UK Regulatory Framework for Corporate Governance Dissertation

UK Regulatory Framework for Corporate Governance - Dissertation Example They have to rely on the directors’ judgement in running the company. If the information were freely available to all the firm’s stakeholders at the same time, there wouldn’t have been a need for corporate governance. Therefore, the need of corporate governance has arisen in order to facilitate an effective, prudent and entrepreneurial management, which can deliver long run success of the firm (FRC, 2010, p.1). It is a mechanism as to how the vision and values of the firm are set by the board of the firm distinguished from the regular operational management of the firm by its executives. Corporate governance defines the relationship between various stakeholders such as shareholders, directors, management, employees, creditors, suppliers, customers, government, and regulators, and ensures accountability, integrity and transparency (Mead & Sagar, 2006, p.334). 1.1.1 Aims & Objectives This paper aims to explain the effectiveness of the corporate governance framework by which UK companies are regulated. The effectiveness of the corporate governance practices has been analyzed through the understanding the development of UK’s Combined Code on corporate governance. 1.1.2 Scope of the Paper In order to achieve this paper’s aims and objectives, guidelines of FRC over the Combined Code has been carefully analyzed. The analysis of the effectiveness of corporate governance code has been done on the basis of research papers previously published in the related field. The first section of the paper reviews the literature explaining UK corporate governance code, development of the corporate governance code and practices since 1992, and link between audit assurance and corporate governance. The second section presents the research methodology. The third section presents the findings on the effectiveness of the evolved combined code of corporate governance. This followed by the discussion and conclusion. 2 Chapter 2 2.1 Literature Review 2.1.1 Corporate Governance Codes The Corporate Governance Code in UK is founded on ‘comply or explain’ approach (FRC, 2010, p.4). The approach requires that the companies should comply with the Code and if it is unable to comply with any particular aspect of the Code then it should explain in its financial disclosures. The approach is widely accepted and appreciated by the corporations. The Code does not provide rigid rules but consists of principles and provisions. Compliance with the principles and reporting the same to the shareholders is required under the Listing Rules. The principles given in the Code are as follows: Leadership: Every Company should have an effective board that is collectively responsible for the success of the company. Responsibilities of running the board and running the company’s operations should be clearly defined and divided. The powers of decision should not be fettered to single person. The chairman of the board is responsible for leadin g the board and for oversight of the workings of management. The non-executive board members should challenge and assist develop the proposals on