The Financial Reporting Council (FRC), last Tuesday, released an updated version of the Combined Code on Corporate Governance, the voluntary code by which many UK-listed companies currently operate. Although changes are small, there are enhancements to the need for website information and this release is likely to strengthen the case for the Combined Code becoming the legal requirement.
The FRC is the UK's independent regulator for corporate reporting, auditing and actuarial practices and governance and, in the Combined Code sets out recommended practices for UK listed companies. Although not yet compulsory, listed companies are required under the UK Listing Authority's Listing Rules to follow the provisions of the Combined Code or provide an explanation in their annual report of why they have not done so (known as "comply or explain").
The changes in this release of the Combined Code, first released in 2003, effect remuneration committees, the treatment of "votes withheld" and proxy voting at shareholder meetings plus a publication of board committee terms of reference. The FRC, with the reported support of listed companies, has also reiterated its commitment to a "light touch framework for promoting good governance". The original Combined Code has been generally well received and this acceptance makes listing in the UK attractive to local and overseas companies concerned about the more restrictive and procedural Sarbanes-Oxley Act compliance required in the USA.
Although changes are minor, their publication shortly before the consultation, by the FSA, the UK Listing Authority, is significant in confirming the FRC's approach to corporate governance. The consultation, planned for this September, is expected to result in the formal inclusion of the Combined Code in the UK's Listing Rules, and the FRC is encouraging all listed companies and their investors to adopt the updated Code on a voluntary basis for reporting years beginning on or after 1 November 2006.
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