Business leaders welcomed changes to a new code on boardroom rules as a “victory for common sense” today.
The Financial Reporting Council (FRC) has agreed a number of adjustments to proposals set out in January’s Higgs report on corporate governance.
Industry groups, including the CBI, had previously criticised the new boardroom rulebook for being “overly prescriptive”.
Among changes proposed by the FRC following extensive consultations, non-executive directors will be able to serve companies for up to nine years rather than six, while the number of independent directors at smaller listed companies should be “at least two” rather than half.
The switch of a company’s chief executive to the role of chairman is also allowed providing directors provide a suitable explanation to shareholders.
Other changes agreed by the FRC mean that board chairmen will be allowed to head nomination committees after all.
CBI chief executive Digby Jones said: “This is a victory for common sense. The FRC has delivered a code that will encourage better corporate governance but not have damaging unintended consequences.”
The Higgs reforms proposed earlier this year were aimed at ensuring no repeat of an Enron-style corporate scandal in the UK by putting more focus on those directors without day-to-day executive responsibilities.
In particular, the package of measures from former investment banker Derek Higgs looked to stamp on suspicions that posts at UK plcs were filled through an “old boy network” and that directors held too many roles at different companies.
The measures would be implemented by the FRC – whose purpose is to promote and secure good financial reporting – from November.
Companies will be required to make a statement on how they have applied the report.
FRC chairman Sir Bryan Nicholson said: “The longer-term effect will be better boards, better-run businesses, greater investor confidence and a more competitive British economy.”
The TUC and the Institute of Chartered Accountants (ICA) were among other organisations to welcome the new code.
TUC general secretary Brendan Barber said: “The code has the potential to make Britain’s boardrooms work better. It is now up to business to turn good words into good practice.”
David Illingworth, president of the ICA, said the changes would help rebuild investor confidence.
He added: “Importantly the new code continues to recognise the importance of the ‘comply or explain’ principle which I believe is at the heart of the UK approach to corporate governance.”
References: EGi News 23/07/03
