On 18 January the FRC published a consultation document in respect of proposed changes to the Combined Code on Corporate Governance.  This is the document which sets out standards of good practice for public companies listed on the London Stock Exchange in relation to such issues as board composition and development, remuneration, accountability and audit and relations with shareholders. It was published together with a Regulatory Impact Assessment which considers the possible impact of these changes in terms of the costs and benefits involved should they be adopted. Only four changes are proposed as the FRC's review of how the implementation of the 2003 Combined Code is progressing (a report on which was also published on 18 January) found that the Code was largely proving to be successful and that major changes were not therefore required.

The proposed changes are:

  • To allow the chairman of a company to sit on its remuneration committee provided that the chairman was considered to be independent at the time of his or her appointment. It has been suggested that this may assist in aligning a company's performance incentives and general remuneration policy with its broader strategy and objectives. At present listed companies that choose to take actions which differ from the recommendations of the Combined Code must explain the reasoning behind such actions in their annual report.  A company whose chairman currently sits on the remuneration committee may benefit when preparing its annual report as it would no longer require to explain its reasoning in differing from the provisions in the Combined Code.
  • To allow shareholders voting by proxy the option of withholding their vote. This will not affect the legal position in respect of votes. As is the case at present, only "for" and "against" votes will be counted in determining whether or not a resolution is carried. It is thought that this change would allow shareholders to express their doubts on a particular question without going so far as to vote against it. There is also a proposal to require publication on a company's website of details in respect of proxies lodged at an AGM where votes are conducted by a show of hands. This supplements the draft Clause 315 of the Company Law Reform Bill which provides, in respect of quoted companies, for the results of a poll to be published on the company's website. It is hoped that the additional publication of information will increase transparency for shareholders. Implementing these changes may result in increased administrative costs although the majority of FTSE100 companies already have a "vote withheld" option on their proxy forms.
  • To reduce the obligations on companies with respect to making information available. Currently, where information is required to be made available it must be available on the companies website and also on request. It is proposed that the new obligation would only extend to making information available on a company's website. This could save on administration costs for companies in responding to requests for information. The FRC is keen to establish in the consultation how often such requests are actually made.
  • To set out in Schedule C of the Code the disclosure requirements contained in the Listing Rules. This amendment would not change any requirement of the Code but could be of assistance to companies in allowing them to access more of the relevant information from one source.

The consultation closes on 21 April 2006. It is intended that any changes to the Combined Code will be effective for financial years which begin on or after 1 November 2006.


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