate responsibility. Practical considerations on
internal governance may vary according to the characteristics of the company. Directors of smaller
companies may be more fully involved in day-to-day activities than those of larger companies and
so may not delegate substantial functions to the same extent.
Collective responsibility
Director’s powers are given to them collectively as a board and must generally, subject to any
proper delegation be exercised by the board, as a whole. Directors therefore have a collective
responsibility to manage the company.
The board should include an appropriate combination of executive and nonexecutive directors
(and, in particular, independent non-executive directors) such that no individual or small group of
individuals can dominate the board’s decision taking. Except for smaller companies, at least half
the board, excluding the chairman, should comprise non-executive directors determined by the
board to be independent. A smaller company should have at least two independent non-executive
directors.
Gives an impact about the independency of board in the United Kingdom although it is not directly
comparable with the data of the United States. It reveals that about 80 % of the non-executive
directors of the top 50 companies in UK are independent. Comparing the construction industry
with the top 50 the absolute number of directors attracts attention.
Board size Board size is considered to be a crucial characteristic of the board structure. Large
boards could provide the diversity that would help companies to secure critical resources
and reduce environmental uncertainties. As an extra member is included in the board, a potential
trade-off exists between diversity and coordination. Jenson appears to support Lipton and Lurch
who recommend a number of board members between seven and eight. Board size
recommendations tend to be industry-specific, since Adams and Mehran.
Yermack (1996) finds an inverse relationship between board size and firm value; in addition,
financial ratios related to profitability and operating efficiency also appear to decline as board size
grows. Finally, Connelly fined that board size does not have any relation with firm performance.
Board composition
Fame and Jensen suggest that non-executive directors can play an important role in the effective
resolution of agency problems and their presence on the board can lead to more effective decision-
making.Non-executive directors have been effective in monitoring managers and protecting the
interests of shareholders, resulting in a positive impact on performance, stock returns, credit
ratings, auditing, find that the percentage of outside directors is positively related to the
performance of Belgian firms. high proportion of non-executive directors may engulf the
company in excessive monitoring, be harmful to companies as they may stifle strategic actions,
lack real independence, and lack the business knowledge to be truly effective.
The board should assess the basis on which the company generates and preserves value over the
long-term. It should describe in the annual report how opportunities and risks to the future success
of the business have been considered and addressed, the sustainability of the company’s business
model and how its governance contributes to the delivery of its strategy.
The board should keep engagement mechanisms under review so that they remain effective.
For engagement with the workforce or a combination of the following methods should be used:
If the board has not chosen one or more of these methods, it should explain what alternative
arrangements are in place and why it considers that they are effective.
Remuneration
Audit
Nomination
The development of the UK Corporate Governance Code banks and other financial institutions
will usually also have a risk committee.
All of these committees should have terms of reference, and these should be publicly available
(usually on the company’s website).
The board may appoint further committees as necessary, either on a continuing basis to deal with
ongoing matters (for example, treasury or compliance) or ad hoc to deal with a particular
acquisition or matter of strategy. Many companies will have an executive committee made up of
the chief executive and those who report directly to him or her but excluding the chairman and the
non-executives. It may meet monthly or weekly and will have daily executive responsibility for
the company’s affairs.
27. Remuneration of Directors:
The board should establish a remuneration committee of independent non-executive directors, with
a minimum membership of three, or in the case of smaller companies, the chair of the board can
only be a member if they were independent on appointment and cannot chair the committee. Before
appointment as chair of the remuneration committee, the appointee should have served on a
remuneration committee for at least 12 months.
The remuneration of non-executive directors should be determined in accordance with the Articles
of Association or, alternatively, by the board. Levels of remuneration for the chair and all non-
executive directors should reflect the time commitment and responsibilities of the role.
Remuneration for all non-executive directors should not include share options or other
performance-related elements.
Where a remuneration consultant is appointed, this should be the responsibility of the remuneration
committee. The consultant should be identified in the annual report alongside a statement about
any other connection it has with the company or individual directors. Independent judgment should
be exercised when evaluating the advice of external third parties and when receiving views from
executive directors.
The remuneration committee should have delegated responsibility for determining the policy for
executive director remuneration and setting remuneration for the chair, executive directors and
senior management it should review workforce remuneration and related policies and the
alignment of incentives and rewards with culture, taking these into account when setting the policy
for executive director remuneration.
When determining executive director remuneration policy and practices, the remuneration
committee should address the following:
giving directors an exemption from any liability to the company and an indemnity against
The giving of exemptions is banned by the Companies Act, and indemnities are restricted;
insurance policies need to be carefully read to ensure they cover the desired risks.
Indemnities
A company can indemnify its directors against personal liability so long as the indemnity does not
cover:
Liability to the company in cases where the company sues the director only liability to third
in civil cases brought by the company where the final judgment goes against the director.
A company may provide in its articles of incorporation that a director does not have monetary
liability to the company for breaches of the fiduciary duty of care, e.g. simple
negligence. Exculpation may not be provided, however, for certain extreme misconduct, such
as breaches of the fiduciary duty of loyalty, bad faith conduct, intentional misconduct or
violations of law, or transactions where the director derives an improper personal benefit.
The particular advantage of exculpation is that it allows the director to file a motion to dismiss
litigation in the preliminary stages of the case, before extensive discovery is done. But
exculpation has limitations that cannot be eliminated by corporate action:
As officers have a direct management role in the day-to-day operation of a company compared
to the more detached oversight role of directors, exculpation is seen to be inappropriate for
officers as a matter of policy.
There are some federal cases viewing state law exculpation as an affirmative defense to be
argued later in the case, rather than a reason to dismiss the case in its first stages, and so the
prospect of avoiding the time, effort and expense of litigation is diminished. Some state courts
also express varying degrees of hesitation to allow for exculpation, by itself, to dismiss an
action, even when applying a clear statutory provision on the issue.