CORPORATE GOVERNANCE

After the downfall of the Enron Corporation in the United States due to a lack of managerial oversight,
the responsibility of directors of public companies has become a source of considerable concern.
Compared to the US government's regulatory strategy, the UK guidelines are focused on the "comply or
clarify" concept. The Financial Reporting Council of the United Kingdom released the UK Corporate
Governance Code (previously the Combined Code). The UK Corporate Governance Code establishes
standards for 'best quality corporate governance' in major public corporations. It is not enshrined in
statute but is considered soft law. The Stock Exchange has annexed the Code to its Listing Rules and
mandates all listed companies to adhere to it or justify any deviations. This soft legislation was
developed in reaction to public outrage over the rate of compensation paid to directors. The Cadbury
Committee added non-executive directors to the main board of directors hoping that these non-
executive directors would add objectivity to board decisions. Cadbury also proposed establishing a
committee system to enhance the accountability of director appointments, director compensation
(remuneration), and the audit process. In 1995, the Greenbury Report established an implicit conflict of
interest for directors to determine their compensation. It proposed an improved transparency regime
for directors' compensation and the establishment of a non-executive-only remuneration committee.
The Hampel Committee's 1998 suggestion was to create a Combined Code by combining Cadbury and
Greenbury guidelines. The Combined Code stipulated four essential tasks for NEDS in response to the
Cadbury and Higgs reports. These areas include policy, management efficiency, risk management
(financial control), and people (pay, appointments, and succession planning).

Higgs tackled the crucial question of self-determination. He employs the word "dispassionate
objectivity" and elaborates on possible conflicts of interest. The new Corporate Governance Code of the
United Kingdom requires that at least half of the board members be neutral NEDs. Independent NEDS
should dominate the board committees of FTSE 350 corporations. According to the Combined Code,
NEDs are not considered "independent" until they have maintained their place for more than nine years.
Independent NEDS has the potential to boost a company's internal control and overall efficiency.

Additionally, they keep administrators alert and disciplined by ensuring that appropriate protocols are
followed. NEDS can increase the productivity of board meetings by ensuring that executives have
reliable and sufficient details. NEDS' freedom enables them to offer a more detailed, analytical, and
fresh outlook to the boardroom. They will identify future risks and opportunities as executives in other
industries and have a valuable business outlook and valuable connections. However, gaining freedom in
NEDS will not be straightforward. As Lowry and Dignam observed, "it may have a flaw in that it allows
businesses to determine who is or is not autonomous according to Higgs standards without additional
external oversight." The Code provisions are often regarded as meaningless because, although they
demand information, there is no procedure for enforcing them. To which executives want to withhold
records. The NEDs are beyond legal recourse. The Code merely allows businesses to adhere to or have
an explanation. Thus far, most businesses have opted to comply with NEDs, resulting in widespread
support for their position.

The Companies Act 2006, which codifies directors' responsibilities, aims to improve corporate
governance practices. However, there is an additional need to improve the oversight position of NEDS
by legislation defining their distinct and unique function. Equitable Life's scandals have prompted calls
for a more assertive legislative conception of their position. The recent bankruptcy of the United
Kingdom's second-largest bank, HBOS Ple (Halifax Bank of Scotland'), may be traced to the non-
executive directors' loss. According to the HBOS Report, some non-executives failed to perform this
position. This has been a frequent criticism of non-executives; despite their apparent independence,
they often lack the incentives or encouragement, time, or knowledge necessary to manage their
executives successfully. Thus, best practices do not always increase corporate governance norms,
although regulation can require them to do so. This will serve as a mechanism for upholding NEDS's
obligations and providing responsibility to shareholders. However, it must be recognized that while
regulation cannot guarantee better corporate governance, it does force NEDS to take its position
seriously. Following the global financial crisis of 2007–08, the corporate governance and risk
management debates were reignited. Sir David Walker supported the obey or justify the strategy in his
2009 final report. The Walker Review examined the suitability of non-executive directors during times of
crisis and the importance of formal screening, induction, and preparation processes for new board
members. Walker has advocated for more institutional shareholder engagement to ensure that owners
are held accountable. In August 2017, the Government proposed amendments to the UK Corporate
Governance Code. The Government continues to plan to use a combination of 'hard and soft legislation
to force businesses to pay at least a little more attention to their stakeholders' needs.

The complicated law would take the form of new legislation that will require a) 'all companies of a
certain size' to include a more detailed explanation in their annual reports about how their directors
apply section 172 of the Companies Act 2006, and b) quoted companies to provide some information in
their annual remuneration reports' on the relationship between the CEO's pay and the industry average.
' The British workforce Such regulations would encourage non-executive directors to take their position
seriously and respect the interests of customers to ensure the company's long-term survival. The soft
legislation would take the form of amendments to the UK Corporate Governance Code, requiring listed
businesses to clarify one of three alternative approaches they have used to improve the voice of their
stakeholders. These three options include the following: a) designating a non-executive director as the
'voice' of employees, or b) establishing a team member advisory council or allowing employees to
nominate a director. If the corporation wishes not to choose either of these three options, it must justify
why. This represents the UK Corporate Governance Code's 'comply or justify' strategy.

Additionally, the Financial Reporting Council published the proposed revisions and updates to the Code.
The revised Code endorsed the Government's call for a more stakeholder-centered solution. However,
as the Government has proposed, expect 'all businesses of considerable scale' to include a more
comprehensive statement in their annual reports regarding how their directors relate Section 172 of the
Companies Act 2006 does not always enhance corporate governance, since section 172 does not require
directors to respect third-party interests. No Code, whether soft or strict, would ever be able to prohibit
directors from abusing their roles completely. However, directors may be compelled to behave in the
best interests of shareholders by rewards such as performance-based pay, direct shareholder control,
the threat of termination, and the takeover threat. By stressing stakeholders' interests and diversity in
the boardroom, the latest amendments to the UK Corporate Governance Code modernize the UK's
corporate governance system while also introducing the prospect of judicial fines for breaches of the
Code's obligations. This is a somewhat unique feature of the English organizational system, and as such,
the Code must endure intense review before it is fully updated.