Comparing codes: trends in codes of governance

Sarah Loader, CT Associate Consultant, identifies key trends across the Charity, UK Corporate and Sports Code of Governance  as well as highlighting differences.

Since the Cadbury report into corporate governance was published in 1992, a number of codes of governance have been produced for a range of sectors, each aiming to raise standards of governance and to provide reassurance to stakeholders and the wider public, often after high profile failures or when dubious practices have come to light.

Adopting a code of governance can provide external validation of the effectiveness of an organisation. It can also provide organisations with a template against which they can seek assurance on their own performance and improve their systems where necessary. In some cases adopting a code might be the only way of accessing funding.

Key governance trends

To identify key trends, we are looking at three codes in particular:
• the Charity Governance Code, the most recent version of which was published in 2017;
• the Code for Sports Governance, which was introduced in 2016;
• and the most recent version of the UK Corporate Governance Code, which comes into effect from 2019.

Not surprisingly there are many similarities between the codes, as explored below.

Key similarities: charity, sports and corporate governance codes

1. Purpose: Clarity of purpose is a key aspect of each of the codes, with an emphasis on the strategic role of the board and a division between that strategic role and role of the executive in carrying out the day-to-day business of the organisation.

2. Control and oversight: The Board should take responsibility for ensuring that effective controls are in place and that there is oversight of risk.

3. Organisational culture: Each of the codes places an emphasis on the culture and values of the organisation and the need for effective and appropriate Board behaviours.

4. Diversity: Promoting diversity on Board and ensuring a mix of skills and experience runs through each of the Codes.

5. Engagement : Each of the Codes encourages effective engagement with stakeholders and a level of transparency in the work of the organisation.

6. Regular refresh of Board members: There is general agreement that limited terms of office are useful to ensure that Boards refresh their skills. Open recruitment of new Board members is also encouraged.

7.  Senior Independent Director (SID)/vice chair: Each of the codes makes mention of the need to consider appointing a Vice-Chair or SID, to act as a sounding board for the Chair and in some cases to be the person Board members can approach if they have concerns about the Chair.

What are the differences?

The codes diverge in two main areas.

First, around the degree of compulsion to comply. While all three codes incorporate a degree of flexibility in application (acknowledging the differing size and complexity of operation of different organisations), there is a differing approach to how organisations are required to comply.

The Corporate Code works on a “comply and explain” basis, with companies having to make a statement of how they have applied the principles and an explanation of why they might have departed from a principle.

The Charity Governance Code has no similar reporting requirement. Rather it adopts an “apply and explain” approach, which merely encourages charities that adopt the code to publish a brief statement to explain their use of the Code.

The Code of Sports Governance is very much linked to receipt of funding from Sport England or UK Sport. Compliance with the Code is assessed and funding can be impacted by the level of compliance with the Code.

Second, the codes reflect the different emphasis of the particular sector, for example, around remuneration. Board members in the charitable sector are, in the main, unpaid. In sports organisations there are some Board members who are remunerated and there is usually a mix of executive and non-executive Board members in corporate organisations. Unsurprisingly, there is therefore much more emphasis on remuneration and its setting and purpose in the UK Corporate Governance Code.

Overall, the three codes have much in common. Clarity of purpose, oversight and a strategic approach are threads that run through each code. There is increasing emphasis on Board behaviours and a positive push to increase diversity on Boards. There is much that unites and relatively little that divides the three Codes. Good governance looks pretty much the same whichever sector you are in.

To discuss the issues raised in this article, contact Sarah Loader on Sarah.loader@campbelltickell.com

This article also appears in CT Brief 39- Charities edition