The Financial Reporting Council today published an updated version of the Combined Code on Corporate Governance.

A small number of changes have been made to the previous version of the Combined Code, which was published in 2003. These will enable the company chairman to sit on the remuneration committee if considered independent on appointment; provide shareholders voting by proxy with the option of withholding their vote on a resolution; and encourage companies to publish the details of proxies lodged on resolutions where votes are taken on a show of hands. These amendments received strong support in a public consultation exercise held earlier this year.

Announcing the publication of the updated Combined Code, Sir Christopher Hogg, Chairman of the FRC, said:

“When the FRC reviewed the implementation of the 2003 Code in the second half of 2005, we found that it was generally felt to be bedding down well. There was no demand for major changes; rather, there was a widespread desire for a period of stability. But the review did identify a small number of modifications that have now been endorsed by both listed companies and their investors, and these have been incorporated into the updated version of the Code”.

“We will continue to monitor the operation of the Code and how companies and investors are applying ‘comply or explain’ to ensure that it remains an effective but light touch framework for promoting good governance. To this end we are currently engaged in a programme of detailed discussions with the Chairs of listed companies and leading shareholders. The object of these discussions is to enable us to get a deeper understanding of the impact of the Code.”

The Listing Rules will not formally apply to the revised Combined Code until a separate consultation has been carried out by the Financial Services Authority (as the Listing Authority). This consultation is expected to start in September 2006. However, in view of the limited nature of the changes and the strong support that they have received, the FRC would encourage listed companies and their investors to adopt the updated Code on a voluntary basis for reporting years beginning on or after 1 November 2006.

1. The Financial Reporting Council (FRC) is a unified, independent regulator. Its aim is to promote confidence in corporate reporting and governance.
2. The FRC’s six operating bodies are: the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board. 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.
3. The Combined Code sets out recommended corporate governance practices for UK companies listed on the Main Market of the London Stock Exchange. Listed companies are required under the UK Listing Authority’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”).
4. The changes made to the 2003 Combined Code will:
   
   • amend the existing restriction on the company Chairman serving on the remuneration committee to enable him or her to do so where considered independent on appointment as Chairman (although it is recommended that he or she should not also chair the committee);
   • 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. Many listed companies already provide this option. 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;
   • 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. The Company Law Reform Bill currently with Parliament includes clauses that would require companies to publish details of votes taken on a poll. This amendment to the Combined Code means that details of all votes would be made available; and
   • enable companies to meet the requirement to make the terms of reference of board committees available by placing them on their website.
5. Copies of the updated Combined Code can be downloaded at: www.frc.org.uk/corporate/combinedcode.cfm. Printed copies can be obtained free of charge from CCH Information (tel: 0870 777 2906 or online at www.cch.co.uk).
6. The changes to the Combined Code have been made following two consultation exercises, the first on the overall impact of the 2003 Code (held between July and October 2005) and the second on draft amendments to the Code (held between January and April 2006). Summaries of the responses to these consultations can be found at: www.frc.org.uk/corporate/reviews.cfm.  
7. Press enquiries should be directed to Chris Hodge on tel: 020 7492 2381 or e-mail: c.hodge@frc.org.uk.