As you have seen already, companies have always been subject to quite strict regulation. Thus there are detailed requirements in relation to company formation, corporate administration and corporate finance. Despite all this regulation a number of issues have continued to cause considerable unrest and political controversy. The main concerns have centred on the apparent lack of effective control of directors of public listed companies which have manifested themselves in perceived excessive remuneration packages and mismanagement leading to a number of high-profile corporate collapses. Public listed companies employ thousands of employees and are the recipients of billions of pounds in investment by individuals and institutional investors such as pension funds. It follows that all governments, in the UK, in Europe and throughout the world, consider it crucial that public confidence in such companies is maintained. The attempts to effectively control the remuneration of directors and the activities of directors in their management of public companies so as to avoid high profile scandals are known as corporate governance. It should be noted that corporate governance is not static, but rather develops to meet the urgent issues of the day. Thus, for example, the effect of corporate activities upon the environment now falls to be included within the ambit of corporate governance.

What is Corporate Governance?

The term “corporate governance” is not defined by legislation neither has it been defined by the courts. As Farrar notes in his text book on company law “corporate governance is a term which has been much in vogue in the last 10 years. It suffers, nevertheless, from a lack of precision.” The Cadbury Committee defined corporate governance in its Report on the Financial Aspects of Corporate Governance (see below) as “the system by which companies