The Financial Reporting Council’s new UK Corporate Governance Code has replaced the Combined Code on Corporate Governance and applies to accounting periods beginning on or after 29 June 2010. Whether in the UK or not, the new Code is worth reviewing.
The new Code again emphasises the role and responsibilities of the board and continues the existing ‘comply or explain’ approach. Changes introduced by the new Code include:
- Annual election of directors for all directors of FTSE 350 companies. All other directors will continue to be subject to election at intervals of no more than three years.
- Board diversity is encouraged to improve the quality of decision-making and to reduce the risk of “group think.” Appointments should be made on merit against objective criteria and with due regard for the benefits of diversity on the board, including gender.
- Board performance. In addition to boards reviewing their own performance annually, FTSE 350 companies should now be externally facilitated at least every three years (and any connections with external facilitators should be disclosed).
- Board’s responsibility for risk. Boards should, at least annually, conduct a review of the effectiveness of the company’s risk management and internal control systems and should report to shareowners.
- Proper debate. New provisions outline the chairman’s responsibilities for leading the board, the role of non-executives in challenging and developing strategy, and the need for all directors to have time to discharge their duties sufficiently.
- Remuneration. The performance related element of executive directors’ remuneration should be stretching, designed to promote the long-term success of the company and the remuneration of non-executive directors should not include share options or other performance-related elements. The remuneration committee should consider the use clawbacks for misstatement or misconduct and non-financial performance metrics generally compatible with risk policies and systems.
View the new UK Corporate Governance Code (43 page pdf). View the FRC’s revisions to the UK Corporate Governance Code (24 page pdf). (FRC publishes the new UK Corporate Governance Code, Shepherd & Wedderburn LLP, 6/30/10) See also UK Dismantles FSA and Empowers Bank of England, PLI Practice Center, 7/6/10.