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The Corporate Governance Code

Written by Calum Haswell

Friday, 28 May 2010

The Financial Reporting Council (FRC) has published its Corporate Governance Code, its revised and renamed Combined Code. This Code sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.

All companies with a Premium Listing of equity shares in the UK are required to report on how they have applied the Combined Code in their annual report and accounts.

Changes to the Code include:

To improve risk management, the company‘s business model should be explained and the board should be responsible for determining the nature and extent of the significant risks it is willing to take.
Performance-related pay should be aligned to the long-term interests of the company and its risk policy and systems.
To increase accountability, all directors of FTSE 350 companies should be put forward for re-election every year.
To promote proper debate in the boardroom, there are new principles on the leadership of the chairman, the responsibility of the non-executive directors to provide constructive challenge, and the time commitment expected of all directors.
To encourage boards to be well balanced and avoid “group think” there are new principles on the composition and selection of the board, including the need to appoint members on merit, against objective criteria, and with due regard for the benefits of diversity, including gender diversity.
To help enhance the board’s performance and awareness of its strengths and weaknesses, the chairman should hold regular development reviews with each director and FTSE 350 companies should have externally facilitated board effectiveness reviews at least every three years.