The final version of a new Combined Code on Corporate Governance for UK company boardrooms has been published.
The code’s overall aim is to enhance board effectiveness and accountability and to improve investor confidence by raising standards of corporate governance.
The code, which was agreed during a meeting of the Financial Reporting Council (FRC), will come into effect for reporting years beginning on or after 1 November 2003.
It is based on the draft revision of the existing code that Derek Higgs suggested in his government-commissioned report on non-executive directors published in January, which also incorporated the recommendations of Sir Robert Smith’s report on audit committees.
The agreed final text reflects extensive consultation by the FRC since January. Its main features are:
- New definitions of the role of the board, chairman and non-executive directors.
- More open and rigorous procedures for the appointment of directors and from a wider pool of candidates.
- Formal evaluation of the performance of boards, committees and individual directors, enhanced induction and more professional development of non-executive directors;
- At least half the board in larger listed companies to be independent, non-executive directors, with a definition of independence of non-executive directors.
- The separation of the roles of the chairman and chief executive to be reinforced
- That a chief executive should not go on to become chairman of the same company
- Closer relationships between the chairman, the senior independent director, non-executive directors and major shareholders.
- A strengthened role for the audit committee in monitoring the integrity of the company’s financial reporting, reinforcing the independence of the external auditor and reviewing the management of financial and other risks.
As with the existing code, to meet their obligations under the Listing Rules, listed companies will have to describe how they apply the code’s main and supporting principles, and either confirm they comply with the code’s provisions or provide an explanation to shareholder