Corporate Governance Code
Financial RepoRting council the combined code on coRpoRate goveRnance
June 2008
THE COMBINED CODE ON CORPORATE GOVERNANCE
June 2008
CONTENTS
Pages
The Combined Code on Corporate Governance
Preamble Section 1 A B C D COMPANIES Directors Remuneration Accountability and Audit Relations with Shareholders 1-3 5-20
5-12 13-15 16-18 19-20
Section
2 INSTITUTIONAL SHAREHOLDERS E Institutional Shareholders
21-22
21-22
Schedule A Provisions on the design of performance related remuneration Schedule B Guidance on liability of non-executive directors: care, skill and diligence Schedule C Disclosure of corporate governance arrangements
23 24 25-32
CODE ON CORPORATE GOVERNANCE
PREAMBLE
1. Good corporate governance should contribute to better company performance by helping a board discharge its duties in the best interests of shareholders; if it is ignored, the consequence may well be vulnerability or poor performance. Good governance should facilitate efficient, effective and entrepreneurial management that can deliver shareholder value over the longer term. The Combined Code on Corporate Governance (‘the Code’) is published by the FRC to support these outcomes and promote confidence in corporate reporting and governance. 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 years. While it is expected that companies will comply wholly or substantially with its provisions, it is recognised that noncompliance may be justified in particular circumstances if good governance can be achieved by other means. A condition of noncompliance is that the reasons for it should be explained to shareholders, who may wish to discuss the position with the company and whose voting intentions may be influenced as a result. This ‘comply or explain’ approach has been in operation since the Code’s beginnings in 1992 and the flexibility it
June 2008
THE COMBINED CODE ON CORPORATE GOVERNANCE
June 2008
CONTENTS
Pages
The Combined Code on Corporate Governance
Preamble Section 1 A B C D COMPANIES Directors Remuneration Accountability and Audit Relations with Shareholders 1-3 5-20
5-12 13-15 16-18 19-20
Section
2 INSTITUTIONAL SHAREHOLDERS E Institutional Shareholders
21-22
21-22
Schedule A Provisions on the design of performance related remuneration Schedule B Guidance on liability of non-executive directors: care, skill and diligence Schedule C Disclosure of corporate governance arrangements
23 24 25-32
CODE ON CORPORATE GOVERNANCE
PREAMBLE
1. Good corporate governance should contribute to better company performance by helping a board discharge its duties in the best interests of shareholders; if it is ignored, the consequence may well be vulnerability or poor performance. Good governance should facilitate efficient, effective and entrepreneurial management that can deliver shareholder value over the longer term. The Combined Code on Corporate Governance (‘the Code’) is published by the FRC to support these outcomes and promote confidence in corporate reporting and governance. 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 years. While it is expected that companies will comply wholly or substantially with its provisions, it is recognised that noncompliance may be justified in particular circumstances if good governance can be achieved by other means. A condition of noncompliance is that the reasons for it should be explained to shareholders, who may wish to discuss the position with the company and whose voting intentions may be influenced as a result. This ‘comply or explain’ approach has been in operation since the Code’s beginnings in 1992 and the flexibility it