4.2.4 What are the main features of the national corporate code regarding contents and do they reflect the country's culture??

The key issues of the code and hence the UK corporate governance are independent non-executive directors, the appointment and remuneration procedures of directors, internal controls and financial reporting and the shareholders' meeting (Voogsgeerd 2006, p. 47). These issues are discussed below by means of two main features: (i) board structure, (ii) shareholders and stakeholders, and (iii) culture is taken into account to see whether the contents of the code reflect UK's culture. These features are only discussed in relation to the contents of the corporate governance codes and for reasons of comparison, in order to analyse further the application of the comply or explain principle theoretically and empirically (see chapter 6), as is the case for all the countries under research.

The one-tier board structure applies to the UK (Weil, Gotshal & Manges 2002, p. 221) and is an extensive topic in the code. According to the first principle of the code the one-tier board is collectively responsible for the success of the company; hence an effective board is required. The board simultaneously has a management and supervisory task. As stated in the code these tasks or responsibilities have to be clearly separated: the role of the chairman and chief executive should not be exercised by the same individual and their divisions of responsibilities must be clearly established, set out in writing and agreed by the board (provision A.2.1). Having an effective board is promoted in the code through topics such as the time allocated to the company, clear appointment procedures, independence (material criteria) and self-evaluation. The nonexecutive directors are considered to be an important counterweight against the executive directors and perform 'in-house' internal control (Voogsgeerd 2006, p. 51) and therefore at least half of the board should compromise independent non-executive directors (provisions B.1.2). A sufficient number of independent non-executive directors should compensate that supervision and management are performed by the same corporate body (Voogsgeerd 2006, p. 53). The board committees (nomination committee, audit committee and remuneration committee), of which at least half the members are independent non-executives, also provide supervision of the management regarding specific topics.

The UK has a diverse shareholders' base of among others institutional investors, financial institutions and individual small shareholders (Mallin 2010, p. 26) (Armour 2008, p. 1). Nowadays private shareholders are a small group and a substantive part of the shares are held by the institutional shareholders (Charkman 2005, p. 337) (Aguilera, Williams et al. 2006, p. 149) (Franks 1997, p. 283). Hence the traditional view is changing (Voogsgeerd 2006, p. 57). Apart from agency problems between small and large shareholders, the agency problems between managers and shareholders are still a central governance problem in the UK (Armour 2008, p. 2). The aim of Section E in the UK 2010 Code is therefore that companies should have a dialogue with shareholders based on mutual understanding of objectives (principle E.1) and constructive use of the shareholders' meeting (principle E.2). Other stakeholders are not separately discussed in the code. The protection of minority shareholders is nowhere to be found in the code but arranged in legislation, such as the derivative actions and the mandatory public bid in case of controlling ownership (Voogsgeerd 2006, p. 40).

As it has a market-based and Anglo-Saxon corporate governance system, one would expect the traditional shareholder model to apply to the UK. However, according to Voogsgeerd, the UK nowadays does not have a stakeholder model or shareholder model but a 'stewardship model of corporate governance' or otherwise phrased an 'enlightened shareholder model' (see section 2.3.1) (Voogsgeerd 2006, p. 43) (Santen 2011, p. 121). The power of the market is believed in (the shareholders' interests have priority) but the board members are trusted to take the interests of others than only the shareholders into account.

The UK has a market-based corporate governance system. Hence it is of no surprise that it is British tradition to let trade and industry 'get on with it', within the law, and a legal system is created that facilitates their doing so (Charkman 2005, p. 297). Clear malfunctions within this system were necessary before action was taken. And after the scandals in the 1980s, when there was consensus on the fact that something had to be done, this was left to a non-public body - the Cadbury committee (Charkman 2005, p. 297). According to Charkman this was because of the British dislike of change and the fact that the legal process does not mix well with the normal conduct of business. The Cadbury Report and comply or explain principle were a good approach, since then it has been up to those whose interests are adversely affected to take appropriate action (Charkman 2005, p. 298). The development of the Cadbury Report to the Combined Codes and the UK 2010 Code that incorporate the conclusions of many other reports (Hampel, Greenbury, Turnbull, Higgs etc.) illustrates the UK's preference for gradualness and dislike of legislation (Charkman 2005, p. 298).

As stated in section 3.3.1 the design of corporate governance systems is influenced by many factors, among which the culture factor, which can be regarded as an all-embracing factor since it also incorporates other important factors such as economical, political and legal factors. Moreover, to be effective, corporate governance principles must be part of the culture (Mintz 2005, p. 587). In section 3.3.2 the necessity to take culture into account when researching and comparing several corporate governance systems and models at the same time is reviewed, as well as the outcomes of several studies on those cultural dimensions. An overview of the results of these studies on the countries under review in this research is shown in table 3.3.2. The results for the UK are repeated in table 4.2.4 below and table 4.2.4a summarises the above.

Compared to other countries the UK scores very high on individualism and remarkably low on uncertainty avoidance (Hofstede 1984a, p. 83). Individualism concerns the relationship between the individual and the group. It refers to a preference for loosely knit social relationships in which individuals are expected to care only for themselves and their immediate families. Individualism coheres with a market-based corporate governance system and an AngloSaxon system focused on the shareholder approach. As already stated above, nowadays the ' stewardship model of corporate governance' or otherwise phrased the 'enlightened shareholder model' applies to the UK. Shareholders have priority but board members are trusted to take the interests of others than shareholders into account as well. Uncertainty avoidance is the degree to which members of a society feel uncomfortable with uncertainty and ambiguity. Weak uncertainty avoidance societies maintain a more relaxed atmosphere in which practice counts more than principles and deviance is easily tolerated. This relates to the self-regulation which is a tradition in the UK (Voogsgeerd 2006, p. 63). Next to the code and comply or explain principle, another important example of self-regulation in the UK are the Rules governing substantial acquisitions of shares, i.e. the City Code that is compulsory under the listing rules (Voogsgeerd 2006, p. 38). Moreover, in the UK it is the practice to include general principles in legislation and their elaboration is included in easier to change secondary legislation (Voogsgeerd 2006, p. 38). Another cultural observation is that the UK is a common law country which in general does have strong shareholder protection (La Porta, Lopez-de-Silanes et al. 1998, p. 1151). As is the case for the UK, which has long since had legislation on derivative actions and the mandatory public bid in case of controlling ownership (Voogsgeerd 2006, p. 40).

To summarise this key question (as in Table 4.2.4a), the main features of the UK corporate governance and more specifically of its code are a focus on the one-tier board and more specifically the independent non-executive directors. The aim is to achieve a dialogue with shareholders and the shareholder approach has nowadays become a ' stewardship model of corporate governance'. Part of the UK's culture is the preference for self-regulation above legislation, of which the UK 2010 Code and comply or explain principle are a direct result. Self-regulation is flexible and very regularly the contents of the code are changed to adapt to current practice in the UK. The fact that the UK is a common law country and scores high on individualism can i.a. be seen in the strong shareholder protection, although nowadays the interests of other stakeholders also have to be taken into account by the board.