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Upcoming SlideShare. Its stated purpose is "to position stewardship at the heart of investment decision-making by facilitating dialogue, creating long-term solutions and enhancing value". In October , the Investor Forum announced the launch of its Collective Engagement Framework, described as a step-by-step guide for investors on how they can participate collectively with other investors through the Investor Forum, and within the confines of the law and regulatory regime, in order to address corporate governance and strategic concerns directly with company boards.
In , the Investor Forum undertook a number of collective engagements with UK-listed companies on a range of issues including succession plans, transaction structures, operational performance, capital allocation and company reporting. Working with investors, it has published reports in on working practices in the apparel sector and long-term value creation in the banking sector. Has your jurisdiction adopted a corporate governance code?
Yes, the UK Corporate Governance Code Code , published by the Financial Reporting Council FRC , sets out good practice covering issues such as board composition and effectiveness, the role of board committees, risk management, remuneration and relations with shareholders. This is a "comply or explain" code rather than a rigid set of rules and compliance is not mandatory. However, public companies with a premium listing on the Main Market of the London Stock Exchange with certain exemptions for companies that are smaller than the largest companies in the FTSE share index have to explain in their annual reports how they have applied the high level principles laid out in the Code and the extent to which they have complied with the detailed provisions.
Reasons for any non-compliance with the provisions have to be given and issuers should explain how any alternative process achieves good governance by other means. There is some guidance from the FRC on what constitutes a good explanation. If shareholders are not content with the explanations, they should engage with the company, and can also exercise their statutory rights, including the power to appoint and remove directors, to hold the company to account.
In addition to the Code, the FRC issues guidance and other publications intended to assist companies in applying it to their particular circumstances and to address specific aspects of governance and accountability. They cover board effectiveness, the role of audit committees, risk management, internal control and related financial and business reporting and audit tendering.
The Code and the Guidance on Board Effectiveness are currently subject to a public consultation see Question 1. The UK Corporate Governance Code is well-established, and the 25 year anniversary of its inception was celebrated in With relevant amendments it is recognised as the basis for further governance codes aimed at companies outside the Main Market. For example there is:.
Corporate governance and directors' duties in the UK (England and Wales): overview
Corporate social responsibility and reporting 5. Is it common for companies to report on social, environmental and ethical issues? Many companies engage in corporate social responsibility CSR activities. Responsible investment is an approach to investment that explicitly acknowledges environmental, social and governance ESG factors.
The London Stock Exchange recognises that corporate ESG data impact capital allocation by institutional investors, and issued guidance and recommendations for good practice in ESG reporting in February for the benefit of both investors and issuers. These principles are underpinned by a menu of possible actions for incorporating ESG issues into investment practice.
It is possible to see on the PRI's website the extent of investor support for its six principles, with over 1, asset managers, investment managers and service providers signed up.
While it is not a legal requirement for companies to undertake many of their CSR activities, companies are required to report on certain social, environmental and ethical issues. CSR issues should feature in boardroom discussions on a regular basis as, under the Companies Act , one of the duties of all directors is to promote the success of the company for the benefit of its members, and in doing so have regard among other matters to:. The likely consequences of any decision in the long term.
The interests of the company's employees. The need to foster the company's business relationships with suppliers, customers and others.
Ministry Of Corporate Affairs - Background
The impact of the company's operations on the community and the environment. The desirability of the company maintaining a reputation for high standards of business conduct. The need to act fairly as between members of the company. There are future plans for legislation which would require all companies of significant size private as well as public to explain how their directors comply with the requirements of section of the Companies Act see Question 1.
Quoted companies must, to the extent necessary for an understanding of the development, performance or position of the company's business, include in their strategic report information about:. Environmental matters including the impact of the company's business on the environment.
Corporate governance and directors' duties in the UK (England and Wales): overview
Social, community and human rights issues. They must also include information about any policies of the company in relation to these matters and the effectiveness of those policies. In addition, further to the Companies, Partnerships and Groups Accounts and Non-Financial Reporting Regulations which have implemented amendments to the EU Directive on disclosure of non-financial and diversity information, companies whether traded, or banking or authorised insurance companies, or companies carrying on insurance market activity of a certain size and which have more than employees have to produce a non-financial information statement as part of their annual report.
