Good progress has been made in implementing the revised Combined Code on Corporate Governance following its introduction in 2003. The Code is bedding down well and having a positive impact. There is no appetite for major change and only two suggested amendments carried strong support. These are the main findings of an implementation review carried out by the Financial Reporting Council between July and October this year.
The other main findings of the FRC’s review are:
It was the clear view of respondents to the review that there has been an improvement in the quality of corporate governance among listed companies since the introduction of the revised Combined Code, and more companies are choosing to follow the majority of provisions for which comparative data is available.
Both companies and investors report that the dialogue between boards and their main shareholders is more constructive than it had been a couple of years ago, although there are concerns that the Combined Code continues to be viewed as a rigid set of rules in some quarters.
Investors consider that the overall quality of disclosure in annual reports has improved noticeably over the last couple of years, although they see scope for corporate governance statements to become more informative still.
In light of the progress that has been made since 2003, respondents to the review considered that significant changes to the Code were not necessary. As a consequence, the FRC will be recommending only two substantive amendments to the Code when it consults early in 2006.
Announcing the findings of the review Sir Bryan Nicholson GBE, chairman of the FRC, said:
“It is still early days in the life of the new Combined Code, but it is bedding down well. Companies and investors alike believe there have been improvements in the corporate governance of listed companies and tell us that the relationship between boards and their main shareholders is more constructive that it was at the time the 2003 Code was introduced. Investors also tell us that corporate governance statements in annual reports are becoming more informative.”
“The review has not surprisingly identified scope for further improvement. We will continue to monitor how companies and investors are implementing the Code and the impact that it is having. But overall I believe this is a strong endorsement of the ‘comply or explain’ approach to improving standards of corporate governance.”
The FRC will consult in January 2006 on possible amendments to the Combined Code. The main proposals will be to relax the existing provisions to allow the chairman to sit on the remuneration committee, and to add a new provision regarding companies including a ‘vote withheld’ box on AGM proxy voting forms, as recommended by the Shareholder Voting Working Group.
Since the FRC completed its review the Government has announced that the statutory requirement for quoted companies to publish an OFR is to be abolished. The FRC is working through all the implications of this decision, including any implications for the Combined Code.
