Corporate governance is codified good practice about board leadership, with recommendations for managing the direction, control, practices and systems which support the directors’ collective responsibility to promote the long-term sustainable success of the company. 

The main global guidance on corporate governance is: 

• the G20/OECD Principles of Corporate Governance, which give recommendations to governments.
• the International Corporate Governance Network (ICGN) Global Governance Principles, drawn up by investors with recommendations to companies.  

There are also many different national codes, but most codes cover similar areas, such as: 

• board roles and responsibilities, and corporate culture,
• leadership and independence,
• composition, skills and appointment,
• remuneration,
• risk oversight,
• shareholder engagement, including external reporting. 

Composition of the board

The OECD guidelines state that: “Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders, taking into account the interests of stakeholders.”  

The exact duty of directors varies according to national company laws, but this principle sets out recommendations for both a duty of care and a duty of loyalty. Some jurisdictions have unitary boards with both executive and non-executive directors; others have two-tier boards with the management board consisting of senior management, and the supervisory board consisting of non-executive directors, so the underlying structures may differ, but the principles remain the same. 

Good practice suggests that boards need to review their skills and experiences regularly to see whether these are sufficiently diverse and expert to meet the challenges faced by the company. HR can support the board discussing its needs in relation to skills assessments, or in connecting it to executive coaches or others who perform board evaluations. 

The board should set out the company’s purpose and provide both support to, and oversight of, management. Key responsibilities set out in the G20/OECD and ICGN Principles include:

• Reviewing and guiding corporate strategy, major plans of action, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures.
• Reviewing and assessing risk management policies and procedures.
• Monitoring the effectiveness of the company’s governance practices and making changes as needed.
• Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.
• Ensuring the integrity of the corporation’s accounting and reporting systems for disclosure, including the independent external audit, and that appropriate control systems are in place, in compliance with the law and relevant standards.
• Overseeing the process of disclosure and communications.
• Exercising objective independent judgement on corporate affairs.
• Carrying out evaluations to appraise their performance and assess whether they possess the right mix of background and competences, including with respect to gender and other forms of diversity.
• When employee representation on the board is mandated, mechanisms should be developed to facilitate access to information and training for employee representatives, so that this representation is exercised effectively and best contributes to the enhancement of board skills, information and independence.
• Demonstrating a culture of high standards of business ethics and integrity aligned with the company’s purpose and values at board level and throughout the workforce.

HR has a role in supporting the board to understand the key people risks, people performance issues, employee engagement and other key people metrics relevant to the business. In many businesses, the board papers will be produced in liaison with the company secretary. 

The UK Corporate Governance Code is part of UK company law and sets out company governance requirements for companies listed on the London Stock Exchange.

Recent updates to the Code and guidance (published in 2024, to come into effect for the financial year beginning 1 January 2025) have included new responsibilities for directors around people issues. In the 2024 Code revision, boards are asked to comply with or explain against the following provisions:  

• Focus on outcomes, not just activities.
• Assess how the desired culture has been embedded. 
• Promote diversity, inclusion and equal opportunity, without referencing specific groups (previously the focus was on gender and ethnicity, but now EDI factors are most relevant to business). 
• Describe malus and clawback remuneration provisions.  

In addition, there are many new questions for boards in the accompanying board effectiveness guidance (which is good practice only), including: 

• How are boards identifying and addressing future challenges and opportunities, including business-relevant environmental and social matters?   
• Who is responsible for driving a strategy on modern slavery and how do we conduct due diligence of our supply chains, including any mitigating and follow-up actions?
• Have we conducted a full skills assessment to identify what skills gaps we may have in our boardroom? 
• Do the people in the company (and its providers of outsourced services) have the knowledge, skills and tools to support the achievement of the company’s objectives and to effectively manage risks to their achievement? 
• Is remuneration aligned with sustainability? 
• Are waiting periods for colleagues who require reasonable adjustments at work kept to a minimum? 
• Do the company's culture, code of conduct, HR/people policies and performance reward systems support the business objectives, risk management and the internal control system? 
• Does the board have clear strategies for dealing with the principal risks that have been identified? Is there a policy on how to manage these risks (including people risks)?
• What are the channels of communication that enable individuals, including third parties, to report concerns, suspected breaches of law or regulations, other improprieties, or challenging perspectives?  

