The Financial Reporting Council (FRC) has today published a progress report on its review of the effectiveness of the Combined Code on Corporate Governance, which it began in March 2009.

The report summarises the results of the consultations and research that the FRC has carried out to date and invites views on various aspects of the Combined Code and its application. These are:

• The responsibilities of the chairman and non-executive directors;
• The composition of the board, including finding the right balance of independence and expertise;
• The frequency of directors’ re-election;
• Board information, development and support;
• Evaluation of the board’s effectiveness;
• The effectiveness of existing risk management systems;
• Remuneration policy and process;
• The usefulness of companies’ reporting on corporate governance; and
• Engagement between boards and shareholders.

Announcing the publication of the report Sir Christopher Hogg, Chair of the FRC, said:

“The two main themes to emerge from our review to date are the importance of getting the proper challenge in the boardroom through picking the right people and maximising their contribution to the board’s performance, and the need for better engagement between boards and investors.

There has been a lot of support for the Combined Code and the “comply or explain” mechanism rather than greater prescription. It is seen as better able to react to developments in best practice, and because it can take account of the different circumstances in which companies operate it can set higher standards to which they should aspire.

We share this view. But to remain credible the Code must continue to represent best practice, and companies and investors must adhere to the spirit of “comply or explain”. The FRC will strengthen the Code where it is necessary to do so, but will do so in a proportionate way and will aim to avoid an increase in the overall level of prescription. ”

The FRC is also considering the implications of the consultation paper on the governance of banks and other financial institutions issued by Sir David Walker on 16 July. That report contains recommendations that could be taken forward through amendments to the Combined Code. It also recommends extending the responsibilities of the FRC and the FSA in relation to engagement between company boards and investors. The FRC is considering to what extent Sir David’s recommendations are also applicable for some or all listed companies in other sectors and, with the FSA, how best to implement them.

The FRC will issue a final report before the end of the year. Any proposed changes to the Combined Code will be subject to a separate consultation.

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 FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. 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 with equity securities admitted to a primary listing on the Official List are required under the Listing Rules to report on how they have applied the Combined Code in their annual report and accounts, and either to confirm that they have complied with the Code's provisions or - where they have not - to provide an explanation (known as “comply or explain”).
3. The FRC announced in March 2009 the latest in its regular series of reviews of the impact and effectiveness of the Combined Code. The initial consultation closed at the end of May. As well the interim report, the FRC has today published a summary of the main points raised by respondents, and a separate summary of the main points raised at a series of meetings held with the Chairs of nearly 100 listed companies. Copies of all of these documents and the individual responses to the consultation can be found at: http://www.frc.org.uk/corporate/reviewCombined.cfm.
4. Responses to the latest consultation are requested by 9 October 2009 and should be sent to codereview@frc.org.uk.
5. Sir David Walker’s consultation paper on the governance of banks and other financial institutions was published on 16 July. Consultation ends on 1 October. Copies of the consultation paper and details of how to be respond can be found at: http://www.hm-treasury.gov.uk/walker_review_information.htm.
6. Media enquiries should be directed to Chris Hodge, Corporate Governance Unit, telephone 020 7492 2381, email: c.hodge@frc.org.uk.