The UK Corporate Governance Code: Directors’ Duties

13 December 2016
In the aftermath of headlines involving large corporate brands such as BHS, Sports Direct and HBOS it has never been more important to take a look at your corporate governance.

In the aftermath of headlines involving large corporate brands such as BHS, Sports Direct and HBOS it has never been more important to take a look at your corporate governance. These companies have highlighted the importance of good governance and how the UK Corporate Governance Code (the “Code”) can be a great asset to all companies not just those to which its application is mandatory.

The Code

The Code is a set principles of good corporate governance aimed at companies listed on the London Stock Exchange but has equal benefit to non-listed companies. It is overseen by the Financial Reporting Council and its importance derives from the Financial Conduct Authority’s Listing Rules given authority by the Financial Services and Markets Act 2000. The Code sets out standards of best practice in relation to leadership, effectiveness, accountability, remuneration and relations with shareholders.

One of the areas which the Code focuses on is the effectiveness of the board which is collectively responsible for the long-term success of the company. The board must act in what they consider to be the best interests of the company, consistent with their statutory duties under the Companies Act 2006. The statutory duties apply to all companies regardless of their size. The general duties are to act within powers (Section 171), promote the success of the company (Section 172), exercise independent judgement (Section 173), exercise reasonable care, skill and diligence (Section 174), to avoid conflicts of interest (Section 175), not to accept benefits from third parties (Section 176) and to declare interests in a proposed transaction or arrangement (Section 177).

All UK directors should be aware of their duties, especially as a breach could result in the company (or in certain limited circumstances the members of the company) bringing an action against the director for a breach. In particular, a failure of a director to disclose their interest in an existing transaction or arrangement could result in a criminal fine. There is also a risk that a breach of duty could be grounds for the termination of a director's service contract or the disqualification of a director under the Company Directors Disqualification Act 1986.

There are many practical steps that can be taken by a company to ensure that the directors have the tools that they need to ensure compliance with their duties, such as a template appointment letter for each new director setting out their duties, internal policies and procedures for the board together with ensuring that the board receives adequate training on their duties. Other practical steps include template board minutes with a director’s declaration of interest at the outset of each board meeting and the maintenance of a register of directors’ conflict of interests for compliance with Section 175.

What steps should I take to ensure compliance with The Code?

Consider a corporate governance review service, where our experts will undertake a review of your current company practices in line with the UK Corporate Governance Code advising on areas of improvement and assisting with their implementation, providing template appointment letters, policies and procedures and board meeting minutes.

Remote and on-site directors’ duties training are also available for your company board, custom-tailored to the needs of your company.

For more information, please do get in touch.

Author: Stacey Edwards