Corporate Governance Code

Codes translate general principles into practical expectations. Typical topics are the split between chair and chief executive, the share of independent directors, committee structure, board evaluation, pay, risk management and dealings with shareholders. Some are issued by securities regulators or stock exchanges and attached to listing rules, others by investor groups or institutes of directors. Most are not law. Their force comes from market pressure and disclosure duties, though in some countries parts of the code are binding. Many follow the OECD principles at a general level. Codes get revised as scandals and research show new weak spots, and companies are asked to report against the current version. A newcomer to a market can read its code to see what investors will expect from the board.

A stock exchange publishes a new code that asks listed companies to evaluate their boards each year and to rotate the audit committee chair after nine years. A listed retailer reviews its practices, finds its audit chair has served twelve years, and states in its annual report that he will step down at the next AGM.