Corporate Governance: An Essential Guide for Directors, Executives and Business Owners

At a time when businesses are under increasing scrutiny from regulators, investors, and the public, effective corporate governance is more important than ever. For companies operating in the UK, understanding the legal and regulatory framework is not just about compliance, it’s about protecting your business, reputation, and long-term success.

This article outlines the key elements of corporate governance under UK law and what they mean for your business.

Corporate governance refers to the way in which companies are controlled and run. It is the system of rules, practices and processes by which a company is directed and controlled, ensuring accountability and transparency among stakeholders.

The UK corporate governance framework adopts a principles-based approach, which allows businesses flexibility in how they apply standards, provided they act transparently and responsibly. The UK corporate governance framework recognises that company stakeholders have different roles, rights and duties, and aims to make sure that those are identified and protected. The emphasis is on leadership, accountability, and integrity, which are all fundamental to running a successful and sustainable business.

This means that whilst the framework is not ‘one-size-fits-all’, it does demand thoughtful application and clear justification of your governance choices.

The Companies Act 2006 is the primary piece of legislation governing UK companies. It sets out the legal duties of directors, including but not limited to:

• Promoting the success of the company (Section 172)
• Exercising independent judgment and due care (Sections 173–174)
• Avoiding conflicts of interest (Section 175)

These duties are not just procedural; they require directors to take a balanced view and consider shareholders as well as wider stakeholders such as employees and customers.

What this means for you: The corporate governance principles in the Companies Act are binding on all companies, regardless of size. Directors can be held personally liable for breaches, so it is essential to document key decisions and demonstrate that you’ve considered relevant factors, especially in strategic or contentious matters.

In addition to the Companies Act 2006, companies that are listed on the UK stock exchange must follow the Listing Rules, the Disclosure Guidance and Transparency Rules and are expected to follow the UK Corporate Governance Code (‘the Code’), which is overseen by the Financial Reporting Council (FRC). Unlisted larger companies are also subject to the Wates Corporate Governance Code for Larger Companies (‘the Wates Code’).

The Code covers:

• Board leadership and purpose
• Division of responsibilities (e.g. separation of chair and CEO roles)
• Board composition and succession planning
• Risk management and internal controls
• Executive remuneration

Whilst neither the Code nor the Wates Code are legally binding on companies, they operate on a ‘comply or explain’ basis, meaning that if companies deviate from their provisions, they must explain and justify why they have done so to their shareholders in their annual reports.

What this means for you: Whilst private companies aren’t legally bound by the Code, many choose to adopt its principles, especially when preparing for investment, sale, or IPO. Larger companies must also be aware that the Wates Code is applicable and will act as a useful guide to the basic principles of good corporate governance.

Strong governance depends on the right structure:

• A well-functioning board of directors, including both executive and non-executive directors (NEDs) with a balance of skills, backgrounds, experience and knowledge
• Independent audit, remuneration, and nomination committees
• Clear reporting lines and board evaluation procedures
• Effective boards challenge management, oversee risk, and ensure decisions align with company values and strategy.

Tip for clients: Regular board evaluations (internal or external) are not only recommended, but they’re also increasingly expected by investors and regulators.

Directors’ duties under the Companies Act require them to have regard for both stakeholders and shareholders. This is especially relevant in today’s business environment, where ESG (Environmental, Social, and Governance) factors are front and centre.

Companies above a certain size must report on:

• How stakeholder views were considered in decisions
• Their impact on the environment and society
• Governance structures supporting ethical conduct

Implication: ESG is integral to your risk management and investor relations strategies.

Clients often come to us with questions like:

• Are we exposed to liability for a board decision?
• How do we ensure our governance meets investor expectations?
• What’s the right governance model for a family business or startup?
• How do we respond to activist shareholders or regulatory enquiries?

As legal advisors, we help clients navigate these issues with tailored solutions, from reviewing board minutes and governance documents to advising on shareholder disputes, director duties, and regulatory filings.

UK corporate governance law is both flexible and demanding. Whether you’re scaling a private business, managing a listed company, or preparing for investment, strong governance isn’t just about ticking boxes, it’s about building a resilient and trusted business.

Our Corporate and Commercial team works closely with boards, general counsel, and senior management to help clients meet their legal obligations and turn governance into a strategic advantage.

If you need advice on your governance framework or a board-related issue, we’d be happy to discuss how we can support your business.

Tel:      01245 893400 | 01702 410880
Email: info@backhouse-solicitors.co.uk
Visit our Chelmsford office: 17 Duke Street, Chelmsford, Essex, CM1 1JU
Visit our Leigh-on-Sea office: 22-24 Elm Road, Leigh-on-Sea, Essex, SS9 1SN
Or send us a message through the Contact Us page on this website