UK: FRC review of the Combined Code - progress report published

The Financial Reporting Council has today published a progress report and second consultation document as part of its review of the Combined Code. The report provides a summary of the FRC's recent consultation and research and invites views on various aspects of the Combined Code and its application. It also sets outs the following guiding principles on which the FRC seeks views (to quote directly from the report):

• Where there is a demonstrable need for best practice to be clarified or strengthened, this will be addressed either through amendments to the Code or additional, non-binding guidance.
• Where not constrained by regulatory requirements, we will seek to rationalise disclosure requirements in the Code to encourage more informative disclosure on the issues of most importance to investors and to discourage boiler-plating and box ticking.
• We will seek to avoid an increase in the overall level of prescription in the Code and to preserve its principles-based style. 

Amongst the issues identified for further consideration are the following (to quote directly from the report):

• Whether it would be helpful to give further clarification of the role, key responsibilities and expected behaviours of the chairman, the senior independent director and/or the non-executive directors, either in the Code or in non-binding guidance.
• Whether it would be helpful to provide further guidance on the time commitment expected of the chairman, senior independent director and/or non-executive directors. 
• Whether more guidance is needed, in the Code or elsewhere, on succession planning and the need to ensure that board composition is aligned with the present and future needs of the business. 
• Whether changes to voting would increase accountability to shareholders and which, if any, of the following options they would support as recommendations for possible inclusion in the Code: [a] Annual re-election of the company chairman, [b] Annual re-election of the chairs of the main board committees, [c] Annual re-election of all directors, [d] Binding or advisory votes on specific issues, or on the corporate governance statement as a whole.
• Whether the board’s responsibility for strategic risks and setting risk appetite – as set out in the Turnbull Guidance - should be made more explicit in the Code, and whether the current balance between the Code and the Guidance is the right one.
• Whether there is a need for all or parts of the Turnbull Guidance to be reviewed. 
• To what extent the particular mechanisms recommended for banks and financial institutions would also be appropriate for other listed companies. For example, there were mixed views among commentators about whether separate risk committees were necessary for companies with less complex business models 
• Whether shareholders should be given a more direct role in setting remuneration and, if so, how this might be achieved.
• Whether it would be appropriate for the FRC or the FSA to undertake greater monitoring and enforcement of “comply or explain” statements, and if so what form this might take.
• What role, if any, it would be appropriate for the FRC to play in encouraging collective engagement.
• Whether further guidance on best practice for companies, investors or proxy voting services would be helpful, either in the Combined Code or elsewhere, and whether the practices currently recommended in Sections D and E of the Code continue to represent best practice.
• What other steps might be taken, by the FRC or others, to encourage both companies and investors to be more proactive about regular engagement and with a longer term focus than the annual results presentations.