The FRC today began consultation on two possible changes to the Combined Code.

The effect of these proposals would be to remove the restriction on an individual chairing more than one FTSE 100 company; and, for listed companies outside the FTSE 350, to allow the company chairman to be a member of, but not chair, the audit committee provided he or she was considered independent on appointment.

These proposals follow a review of the impact and implementation of the Combined Code, the results of which were published in November. The review found that the Code continues to have a broadly beneficial impact, and is seen as having contributed to higher overall standards of governance among UK listed companies and to more professional boards; but while there are many positive indicators to suggest that the ‘comply or explain’ approach is working fairly well, there is also some frustration with its day-to-day operation.

Copies of the consultation document can be obtained from the FRC website at: http://www.frc.org.uk/corporate/2007review.cfm, together with a report on the main findings of the review of the impact and implementation of the Code. Comments are requested by 14 March 2008.

If changes are made as a result of the consultation, the intention is that the revised Code would apply to financial years beginning on or after 29 June 2008.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (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 and Actuarial Discipline Board) and by the Committee on Corporate Governance.
2. The current version of the Combined Code applies to all financial years beginning on or after 1 November 2006. UK companies listed on the Main Market of the London Stock Exchange 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. Consultation on the proposed amendments is being carried out in parallel with an FSA consultation document on the draft new FSA Rules needed to implement the corporate governance requirements in the 4th and 8th Company Law Directives (which respectively require listed companies to produce a corporate governance statement and to have an audit committee).
4. All press enquiries should be addressed to Chris Hodge on 020 7492 2381 (E-mail: c.hodge@frc.org.uk).