The non-financial information statement requires, for example, disclosure on "respect for human rights" and "anti-corruption and anti-bribery matters". There needs to be a description of the policies pursued by the undertaking in relation to these and other matters, the outcome of such policies, and related due diligence, risks and risk management. Quoted companies must also make disclosures concerning greenhouse gas emissions in the directors' report in their annual reports.
The Modern Slavery Act also requires larger commercial organisations to publish annual slavery and human trafficking statements on their websites. In December , the Law Society published a practice note on compliance with section 54 of the Modern Slavery Act All these developments are against a backdrop of the activities of organisations such as the Global Reporting Initiative GRI which, among others, produces guidance on, and models for, sustainability reporting the GRI Sustainability Reporting Standards.
It promotes the adoption of integrated reporting and describes an integrated report as one which is a "concise communication about how an organisation's strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term". It works with a number of partners, including GRI. Board composition and restrictions 6. Structure English company law does not distinguish between a management board and a supervisory board. All directors form one board and each has the same obligations and accountability to the company regardless of whether he is an executive typically employees or non-executive.
Management The articles of association articles of most companies provide that the directors are responsible for the management of the company's business. The board of directors may decide to delegate certain powers to a committee of directors or non-directors or to individual directors, or general day-to-day management to a CEO or managing director.
Board members The directors of the company constitute the board of directors. The articles may designate a chairman with a casting vote, but not all chairmen have casting votes. Employees' representation Employees do not have a right to board representation. However, some companies have agreements with trade unions which provide for employee representatives on the board.
For further information on possible developments in this area, see also Question 1.
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Number of directors or members Private companies must have at least one director and public companies must have at least two directors of which at least one must be a natural person. As a result of the Small Business, Enterprise and Employment Act , it is expected that a prohibition on appointing corporate directors will be implemented once regulations outlining a limited number of exceptions have been made. Any company with an existing corporate director will need to take action, either explaining how it meets the conditions for an exception or giving notice to the registrar that the corporate director has ceased to be a director.
The Companies Act does not prescribe a limit on the number of directors a company may have although the articles may set a maximum. Are there any general restrictions or requirements on the identity of directors? Age A director must be at least 16 years of age. There is no prescribed maximum age limit.
Nationality There are no nationality requirements. However, some companies' articles require, for example, non-UK residency for tax purposes. Gender See Question 6 regarding corporate directors. The UK has not imposed any mandatory gender quotas. However, the UK Corporate Governance Code requires companies with a premium listing to report on their diversity policy, including on gender. This should include any measurable objectives that have been set for implementing the policy, and progress on achieving the objectives. Carrying forward the work of Lord Davies of Abersoch on women on boards, voluntary targets for women on boards and in executive positions have been confirmed in the Hampton-Alexander Review on improving gender balance in FTSE leadership, published in November There has also been a call to action to all CEOs of FTSE companies to take action to improve the under-representation of women on the executive committee and those reporting directly to the executive committee.
Are non-executive, supervisory or independent directors recognised or required? Recognition There is no statutory definition of an executive director or a non-executive director, so under the law there is no distinction between the role and responsibilities of a non-executive director and those of an executive director. Both types of director are subject to statutory obligations, duties and responsibilities. However, a non-executive director is generally understood to be a director on the board who does not form part of the executive management team and is not an employee of the company.
Non-executive directors are expected to devote part, but not all, of their time to the company and their role is generally to provide an advisory or supervisory element to the board, scrutinising and challenging the company's strategy and management. By contrast, an executive director is typically an employee of the company who holds a senior management and executive role within the business.
However, as executive directors have the same statutory duties as the non-executive directors as members of a unitary board, these duties extend to the whole of the business, and not just that part of it covered by their individual executive roles. For FTSE companies, for example, over half the board, excluding the chair, should comprise non-executive directors determined by the board to be independent. A smaller listed company should have at least two independent non-executive directors. Independence Independence of thought is of particular importance to non-executive directors, part of whose role is to provide an independent viewpoint on the board and, when necessary, to challenge the executive directors.
Non-executive directors are considered to be independent when the board determines that they are independent in character and judgement, and that there are no relationships or circumstances which are likely to affect, or could appear to affect, their judgement.