CORPORATE GOVERNANCE
FRC launches proposed reforms to the UK Corporate Governance Code
The Financial Reporting Council has today launched a consultation on its proposals to reform the UK’s Corporate Governance Code (formerly the Combined Code). The Code has been revised regularly to ensure it reflects changing governance concerns and practices and economic circumstances. The latest proposals take into account those lessons of the recent financial crisis that are relevant to all companies.
The main proposals are as follows.
To enhance accountability to shareholders, the FRC proposes either the annual re-election of the chairman or of the whole board.
To ensure the board is well balanced and challenging, new principles are put forward on the leadership of the chairman, the roles, skills and independence of the non-executive directors and their level of time commitment.
To enhance the board’s performance and awareness of its strengths and weaknesses, board evaluation reviews should be externally facilitated at least every three years and the chairman should hold regular development reviews with each director.
To improve risk management, new principles are proposed on the board’s responsibility for and handling of risk.
Proposals are also made to emphasise that performance-related pay should be aligned to the long-term interests of the company and its policy on risk.
The Code, which was formerly known as the Combined Code, will be renamed “The UK Corporate Governance Code” to avoid confusion among overseas investors.
Background
The Financial Reporting Council (FRC) is the government-sponsored independent regulatory body responsible for setting and monitoring standards of corporate governance in the UK. The UK Corporate Governance Code - formerly known as the Combined Code - is the FRC’s code of practice on corporate governance, and sets the standard for all UK-listed businesses. Even businesses not strictly covered by the Code - unlisted businesses for example - tend to follow its provisions as a measure of good practice. The Code adopts a “comply or explain” approach, placing the onus on firms either to comply with the provisions of the Code, or to explain to shareholders why compliance is not the most practical option.
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The Code is subject to regular reviews by the FRC. The current version was published in 2008, and a further review was due in 2010. However, given the general consensus that failures in corporate governance were a contributor to the banking crisis, the FRC brought this review forward to 2009.
Want to know more?
Review of the Combined Code: Final Report
During the course of 2009 the FRC has carried out a review of the impact and implementation of the Combined Code, the results of which were published in December 2009. The main findings of the review are set out in “2009 Review of the Combined Code: Final Report”, which is available at www.frc.org.uk/corporate/reviewCombined.cfm.
Consultation on the Revised UK Corporate Governance Code
As a result of this 2009 review the FRC is consulting on proposed revisions to the Code. Further details are available in the consultation paper, which is available at www.frc.org.uk/corporate/reviewCombined.cfm.
Comments on the proposed changes to the Code set out in this consultation document are requested by 5 March 2010. Responses should be sent by email to codereview@frc.org.uk or in writing to: Chris Hodge, Corporate Governance Unit, Financial Reporting Council, Fifth Floor, Aldwych House, 71-91 Aldwych, London WC2B 4HN.
Subject to the outcome of consultation, and the necessary changes to the Listing Rules, the FRC intends that the revised Code should apply to all listed companies with a Premium Listing for financial years beginning on or after 29 June 2010.