The Combined Code on Corporate Governance (the Code)
is being published by the Financial Reporting Council (FRC) to promote
confidence in corporate reporting and governance as well as to support
its following outcomes, namely:- (i) contribution of good corporate governance
towards better performance of company by helping a board discharge its
duties in the best interests of shareholders; (ii) facilitation by good
governance for efficient, effective and entrepreneurial management that
can deliver shareholder value over the longer term; etc. The Code is not
a rigid set of rules, rather it is a guide to the components of good board
practice distilled from consultation and widespread experience over many
The 'Code on Corporate Governance' published in the year
'2008' has provided several principles relating to various sections like
Board of Directors, Chairman and Chief executive of Company; Remuneration
Policy; Accountability and Auditing (Financial Reporting and Internal
Controls); as well as relations with shareholders; etc. These principles
- Every company should be headed by an effective board,
which is collectively responsible for the success of the company. The
boards role is to provide entrepreneurial leadership of the company
within a framework of prudent and effective controls which enables risk
to be assessed and managed. It should set the companys strategic
aims, ensure that the necessary financial and human resources are in
place for the company to meet its objectives as well as review management
performance. It should set the companys values and standards and
ensure that its obligations to its shareholders and others are understood
- All directors must take decisions objectively in the
interests of the company. The board should meet sufficiently regularly
to discharge its duties effectively. There should be a formal schedule
of matters specifically reserved for its decision.
- The annual report should identify the chairman, the deputy
chairman (where there is one), the chief executive, the senior independent
director and the chairmen and members of the nomination, audit and remuneration
committees. It should set out the number of meetings of the board and
those committees and individual attendance by directors. It should include
a statement of how the board operates, including a high level statement
of which types of decisions are to be taken by the board and which are
to be delegated to management.
- There should be a clear division of responsibilities
at the head of the company between the running of the board and the
executive responsibility for the running of the companys business.
No one individual should have unfettered powers of decision.
- The board should include a balance of executive and non-executive
directors (and in particular independent non-executive directors) such
that no individual or small group of individuals can dominate the boards
- There should be a formal, rigorous and transparent procedure
for the appointment of new directors to the board. Appointments to the
board should be made on merit and against objective criteria. Care should
be taken to ensure that appointees have enough time available to devote
to the job.
- The board should be supplied in a timely manner with
information in a form and of a quality appropriate to enable it to discharge
its duties. All directors should receive induction on joining the board
and should regularly update and refresh their skills and knowledge.
They should have access to the advice and services of the company secretary,
who is responsible to the board for ensuring that board procedures are
- The board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees and individual
directors. The board should state in the annual report how performance
evaluation has been conducted.
- All directors should be subject to election by shareholders
at the first annual general meeting after their appointment, and to
re-election thereafter at intervals of no more than three years. The
names of directors submitted for election or re-election should be accompanied
by sufficient biographical details and any other relevant information
to enable shareholders to take an informed decision on their election.
- Levels of remuneration should be sufficient to attract,
retain and motivate directors of the quality required to run the company
successfully, but a company should avoid paying more than is necessary
for this purpose. The performance-related elements of remuneration should
form a significant proportion of the total remuneration package of executive
directors and should be designed to align their interests with those
of shareholders and to give these directors keen incentives to perform
at the highest levels. Levels of remuneration for non-executive directors
should reflect the time commitment and responsibilities of the role.
- The board should, at least annually, conduct a review
of the effectiveness of the groups system of internal controls
and should report to shareholders that they have done so. The review
should cover all material controls, including financial, operational
and compliance controls and risk management systems.
- The board should establish formal and transparent arrangements
for considering how they should apply the financial reporting and internal
control principles and for maintaining an appropriate relationship with
the companys auditors.
- The chairman should ensure that the views of shareholders
are communicated to the board as a whole, as well as discuss governance
and strategy with major shareholders. The senior independent director
should attend sufficient meetings with a range of major shareholders
to listen to their views in order to help develop a balanced understanding
of the issues and concerns of major shareholders. The board should keep
in touch with shareholder opinion in whatever ways are most practical
- The board should use the Annual General Meeting (AGM)
to communicate with investors and to encourage their participation.
- Institutional shareholders should enter into a dialogue
with companies based on the mutual understanding of objectives. When
evaluating companies governance arrangements, particularly those
relating to board structure and composition, institutional shareholders
should give due weight to all relevant factors drawn to their attention.
Most importantly, they have a responsibility to make considered use
of their votes.