Combined Code review reports improvement in corporate governance

The Financial Reporting Council (FRC), the UK's independent regulator for corporate reporting and governance, has said that the findings from their review of the Combined Code on Corporate Governance show some significant improvements following its introduction in 2003.

The Combined Code on Corporate Governance sets out principles and provisions relating to the good governance of companies with the aim of providing guidance on how companies should be directed and controlled.

The FRC review reports that the Code has been well received and is having a positive impact. Amongst the main findings, the FRC report:

• an improvement in the quality of corporate governance among listed companies since the introduction of the revised Combined Code, and more companies are choosing to follow the majority of provisions for which comparative data is available
• more constructive dialogue between boards and their main shareholders, although there are concerns that the Combined Code continues to be viewed as a rigid set of rules in some quarters
• significant improvements in the overall quality of disclosure in annual reports, although further scope for corporate governance statements to become more informative
• the view that because of the progress made since 2003, further significant changes to the Code are not necessary

Commenting on the findings of the review Sir Bryan Nicholson GBE, Chairman of the FRC, said: "It is still early days in the life of the new Combined Code, but it is bedding down well. Companies and investors alike believe there have been improvements in the corporate governance of listed companies and tell us that the relationship between boards and their main shareholders is more constructive that it was at the time the 2003 Code was introduced. Investors also tell us that corporate governance statements in annual reports are becoming more informative."

"The review has not surprisingly identified scope for further improvement. We will continue to monitor how companies and investors are implementing the Code and the impact that it is having. But overall I believe this is a strong endorsement of the 'comply or explain' approach to improving standards of corporate governance."

The FRC will consult in January 2006 on possible amendments to the Combined Code when the full report from the findings of the review are published.