(upbeat music)
-: Premium Pty Ltd is an established large company.
It has 12 members on its board of directors
made up as follows:
eight independent non-executive directors
and four executive directors.
Two of which are the CEO and CFO.
The chairwoman of the board is a non-executive director
who has been the chair for the last 10 years.
The board has three committees of four members each.
These are the Nomination Committee, made up of the CFO
and three independent non-executive members,
the Audit Committee, made up of the CEO
and the three independent non-executive board members,
and the Remuneration Committee,
with two independent non-executive directors,
one of which is the chairwoman and two executive directors.
So does this company comply with the UK FRC Code?
The UK Financial Reporting Council Corporate Governance Code
or UK FRC Corporate Governance Code was issued in July, 2018
and applies to all financial reporting periods
starting or not after the 1st of January, 2019.
This was however not the first version of the code.
The first version was published in 1992
by the Cadbury Committee.
It has since been revised and extended
to account for changes
in the corporate governance environment over the years.
The code applies to companies
with a premium listing of equity shares,
irrespective of whether they are incorporated
in the UK or not.
Premium listing, simply refers to a listing of larger firms
or companies that are looking for increased profile
in a highly liquid or risk market.
Given the international reach, it is therefore necessary
to have a good understanding of the code.
This code is not rigid in its methodology,
so instead of a list of rules,
it takes a comply or explain approach.
Meaning that in the case of a company
choosing not to comply with the principle of the code,
the shareholders should be made aware
of the reasons for the non-compliance
so that they can decide
whether they are satisfied with the decision or not.
The code is made up of five broad categories.
These are broken down further
into 18 principles shown alphabetically,
which I unpack further into 41 provisions shown numerically.
Given that the definition of corporate governance
is the way in which companies are directed and controlled,
it makes sense that the five broad categories
are Board leadership and control,
which focuses on long-term sustainability of the company
and the company's values purpose and culture.
Division of responsibility,
which looks at the makeup and roles of the board members,
including the chair, executive directors
and non-executive directors.
Composition, succession and evaluation.
This category details the roles
of the nomination committee, appointments and diversity.
Audit, risk and internal control
covers the role of the audit committee.
Interestingly enough,
this code does not refer to risk committee.
However, it does look at risk identification and management.
Remuneration is our last category.
And this looks at the remuneration policies
and the role of the remuneration committee.
Remember as a starting point,
when unpacking the code or framework,
it is always useful to ask yourself,
why is this category in the code?
What is it aiming to achieve?
And how is it offering guidance
in terms of corporate governance?
Let's look at premium Pty Ltd's board setup
and its compliance with the code.
Premium Pty Ltd is in compliance with key areas
of Category 2 and also provision 17 of Category 3.
But what are the areas of non-compliance?
In terms of non-compliance,
the chair should not remain in post beyond nine years.
And the audit committee and remuneration committee
should be made up of non-executive directors.
Also remember the chairwomen would not be allowed
to chair the remuneration committee.
To recap the UK, FRC Corporate Governance Code
is aimed at good corporate governance at a board level
which leads to longer term sustainability
and greater profitability for shareholders
of larger companies.
It is a comply or explain code
made up of five broad categories,
18 principles and 41 provisions.
As you read each principle and provision,
remember to ask yourself, why is this here?
What is it trying to fix, prevent or improve?