UK: FRC publishes revised version of the Combined Code

On 27 June the Financial Reporting Council (FRC) published details of the amendments to the Combined Code on Corporate Governance that will take effect in relation to financial years beginning on or after 1 November 2006. Only four substantive amendments have been made, broadly in the terms originally proposed by the FRC in its January consultation:

• Provision B.2.1: The Chairman is now permitted to sit on (but not chair) the remuneration committee provided he was considered to be independent on appointment. The FRC estimates that nearly 30% of FTSE 350 companies, and a higher percentage outside the FTSE 350, currently choose to explain their non-compliance, rather than comply with, the provision in the Code that requires all committee members to be independent non-executives (the chairman is not considered independent).

• Provision D.2.1 (currently D.2.2): As recommended in Paul Myners’ 2004 report to the Shareholder Voting Working Group, companies should include a Vote Withheld box on proxy voting forms in order to allow shareholders to communicate reservations about a proposal without voting against it. Rather than just for AGMs, as originally proposed, this requirement will apply to all general meetings. (According to Research Recommendation and Electronic Voting (RREV), for 92% of company meetings of the FTSE 100 in 2005 where votes were disclosed either publicly or to RREV, voting forms had an abstention or vote withheld option. The CREST electronic proxy form already includes a Vote Withheld box.) The proxy form and any announcement of the results of a vote should make clear that a ‘vote withheld’ is not a vote in law and will not be counted in the calculation of the proportion of votes for or against the resolution.

• New provision D.2.2 (replacing D.2.1): Where a resolution is voted on a show of hands, after the vote is taken the company should disclose the number of valid proxy appointments, votes for and against, and votes withheld. These numbers should also be published on a website maintained by or on behalf of the company. (For votes taken on a poll, the Company Law Reform Bill is expected to require companies to disclose the results on their websites.)

• Footnotes to provisions A.4.1, B.2.1 and C.3.3, and Schedule C: requirements to "make information available" will be satisfied by the company placing the information on its own website or a website maintained on its behalf.

Until the UKLA has consulted on changes to the Listing Rules (which is expected to occur in September), LR 9.8.6 (5) and (6) will continue to require companies whose equity shares have a primary listing on the Official List to include a statement in their annual report and accounts as to how they have applied the principles in section 1 of the existing Code (published in July 2003), and the extent to which they have complied throughout the financial period with all the relevant provisions in section 1 of the existing Code, giving reasons for any non-compliance. However, the FRC encourages such companies and their investors to adopt the revised version of the Code on a voluntary basis for reporting years beginning on or after 1 November 2006.

The revised version of the Combined Code can be found by clicking here (this will open in a new window).

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 03/07/2006.