The Financial Reporting Council published new guidance in March 2011 on board effectiveness. The FRC says that the guidance is designed to encourage the boards of listed companies to consider how they can most effectively lead their companies. The new guidance replaces the Good Practice Guidance from the 2003 Higgs Report, originally issued with the Combined Code.
The new guidance principally relates to sections A (Leadership) and B (Effectiveness) of the Governance Code and reflects the changes that were made to the Code in 2010. It aims to assist companies in the practical implementation of the principles in those sections of the Code. The areas covered by the guidance include the following:
- The role of the board and directors – specific guidance is given on the roles of the chairman, senior independent director and the other directors;
- The role of the company secretary – the guidance states that the company secretary should report to the chairman on all corporate governance matters and should review with the chairman whether the governance processes are fit for purpose;
- Board evaluation – the guidance recommends that the chairman should have overall responsibility for the evaluation process (with the senior independent director leading the process which evaluates the performance of the chairman) and suggests areas which may be reviewed as a part of the evaluation process; and
- Audit, risk and remuneration – the guidance makes it clear that whilst a board may make use of committees in these areas, it retains responsibility for, and makes final decisions on, all of these areas.