This is based on the Financial Services Markets Act of 2000. The Corporate Governance Code of 2010 is overseen by the Financial Reporting Council. Thus, public listed companies must comply with the UK Corporate Governance Code 2010. Those who fail to comply with the corporate governance Code have to explain why they departed from it. Private companies are encouraged to use the UK Corporate Governance Code of 2010. The fact that public listed companies are required to comply or explain makes the UK Code a principles based code. This is in contrast with the rules based code which is connected to the Sarbeans-Oxley Act of the United States. There are three elements of reporting that are meant to prevent fraud and wrongful reporting by people charged with corporate governance: opportunity, incentive and rationalization (Strohm, 2006). In a rules-based system of corporate governance like the United States, preventing inaccurate reporting is done by limiting opportunities (Jeffrey, 2011). This is done by precision and setting strict standards for reporting. Failure to comply with the precise and strict standard leads to legal sanctions. The principle-based corporate governance system of corporate governance is a comply-or-explain system where the rationalisation of actions are documented. This is a communication based system meant to strengthen moral incentives by clarifying morally responsible methods of reporting. The UK Corporate Governance Code of 2010 is a rules-based system and it focuses on five main systems and structures: 1. The Board of Directors: Every company is to have a board of directors which would be tasked with the long-term leadership of the company. The board is tasked with the running of the company. No one on the board is required to have unfettered powers. There are checks and balances on all members including the chairman who has responsibility for maintaining the effectiveness of the board. On unitary boards, there must be a balance between executive and non-executive directors to promote checks and balances on the single board. 2. Effectiveness: The board must be ran through various committees like the remuneration, audit and risk committees. The committees need to use skill, experience and independence to discharge their obligations. The committees must have formal opportunities. To ensure effectiveness, the members of the board must be open for periodic nomination by the shareholders and this must be done at least once every three years. 3. Accountability: The board must use balanced and understandable methods for assessing the company's position from time to time. The assessment must include important areas like risk management, strategic management and internal controls. These assessments must be disclosed through formal arrangements on corporate reporting, risk management and internal control to disclose information. 4. Remuneration: There must be formal and transparent methods of fixing remuneration. This system must be enough to encourage appropriately skilled persons to join the board and they should not be too much. 5. Shareholders: The board needs to have constant contact with members of the bo
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