4.2.8 Based on literature and previous studies, how is the national corporate governance code applied in practice?

Over the years many code compliance studies have been performed by many different organisations, researchers and consultants. The results of the most important studies are discussed and summarised below in order of appearance to give an as up-to-date as possibly overview of code compliance in the UK.

Weil, Gotshal & Manges refer in their "Comparative Study of Corporate Governance Codes Relevant to the European Union and its Member States" to several studies conducted earlier:

Charkman summarises a few code compliance studies as well:

In 2006 Arcot and Bruno conducted a study of 245 non-financial UK companies for the period 1998-2004 (Arcot and Bruno 2006) (Arcot, Bruno et al. 2010). They documented the degree of compliance and more importantly the quality of the explanations provided in the case of deviations from the code provisions. Although they conclude, based on their univariate analysis, that the compliance of the companies does increase during the years under review, some drawbacks in the system are highlighted. They find that for an average of 17% of the deviations no explanations are provided. Moreover, in 51% of the cases the explanations are standard and uninformative and this is even worse for a company in which agency problems are likely to be serious (e.g. family-owned companies) (Arcot and Bruno 2006, p. 35).

Seidl, Sanderson et al. analysed the corporate governance statements of 257 companies in the UK and Germany for the year 2006. Of the 129 UK corporate governance statements 51.94% were fully compliant. There was very little difference in compliance rates between the top 30 and top 80 companies. The average number of deviations per company was one and the maximum seven deviations. The provisions complied with worst of all involve the requirement for a majority of the board to be independent non-executive directors, the composition of the audit committee and composition of the remuneration committee. The reasons provided most for non-compliance were company-specific reasons, transitional justifications (temporary company-specific reasons) and a description of a non-compliant alternative practice. The second reason was often found for the provisions on the independence of non-executives (Seidl, Sanderson et al. 2009).

In the EU comparative study on code compliance during 2008 for the 15 companies under research an average of one explanation was visible per company and no significant changes between large-cap and mid-cap companies were visible (RiskMetrics Group 2009, p. 97). The most common deviations involved the provisions on the independence criteria and the setup and composition of the audit committee.

Although current studies on the UK 2010 Code are not available yet, the studies conducted up till now show several resemblances. Having a corporate governance statement which discusses your code compliance is nowadays generally accepted in the UK. The level of fully compliant companies has increased significantly over the years. Moreover, the overall number of deviations per company is currently very low according to the RiskMetrics Group. The separation of the roles of the chairman and chief executive is no longer a key issue (Waring 2005, p. 164). The remaining code provisions most often not complied with involve the provisions on remuneration (committees), audit committees and the independence of non-executive directors. Within the EU the history of the corporate governance debate in the UK is the longest, so few compliance issues are expected. Nevertheless, it would be an asset if one permanent organisation were to conduct an annual study on code compliance in such a manner that the results can be compared over the years, in order to obtain a clear overview of the status of code compliance in the UK.