Further to the statement made on 15 December 2005, the Financial Reporting Council today began consultation on the possibility of making a small number of changes to the Combined Code. This follows the FRC’s review of progress in implementing the 2003 Combined Code, the full report of which is also published today. As reported in the initial announcement, the review found that the Code was bedding down well, and that significant changes were not needed.

The main proposals on which views are being sought are to relax the existing provisions to allow the company chairman to sit on the remuneration committee, and to add new provisions regarding companies including a ‘vote withheld’ box on AGM proxy voting forms and publishing the results of resolutions voted on a show of hands, as recommended by the Shareholder Voting Working Group.

Consultation on possible amendments to the Code closes on 21 April 2006. If implemented, the intention is that changes would apply to financial years beginning on or after 1 November 2006.

1. The Financial Reporting Council (FRC) is a unified, independent regulator. Its mission is to promote confidence in corporate reporting and governance. The FRC incorporates five operating bodies: the Accounting Standards Board, the Auditing Practices Board, the Financial Reporting Review Panel, the Accountancy Investigation and Discipline Board and the Professional Oversight Board for Accountancy. The Council is responsible for the FRC’s work on corporate governance and is assisted by a Committee on Corporate Governance, whose members are drawn from the Council.
2. The 2003 version of the Combined Code applies to all financial years beginning on or after 1 November 2003. Listed companies are required under the UKLA’s Listing Rules to follow its provisions or provide an explanation in their annual report of why they have not done so (known as “comply or explain”).
3. The main findings of the review were announced on 15 December 2005 (FRC press notice 133). The main findings were:
   • Good progress has been made in implementing the revised Combined Code following its introduction in 2003, and it is generally considered to be having a positive impact.
   • 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. Most companies are properly adopting the ‘comply or explain’ approach, and where comparative data is available it shows that an increasing number of companies are choosing to apply the majority of Code provisions.
   • 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.
4. The possible amendments to the Combined Code on which the FRC is consulting are:
   • to enable the company chairman to sit on the remuneration committee where he or she was considered independent on appointment;
   • to provide shareholders voting by proxy with the option of withholding their vote, and to recommend that companies publish the details of proxies lodged on resolutions where votes are taken on a show of hands;
   • to enable companies to comply with some of the provisions on the Code involving disclosure by placing the relevant information on its website; and
   • to set out in Schedule C of the Code the disclosure requirements in the Listing Rules in order to ensure companies are able to find details of all relevant obligations in one place.
5. A full report on the findings of the FRC’s review and a consultation document setting out possible amendments to the Combined Code can be found on the FRC website at: http://www.frc.org.uk/corporate/combinedcode.cfm.  Consultation on possible amendments to the Code closes on 21 April 2006. If implemented, the intention is that changes would apply to financial years beginning on or after 1 November 2006.
6. Press enquiries should be directed to Chris Hodge on tel: 020 7492 2381 or e-mail: c.hodge@frc.org.uk