The United Kingdom issued in July 2003 its revised Combined Code on corporate governance, following the Higgs review of the role and effectiveness of non-executive directors, mandated by the authorities.
Like the former Combined Code of 1998, the new code, applicable from 1 November 2003, consists of recommendations aiming at raising the standards of corporate governance and in so doing, improving the efficiency of boards of directors so as to reinforce shareholder confidence. Listed companies are required by the Listing Rules to comply with the code or to explain in their annual reports why they have not done so (“comply or explain”).
The standards of the new code in terms of overall independence of board members, are significantly re-inforced : a minimum of 50% independent directors is, from now on, recommended, compared to a minimum of one-third non-executives with a majority of independents in the previous code. The new code includes for the first time a definition of an independent director. In addition to the usual citeria used to define an independent director (i.e.: not an employee of the company during the last five years, no family links with a member of the direction, no connection with a major shareholder) the new code innovates as it stipulates that a director is not considered independent if he has sat on the board for nine years or more.
The code also re-inforces the stand in favour of the separation of the roles of the chairman and the chief executive officer.
Amongst other important points, to be noted are : more rigorous and transparent procedures for the appointment of directors, formal evaluation of the performance of boards, a strengthened role for the audit committee and the independence of the external auditor as well as limiting the number of mandates of directors.
The complete code is available on : www.frc.org.uk/combined.cfm
08/29/2003
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