FRC to reform UK governance code – new name, new emphasis

The UK’s Finanancial Reporting Council has issued a series of proposal to reform the UK’s corporate governance regime. What was previously called “The Combined Code” now becomes “The UK Corporate Governance Code” and, subject to consultation,  will apply to all listed companies with a Premium Listing for financial years beginning on or after 29 June 2010, regardless of their country of incorporation.

Since the publication of The Cadbury Report on 1 December 1992, the UK has reviewed and revised its governance code on a regular basis, reflecting changing governance concerns and practices and economic circumstances (hence the “Combined” name). This latest series of proposals take into account those lessons of the recent financial crisis that are relevant to all companies. In light of Sir David Walker’s recent proposals, there are two significant proposals set out in the consultation:

  • Adoption of the recommendations of the Walker Report that the FRC considers, after consultation, are appropriate to all listed companies, not just BOFIs; and
  • The FRC to take responsibility for a stewardship code for institutional investors and the FRC to carry out a separate consultation designed to ensure it can be operated effectively.

Commenting on the release of the consultation Sir Christopher Hogg, Chairman of the FRC, said: “…in order for UK corporate governance to be strong, boards must embrace the spirit of the code and shareholders must play their part. The Code is made up of strong principles that require careful thought and application to the circumstances of each company. The Code is not a set of rules to be applied unthinkingly. It demands that boards seriously and selfcritically assess their performance and openly explain themselves to shareholders. And their assessments must be considered equally seriously by major shareholders if the board’s efforts are to be sustained. The FRC therefore welcomes the Government’s request that it takes on the stewardship of the new code on the responsibilities of institutional shareholders.

“The FRC has not found evidence of serious failings in the governance of British business outside the banking sector. However, the proposed changes to the Code are in our view sensible improvements that would benefit governance in all major businesses. They are therefore commended for widespread adoption through the Code.”

The main proposals for the new UK Governance Code are:

  •  Annual re-election of the chairman or of the whole board.
  • New principles on the leadership of the chairman, the roles, skills and independence of the non-executive directors and their level of time commitment.
  • Externally facilitated board evaluation reviews  at least every three years and the chairman should hold regular development reviews with each director.
  • New principles are proposed on the board’s responsibility for and handling of risk.
  • Performance-related pay should be aligned to the long-term interests of the company and its policy on risk.

Consultation on the draft revised Code ends on 5 March 2010 with a separation consultation for the Stewardship Principles which is not expected to be announced until the end of 2009.


The main actions being taken as result of the review are summarised in the executive summary of the FRC’s report, “2009 Review of the Combined Code: Final Report”. Copies of the FRC’s report, the consultation document containing the draft revised Code, and other documents relating to the review are available at:

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