FRC Proposes Reforms To UK Corporate Governance Code

by Robin Pilgrim, LawAndTax-News.com, London

04 December 2009

The Financial Reporting Council (FRC) proposes to reform the UK’s Corporate Governance Code (formerly the Combined Code). The latest proposals take into account relevant lessons from the recent financial crisis.

Sir Christopher Hogg, head of the FRC, observed that:

“The chairman has a vital role to play in ensuring that the executives have appropriate freedom to manage the business but also accept the importance of opening themselves to challenge and earning the trust of the whole board. For their part, the non-executives must have the skills, experience and courage to provide such challenge."

“We have also seen that, in order for UK corporate governance to be strong, boards must embrace the spirit of the code and shareholders must play their part. The Code demands that boards seriously and self-critically assess their performance and openly explain themselves to shareholders."

"The FRC therefore welcomes the government’s request that it takes on the stewardship of the new code on the responsibilities of institutional shareholders.”

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 emphasize that performance-related pay should be aligned to the long-term interests of the company and its policy on risk.

Consultation on the draft revised Code ends on March 5, 2010. 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 June 29, 2010.

In response to the government’s request that the FRC take responsibility for a stewardship code for institutional investors, as recommended by Sir David Walker, the FRC will carry out a separate consultation designed to ensure that this can be operated effectively.

.

 

 






Write a comment