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Code of Corporate governance is published by financial reporting council as the set of rules and regulation for the governance of the listed entities. Reason for the development of this code was mainly the protection of shareholders wealth from the management of the company and to ensure that management of the company is working in the best interest of the shareholders.
Mainly there are 4 sections of code of governance.
Board of directors should have appropriate and reasonable skills to execute their duties as the leadership of the company and ensure long-term success of this company. Directors should keep their knowledge updated and ensure their capabilities are up to the mark in order to fulfill their regular job description. All directors should be submitted to reelection process at regular interval after their performance appraisal.
Board of directors should be held accountable for their actions as they are custodians of the shareholders’ wealth and are expected to work in bon fide interest of the shareholders. They should ensure that proper internal controls are placed. Management of the company is expected to maintain a good relationship with the external auditors. Sometimes listed companies prefer accountancy firms to maintain their book of accounts to ensure a better presentation of their financial position for the year end to the shareholders. Big 4 audit firms are often considered as their up to date knowledge on the matters of ice and their financial expertise is a proof enough for their effectiveness.
It a general perception that directors are to be paid in a balance so that the wealth of shareholders is no excessively deteriorated and but enough to be able to attract and retain the leadership of the company. Remuneration of the directors partially if not full be attached to their performance. Directors should not be involved in deciding their own remuneration and more transparent system should be developed in determination of the director’s remuneration packages.
4. Relationship with shareholders:
There should be a consistent steam of communication between the shareholders and management of the company to ensure both parties are on the same track and both understand the long term vision of the company. Annual general meeting should be held to involve the shareholders in major decision making and keeping them enlightened on the future policy of the company.
Additionally the code of corporate governance sets out condition of disclosure condition for the listed company. I.e. keeping certain information on their website and sending news letters to their shareholders etc.
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