The Uk Corporate Governance Code Essay

745 Words Aug 30th, 2015 3 Pages
2.4 Independence
Effective from November 2003, a non-exhaustive list of 7 criteria (as shown in Appendix 1) has been incorporated in the UK Corporate Governance Code to assess a director’s independence (Financial Conduct Authority 2013). The Code requires the board to determine and disclose in their annual report whether each non-executive director is independent in character and judgement. Independence is a quality demonstrated by an individual which would not be unduly influenced by interested parties/conflict of interest that could materially interfere with their objective judgement (Campbell 2011).

According to Fama and Jensen (1983), internal managers have specific valuable information about the company’s operation which could assist those charged with governance in being an effective monitoring device. Nevertheless, board would be ineffective in a decision making process unless the discretion of top management is limited. Williamson (1984) argued that the full-time status and insider knowledge have provided the managers significant information advantage over the board, which enabled them to be easily influenced by the management. In addition, by having control over the board, top management may collude and thus compromise the interest of shareholders (Fama 1980). This is also consistent with the findings with KPMG survey (2013) whereby the typical fraudster not only are those who is mostly employed in an executive function, 70% of fraudsters acted in concert with…

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