The Combined Code on Corporate Governance sets out standards of good practice in relation to issues such as board composition and development, remuneration, accountability and audit and relations with shareholders.
All companies incorporated in the UK and listed on the Main Market of the London Stock Exchange are required under the Listing Rules to report on how they have applied the Combined Code in their annual report and accounts. Overseas companies listed on the Main Market are required to disclose the significant ways in which their corporate governance practices differ from those set out in the Code.
The Combined Code contains broad principles and more specific provisions. Listed companies are required to report on how they have applied the principles of the Code, and either to confirm that they have complied with the Code's provisions or - where they have not - to provide an explanation.
During 2007 the FRC has been reviewing the impact and implementation of the Combined Code. In October it announced the outcome of this review, including its intention to consult on limited amendments to the Code. More details can be found here.
Current versions of the Combined Code
A version of the Combined Code incorporating recommendations from the Higgs Report on non-executive directors and the Smith Report on audit committees was published in July 2003. This version of the Code applies to reporting years ending before 31 October 2007.
Combined Code July 2003 (280kb)
Following a review of the implementation of the Combined Code in 2005, a small number of changes were incorporated in an updated version of the Code published in June 2006. The updated Code applies to reporting years beginning on or after 1 November 2006.
Combined Code June 2006 (178kb)
The main changes made to the 2003 Combined Code were:
- to enable the company Chairman to sit on the remuneration committee where considered independent on appointment as Chairman (although it is recommended that he or she should not also chair the committee);
- to provide a ‘vote withheld’ option on proxy appointment forms to enable shareholders to indicate if they have reservations on a resolution but do not wish to vote against. A ‘vote withheld’ is not a vote in law and is not counted in the calculation of the proportion of the votes for and against the resolution; and
- to recommend that companies publish on their website the details of proxies lodged at a general meeting where votes are taken on a show of hands.
Printed copies can be obtained free of charge from CCH information, tel 0870 777 2906 or ordered online at: www.cch.co.uk
Documents associated with the 2005 review can be found at www.frc.org.uk/corporate/reviews.cfm
Associated guidance
The Turnbull guidance, which provides guidance to companies on how to apply the section of the Combined Code dealing with internal control (section C.2), can be found at www.frc.org.uk/corporate/internalcontrol.cfm
In addition the Higgs and Smith reports contained best practice guidance relating to non-executive directors and audit committees respectively. While company boards are not required to follow this guidance, it is intended to assist boards when implementing the relevant provisions of the Code.
The Smith Guidance on Audit Committees (120kb)
Suggestions for good practice from the Higgs Report (118kb)
As a result of the recommendations of the Market Participants Group looking at choice in the audit market, the FRC is currently consulting on possible amendments to the Smith guidance. Consultation ends on 6 June 2008, and the consultation document can be found here.
