COMPARE THE CORPORATE

GOVERNANCE PROCEDURES IN
US AND UK WITH EXAMPLES

Prepared by,
Muhammed
Niyas
Maneesh R
Megna S J
 CORPORATE GOVERNANCE

System in which organizations are governed and controlled

Primarily concerned with corporations and the relationship

of their management and their shareholders.

Include rules, processes, or laws by which businesses are

operated, regulated, and controlled

Basic principles of Corporate Governance include
transparency, accountability, fairness and responsibility
founded upon the concept of disclosure to encourage the
necessary trust and confidence of shareholders.
 Corporate governance principles have evolved in
countries based on their political, economic & cultural
philosophies.
For example, if a country (e.g. France) has a socialistic
ideology, it is somewhat natural that the corporate
governance there is based on inclusion of all
stakeholders, especially the employees.
In Japan & Germany, if the banks have a major financial
stake in the organizations through collaterals for credit,
they will obviously give due weightage to what the
banks think could be the best strategic course for the
organization.
Cultures where capitalism is at the core of strategic
management ideology (e.g. USA), would like to
concentrate on increasing wealth of shareholders alone
and let the market forces determine the winner.
 UK CORPORATE
GOVERNANCE
The UK model is based on the UK Corporate
Governance Code which was formerly called the
Combined Code on Corporate Governance.
Operates on the basis that companies can choose to

adopt a different approach that may be more

appropriate for them.
If a corporation chooses to take a different
approach, they are required to explain these
reasons to their shareholders who then must decide
if the approach chosen is acceptable
 Sources of Corporate
Governance rules in the UK
The regulation of corporate governance in the UK is provided
by a number of different rules, regulations and
recommendations, namely
company's constitutional documents (the memorandum
and articles of association).
common law rules, i.e. past cases
legislation, particularly the Companies Act
regulation and in particular for listed companies through
the Listing Rules and other corporate governance rules
(responsibility of the Financial Services Authority)
Combined Code (responsibility of the Financial Reporting
Council)
US CORPORATE
GOVERNANCE
The U.S. model for corporate governance follows the

Anglo-American model which emphasizes the

interests of shareholders, management and directors.
It is based on a single-tiered (one-tiered), Board of

Directors which is primarily comprised of non-

executive directors who have been elected by
shareholders.
In the U.S., corporate governance is determined
predominantly by legislation in the form of the
Sarbanes-Oxley Act of 2002 (SOX).
Sources of Corporate
Governance Rules in the US
Historically, corporate governance was defined by laws
of state of incorporation

Fundamental aspect of Federalism assumes regulatory

differences between states reflect differences in values,
interests, etc.

States can be laboratories for testing new concepts, e.g.

Cumulative Voting for director appointments in California

Companies naturally flock to jurisdictions offering

governance rules and processes attractive to investors,
e.g. Delaware for public companies
 COMPARISON OF MODELS

Tablehighlightssimilaritiesanddifferenceswithregardstosomerelevant
parametersofthemodels.
 COMPARISON OF MODELS
Main provisions of SOX UK equivalent
Measures to enhance the independence Very similar provisions in the
of audit committees and their UK - under the Combined Code
effectiveness and the Smith Guidance.
CEO/CFOs must personally From 6 April 2005 under the
certify the contents of periodic 2004 Act, directors are required
reports (criminal penalties for to state in their directors'
false certifications). report that there is "no relevant
audit information" that they
know of and which the auditors
are unaware of. It is a criminal
offence to make a false
statement.
CEO/CFOs must also certify Combined Code and the Turnbull
annual/quarterly reports and Guidance - no certification requirement
give assurances re but a statement and assurances re:
effectiveness of internal internal controls are expected as a
controls. matter of best practice.
Forfeiture of compensation by
CEO/CFOs of companies making No obvious equivalent.
accounting restatements due to material
non-compliance with securities laws.

Ability of SEC to prohibit persons from Company Directors Disqualification

serving as directors and officers. Act 1986 has similar powers.
Though not specifically referring to
pension fund blackouts, the UK has
Prohibition on "insider" trades during
insider dealing legislation in Part V of
pension fund blackouts.
the Criminal Justice Act 1993 and the
Market Abuse regime.

In relation to off-balance sheet

transactions, refer to the disclosure
obligations for fully listed companies in
Rules requiring disclosure of off-
the UK Listing Rules. Regarding use of
balance sheet transactions and use of
pro forma information, fully listed
pro forma Financial information.
companies must comply with
paragraphs 12.30 to 12.35 of the UK
Listing Rules.
Rules requiring management reports on
the effectiveness of internal controls for
No direct UK equivalent
the Auditors to attest to the management
report.

Adoption of codes of ethics for senior

No direct UK equivalent
financial officers.

UK law restricts loans to directors and

Prohibition on loans etc. to directors
persons connected with them, whereas
and executive officers of public
US law extends to senior executive
companies.
officers who are not board members.

No direct UK equivalent, however the

SEC obligation to review each public
Secretary of State can appoint a body to
company's periodic reports at least once
review interim to disclose any relevant
every 3 years.
information to other bodies.

Requirement for real-time disclosure of

Similar obligations of disclosure for
material changes in the financial
fully listed companies under the UK
condition/operations of public
Listing Rules (paragraphs 9.1 and 9.2).
companies.
 EXAMPLE US MODEL
Citigroup Inc. (NYSE:C) has a single tier board structure with
several Committees for managing the governance affairs and for
oversight of management.
As per the corporate governance guidelines of Citigroup, the
standing committees of the Board are the Executive Committee,
the Audit Committee, the Personnel and Compensation
Committee, the Nomination, Governance and Public Affairs
Committee and the Risk Management and Finance Committee.
The philosophy of Citigroup Inc. emphasizes its focus on
shareholders interests. As per the guidelines of the company,
the Board of Directors primary responsibility is to provide
effective governance over the Companys affairs for the benefit
of its stockholders, and to consider the interests of its diverse
constituencies around the world, including its customers,
employees, suppliers and local communities. The board keeps a
close tab on the functioning of the management and the recent
exit of CEO of the company (Vikram Pandit), was reported to be a
case of the board being dissatisfied with managements strategic
management approach. Other companies like Bank of America
Corp have similar board structures and committees.
 EXAMPLE UK MODEL
Bayerische Motoren Werke AG has a Supervisory
Board (SB) & a Board of Management (BOM).
The BOM regularly provides information to the SB
(regarding strategy, sales volume, growth
prospects, production planning etc.) which has a
monitoring and advisory role.
The SB also reviews the compensation of the BOM
members and examines if there are any instances
of a conflict of interest.
In addition, there are several other Committees in
the BMW board including an Audit Committee. The
two boards have different Chairpersons.
As per the BMW Annual Report 2011, Corporate
culture within the BMW Group is founded on
transparent reporting and internal
communication, a policy of corporate governance
aimed at the interests of stakeholders, fair and
open dealings between the Board of Management,
the Supervisory Board and employees and
compliance with the law.
Here, the importance of stakeholders (as opposed
to shareholders alone) is clearly reflected.
Similar board structures and roles can be seen in
other European organizations like Renault SA
though the nomenclature of the Supervisory &
Management bodies may be different.