How UK Companies' Mechanisms Affect Corporate Governance - Dissertation Example

Download file to see previous pages In the United Kingdom, companies are expected to understand and implement board structures in accordance with the principles and provisions of the Combined Code. As a prerequisite for listing on the London Stock Exchange, firms are required to include a corporate governance statement in their annual reports. The purpose of this inclusion is to mention the ways in which companies apply the principles and provisions of the Combined Code. Subsequently, this elaborates on the concept of the ‘comply or explain’ rule for the companies registered in the United Kingdom. In this regard, it has been provided that the Combined Code mentions three significant corporate governance mechanisms: duality and setting up of board sub-committees and the number of Non-Executive Directors.

A considerable amount of literature is available to highlight that boards should include and ensure a balance of Non-Executive and Executive Directors. In this regard, Raheja contended that Executive Directors provide benefits to companies because of the extent of their company-related information. In addition to that, various studies provide that Non-Executive Directors have a constructive and positive effect and studies find that boards dominated by Non-Executive Directors have more tendencies to act in the best interests of the shareholders.

The UK Combined Code of best practice has recommended that Non-Executive Directors should make up at least one-third of the Board and consequently there has been a considerable increase in the number of Non-Executive Directors on UK Boards ever since the publication of the Cadbury report.

In the following parts of this report, fifteen UK-based companies have been selected for the purpose of evaluating the compliance or non-compliance of corporate governance mechanisms in these companies. The focus has been to pick companies from one industry as it would enable the author to understand the industry norms and practices in that particular industry. The majority of the companies discussed in this paper belong to the food and drink industry of the United Kingdom.

Research Objectives
To understand and evaluate the effectiveness of the corporate governance mechanisms
To highlight the interplay between financial performance and corporate governance mechanisms.

Research Questions
What are the main components of the corporate governance mechanisms recommended by the Combined Code?
How effective is the implementation of the corporate governance mechanisms?
What is the relationship between corporate governance mechanism and subsequent financial performance of the organizations in the UK food and beverage industry?

Literature Review
Introduction
The literature review includes the main corporate governance mechanisms mostly employed by many companies. There is a range of authors and experts who have worked on the development of different corporate governance codes. In the following parts of this chapter, the role and contribution of non-executive directors have been discussed. It is followed by a segment in which a discussion has been made about how to construct a board and the role of non-executive and executive directors.
The corporate governance mechanisms have considerably discussed and highlighted the role and contribution of non-executive directors. ...Download file to see next pages Read More