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Public Companies Update January 2006
4 COMBINED CODE UPDATE
4.1 FRC's 2005 review
On 18 January 2006, the Financial Reporting Council, the UK's
independent regulator for corporate reporting and governance
(the "FRC"), released the findings of its 2005 review
on the implementation of the Combined Code on Corporate Governance,
as introduced in July 2003 (the "Combined Code").
A public consultation was held by the FRC between July and
October 2005 and the FRC received 59 responses from listed
companies, investors and other stakeholders. Following its
review, the FRC announced that the Combined Code is bedding
down well, that it is having a positive impact and that while
there is an expectation of further improvement, there is no
demand for significant change at this stage. The FRC said
that (according to the respondents to the review) there had
been an improvement in the quality of corporate governance
among listed companies since the introduction of the Combined
Code. It also said that both companies and investors report
that the dialogue between boards and their main shareholders
is more constructive, and that investors consider that the
overall quality of disclosure in annual reports has improved
noticeably over the last couple of years.
4.2 Possible changes to the Combined Code
The FRC has therefore decided to consult on a limited number
of possible changes to the Combined Code. These would:
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Amend provision B.2.1 to allow the chairman
to sit on the remuneration committee where he or she was
considered "independent" at the time of appointment; |
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Amend section D.2 to provide shareholders
voting by proxy with the option of withholding their vote,
and to require publication of details of proxies lodged
at the AGM where votes are taken on a show of hands; |
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For those provisions that require companies
to "make information available" (provisions
A.4.1, B.2.1 and C.3.3), enable the requirement to be
met by placing the information on the company's website;
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Set out in Schedule C of the Combined Code
the disclosure requirements in the Listing Rules in order
to ensure companies are able to find details of all relevant
requirements in one place. |
The FRC Consultation on these possible amendments closes
on 21 April 2006. If implemented, any changes to the Combined
Code would apply to financial years beginning on or after
1 November 2006.
A copy of the findings of the review and the consultation
paper is available at www.frc.org.uk/corporate/combinedcode.cfm
4.3 Impact of the Company Law Directives
Finally the FRC in its report did note that further changes
to the Combined Code may be required as a result of new EU
requirements under the revised 4th and 8th Company Law Directives
or as a result of changes to UK law to be introduced by the
Company Law Reform Bill. The FRC has also said that it will
need to consider the implications of the Government's decision
to remove the statutory requirement for quoted companies to
publish an Operating and Financial Review and the outcome
of the DTI's current consultation on the statutory Business
Review. If further changes to the Combined Code are proposed
as a result of any of these developments, there will be full
consultation before any action is taken.
If you require further information on any matter covered
in this note, please contact your principal contact at Charles
Russell or Simon
Gilbert, Clive
Hopewell or Alexander
Keepin (London), Francis
Rundall, Richard
Norton, or Adrian
Mayer (Cheltenham), Catherine
Drew or Geoff
Sparks (Guildford) or Peter
Elliott (Oxford) on 0207 203 5000.
To download these articles in pdf format, please click
here
Please note that the summaries above are
a general indicative guide only. They are not exhaustive.
This information has been prepared by the firm as a service
to our clients. As it is a general guide, we recommend that
you seek professional advice before taking action. No liability
can be accepted by the firm for any action taken or not taken
as a result of this information. The firm is not authorised
under the Financial Services and Markets Act 2000 but we are
able in certain circumstances to offer a limited range of
investment services to clients because we are members of the
Law Society. We can provide these investment services if they
are an incidental part of the professional services we have
been engaged to provide.
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