The History of Corporate Governance in the United Kingdom and Its Evolution
Corporate governance in the United Kingdom has a long and dynamic history that reflects changing economic, legal and societal expectations about how companies should be directed and controlled. Although often associated with contemporary debates about board structures and executive accountability, its roots stretch back several centuries to the rise of joint stock enterprise. Early chartered trading companies such as the British East India Company demonstrated for the first time the particular governance challenges posed when ownership is widespread and control is exercised by managers rather than by investors themselves. These enterprises highlighted the enduring challenge of ensuring that directors’ actions align with shareholder interests, a difficulty that remains central to modern governance discourse.
The nineteenth century ushered in transformative legal reforms that laid the foundations of the modern corporate economy. The Joint Stock Companies Act 1844 enabled incorporation by registration, while the Limited Liability Act 1855 protected personal assets of shareholders. These reforms encouraged broader public participation in enterprise and accelerated the growth of large commercial entities. However, governance mechanisms remained minimal and relied largely on shareholder meetings, voting rights and voluntary disclosure, with little direct legal oversight of managerial decision making. As commerce expanded, the limits of shareholder supervision became increasingly visible, particularly as investors grew more dispersed and ownership became separated from everyday control.
By the early twentieth century managerial expertise had grown in importance as corporations became larger, more complex and more reliant on professional managers than on owner directors. This shift amplified concerns about agency and accountability, and while successive Companies Acts refined reporting obligations and clarified directors’ responsibilities, governance remained fundamentally market led rather than rule bound. Shareholder oversight was often diluted because those with beneficial interests were not those directly exercising votes, a trend that deepened as institutional investors began accumulating large equity holdings.
A defining moment in the development of modern UK corporate governance occurred with the Cadbury Report of 1992. Prompted by corporate failures including the collapses of Polly Peck and the Maxwell Group, the Cadbury Committee defined corporate governance as the system by which companies are directed and controlled. It placed particular emphasis on the role of boards in exercising leadership within a framework of accountability. Perhaps its most influential contribution was the introduction of the comply or explain model, in which companies are expected either to adopt recommended governance practices or to provide an open and reasoned justification for doing otherwise. This approach retained flexibility and accommodated commercial differences while raising expectations for transparency.
Cadbury’s work catalysed a series of further reports that strengthened the governance landscape, including Greenbury on executive remuneration, Hampel on consolidating governance practice, Turnbull on internal controls and Higgs on the role of non executive directors. Over time these principles evolved into what is now known as the UK Corporate Governance Code, which operates as soft law but is reinforced through listing rules and investor expectations. During the same period governance received statutory reinforcement through the Companies Act 2006, which codified directors’ duties, clarified shareholder powers and established a clearer framework for disclosure and enforcement. The introduction of the UK Stewardship Code further extended governance accountability by placing explicit obligations on institutional investors to monitor, engage with and influence the companies they invest in on behalf of beneficiaries.
In January 2024 the Financial Reporting Council published the most significant reforms since 2018 in the form of the revised UK Corporate Governance Code. The new Code applies to financial periods beginning on or after 1 January 2025, with one provision taking effect from 2026. The updated Code retains its five pillar structure and continues to operate under the comply or explain philosophy. However, it introduces targeted reforms designed to strengthen internal control assurance, improve outcomes based reporting and reinforce accountability in remuneration practices. The central change is Provision 29, which requires companies to confirm in their annual reports that their material internal controls are effective and to explain how the board has monitored and reviewed them. This provision expands the focus from establishing governance systems to actively assessing their performance.
Additional revisions include enhanced board reporting that emphasises the substance and outcomes of governance decisions rather than merely describing structures. The Code also updates expectations relating to diversity and inclusion and confirms that remuneration frameworks should include mechanisms such as malus and clawback to ensure alignment between reward and performance. Although the number of changes is limited, the revised Code signals a stronger regulatory intent to secure accountability for risk management and to deepen board responsibility for operational resilience.
At present the UK governance model rests on three interacting pillars. The UK Corporate Governance Code sets out principles and expectations for companies listed on the premium segment of the London Stock Exchange. The Companies Act 2006 provides enforceable legal duties and statutory reporting obligations. The UK Stewardship Code encourages institutional investors to engage actively and responsibly with the companies they own. Together these elements form a hybrid regime in which the state provides a legal safety net and market institutions enforce standards through transparency and accountability rather than rigid mandates. Although the system remains grounded in shareholder accountability, it increasingly recognises wider public and stakeholder implications of corporate behaviour, including workforce concerns, sustainability, long term purpose and culture.
In conclusion the evolution of corporate governance in the United Kingdom reflects continuous adaptation shaped by crises, reform and the changing role of the corporation in society. From the informal oversight of chartered companies to the modern principles based Code, governance has matured into a sophisticated framework that demands transparency, accountability and stewardship. Today the UK stands as an international reference point for a flexible yet rigorous governance model that seeks to balance commercial autonomy with responsible leadership and long term value creation.
