Institute of Directors ‘Corporate Governance Guidance and Principles for Unlisted Companies in the UK’
In the past twenty years the UK has been at the forefront of developing corporate governance codes and guidance for listed companies, from the Cadbury Report in 1992 to the UK Corporate Governance Code in 2010. But there has been relatively little guidance developed for the governance of private companies.
This changed in March 2010 when the pan-European ‘Corporate Governance Guidance and Principles for Unlisted Companies in Europe’ was published by the European Confederation of Directors’ Associations (the ‘ecoDa Guidance’); and in November 2010 the Institute of Directors published its ‘Corporate Governance Guidance and Principles for Unlisted Companies in the UK’ (the ‘IoD Guidance’), which adapted the ecoDa Guidance for the UK business environment.
Key features of the IoD Guidance
IoD described the key features of its guidance at launch in the following terms:
- “…[as providing] guidance for unlisted companies on the issues involved in designing an appropriate corporate governance framework. It also presents a set of governance principles that can be followed or not. This remains a voluntary decision of each unlisted company.
- Fourteen principles of good governance are presented on the basis of a dynamic phased approach, which takes into account the degree of openness, size, complexity and level of maturity of individual enterprises. A dynamic approach towards governance is essential, since governance frameworks must evolve over the life cycle of a business.
- The principles provide a governance roadmap for family owners or founder-entrepreneurs as they plan the development of their companies over the corporate life cycle. These principles may be relevant for subsidiary companies and joint ventures as well. Even state-owned companies or social enterprise organisations can be inspired by the best practices laid down [in the guidance]“.
Guidance for all unlisted companies and for large, complex unlisted companies
The IoD Guidance and Principles contains 14 principles. Nine of these principles apply to all unlisted companies and cover the governance framework, the role and composition of the board, remuneration, risk oversight, the dialogue between the board and shareholders, directors’ induction and training and governance mechanisms for family-controlled companies.
The additional five principles apply to large and/or more complex unlisted companies and cover the division of responsibilities at the head of the company, the mix of competencies and experiences required on the board, the establishment of board committees, board appraisals and the presentation by the board of an understandable assessment of the company’s position for external shareholders.
Family-controlled business, private equity investee companies, joint ventures and subsidiary companies are all likely to find the IoD Guidance and the ecoDa Guidance useful in their thinking about corporate governance.
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