People professionals need to be prepared to support the board and board committees in responding to these questions. Senior people professionals interested in becoming non-executive directors need to be familiar with these questions. 

The 2018 Code

In the 2018 Code revision, there was an emphasis on the importance of corporate culture and a new requirement that boards demonstrate how the organisation is improving employee voice at board level and illustrate how they’re applying one or more of the below models: 

• Giving a non-executive director responsibility over workforce issues.
• Establishing a workforce director (so-called ‘worker on the board’).
• Establishing an employee advisory committee (or broader stakeholder committee). 

It also included: 

• Mandatory requirements for the reporting of pay ratios between chief. executives and workers, including justification of the difference in pay.
• Requirements for directors of all large organisations to set out how they are acting in the interests of employees and shareholders.
• A public register of listed companies that have faced significant shareholder opposition to executive pay packages 
• A new requirement that the remuneration committee reviews pay across the wider workforce, and illustrates how employees have been engaged throughout the process. It must also illustrate how internal and external measures are being used to measure the appropriateness of executive pay. 

The main committees are usually nomination, remuneration and audit committees, but there are sometimes also risk, health and safety or ESG committees, depending on the business. People professionals may be called upon to support the board or committee chairs with agenda papers, research, updates or advice. 

The exact role of the committees is usually set down in terms of reference. 

Nomination committees 

The role of the nomination committee may include, according to the OECD guidelines: 

• Selecting, overseeing and monitoring the performance of key executives, and, when necessary, replacing them and overseeing succession planning.
• Ensuring a formal and transparent board nomination and election process.

Remuneration committees

According to the OECD guidelines and ICGN Principles, the role of the remuneration committee may include: 

• aligning key executive and board remuneration with the longer-term interests of the company and its shareholders,
• balancing the payments of dividends and capital,
• considering social factors such as inequality. 

Audit committees 

The role of the audit committee may include: 

• overseeing the financial statements in the annual report, audit and reporting process,
• overseeing the risk management and internal controls process (including key people risks). 

Contacts

Financial Reporting Council (FRC)

Institute of Directors website - briefings on corporate governance (some briefings are available to IOD members only)

Chartered Governance Institute

ICAEW (Institute of Chartered Accountants of England & Wales)

ACCA Global (Association of Chartered Certified Accountants) 

Useful links:

UK

UK Corporate Governance Code for listed companies 

Charity Governance Code

Code of Conduct for Board Members of Public Bodies 

12 Principles of Governance for all Public Body NEDs  

International:

G20/OECD Principles of Corporate Governance

International Corporate Governance Network: Global Governance Principles

European Corporate Governance Network: List of codes worldwide 

European Confederation of Directors’ Associations (ecoDa) 

EuropeanIssuers (EU quoted companies) 

CIPD. (2023) The value of people expertise on corporate boards 

CIPD Viewpoint. Executive pay

CIPD. (2021) Role of the RemCo: How to achieve good governance of pay, people and culture

Books and reports

Chartered Institute of Personnel and Development. (2016) A duty to care? Evidence of the importance of organisational culture to effective governance and leadership. London: CIPD.

McGregor, L. (2000) The Human Face of Corporate Governance. Palgrave. 

Simpson, J. and Taylor, J.R. (2013) Corporate governance, ethics and CSR. London: Kogan Page

Allen, B. and Barber, B. (2017) ICSA Corporate Governance Handbook. CGI Publishing Ltd.

Tricker, B. (2019) Corporate governance: principles, policies and practices. Oxford: OUP.

Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.

Journal articles

Clark, E. (2017) Employment practices are a key plank of good corporate governance. People Management (online). 15 November.

Ozanne, S. (2018) Modern slavery act: why corporate accountability is set to rise. People Management (online). 17 October.

Roper, J. (2019) Can HR measure up? HR Magazine. November. pp16-23. Reviewed in Bitesize research.

Roper, J. (2020) Rethinking corporate governance after Covid-19. People Management (online). 4 June.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.