In choosing a listed UK company I have chosen Abbots Group plc to evaluate whether its corporate governance principles and practices are complied with the combined code of corporate governance or whether it departs from it in some respects because of its unique circumstances. I have chosen this company because its operations are global and its main line of business is in the energy industry and its importance in the current macroeconomic climate world wide and the current global concerns of the issues of global warming and environmental issues, which is recognized by political leadership, by the community at large and by UN agencies as well by most scientific community and by groups of investors.
Combine code of Corporate Governance and the flexibility to depart from the code
In general the combined code of corporate governance best practice is only the guidance and the listed companies can differ in its corporate governance actions and policies if the shareholders insists or if the circumstances of the company in regards to its size, operation and complexity requires a different corporate governance practice from the combined code and it must be spelt out in the Annual report the reasons for the departure or the full compliance of the code by UK listed companies.
As mentioned above to evaluate whether Abbots Group plc complied with the combined code as set out in section 1 one can examine the annual Report published recently. In UK Listed companies has to have a statement in relation whether they have complied with the combine code of corporate governance or if they have departed from the code the reasons for the departure from the code of best corporate governance provisions.
In critically perusing the Annual report for Abbots Group plc 2006 page 31 to page 35 which contains the information of corporate governance practices relative to directors, chairperson, non-executive directors duties, board meetings, director's appointment procedures, non-executive directors appointment procedures, performance evaluation procedures, independence of non-executive directors, setting up of Audit committee, Nomination committee, Pay committee, reporting of board meetings in the Annual report, relationship with shareholders, performance evaluation of directors and chief executive and the board itself and processes of internal control and risk management by risk management committee and their independence shows that in general Abbots Group plc has complied with the combined code of corporate governance setout in section 1 because in general the provisions of the code is applied in all the areas of the corporate governance as mentioned above. As well, the director's report regarding the statement in the Annual Report relative to the compliance of the code states that it has complied generally through out the year 2006 with the code. However, the statement also states that the Chairperson of the board and the chief executive officer of the company work in association and according to the code Chief Executive must not act as chairperson. The reason they work together the opinion of the board is that the chairperson has substantial shareholdings in the company and they believe that the chairman's interest is aligned with the other shareholders. As well the chairperson has certain strategic responsibilities given the shareholding interest it is reasonable the chairperson works with the Chief Executive officer. In my view this reason is rational as the company shareholding of chairperson is substantial and if it aligns with other shareholders he may act in the best interest of shareholders and may motivate the executive to make decisions which will maximize shareholders value in the long-term a going concern and minimize his decision making and behavior to maximize himself interest and not acting in the best interest if it is due to the fiduciary situation of the directors in UK as the agency theory is to some extent applicable given the theory of firm is embedded on the agency theory in UK historically.
In addition, in the annual Report 2006 of Abbots Group plc the pay of executive and non executive directors are monitored and it depends on their objective evaluation of their performance and the pay packages are designed so that the directors
and non executive directors do not act to prepare financial statements and other estimates and application of accounting principles and accounting methods to manipulate the performance to cover the actual economic performance of the company and a short-term view of the company's strategic direction. This satisfies generally to a greater extent that the combine code relating to the determination of directors pay and the pay to non-executive directors of the company and can be argued the company has complied with the code relating to directors and non-executive directors pay which is not excessive compared with other companies and linked with the performance evaluation on a regular basis having rigorous objective criteria.
