The Financial Reporting Council (FRC) has published its revised UK Corporate Governance Code (the Code) – previously known as the Combined Code on Corporate Governance (the Combined Code).

The Code applies to all companies with a premium listing of equity shares on the London Stock Exchange, no matter where they are incorporated, for reporting years beginning on or after 29 June 2010.


During 2009 and early 2010, the FRC carried out an extensive review of the Combined Code. This review ran parallel to a separate review of the governance of banks and other financial institutions carried out by Sir David Walker. Sir David Walker’s final report discussed to what extent his proposals might be adopted by the FRC as part of its review of the Combined Code.

The purpose of renaming the Code is to make its status as the UK’s recognised corporate governance standard clearer to overseas investors and overseas companies listed in the UK, which, if they have a premium listing, now need to report on how they have applied the Code.

The FRC’s objective in making the revisions is “to help company boards become more effective and more accountable to their shareholders”.

Revisions to the Code

These include:

  • To encourage boards to be well balanced

There are new principles on board composition. Appointments must be made with due regard for the need to select on merit and to promote diversity, including gender mix.

  • To promote proper debate

There are new provisions on the leadership of the chairman, the responsibility of non-executive directors to provide a constructive challenge, and the time commitment expected of all directors.

  • To enhance the board’s performance

The Code requires chairmen to review the development needs of each director regularly. The evaluation of the boards of FTSE 350 companies should be externally facilitated at least every three years.

  • To increase accountability to shareholders

All directors of FTSE 350 companies should be re-elected annually. Chairmen should report personally on how the principles relating to the leadership and effectiveness of the board have been applied.

  • To improve risk management

The company’s business model should be explained in its annual report. The board should be responsible for determining the nature and extent of the significant risks that the business will face.

  • Performance-related pay

Pay should be aligned to the long-term interests of the company and its risk policies and systems.

New Code principles

There are four new main principles in the Code, which aim to guide board behaviours. These principles address:  

  • the chairman’s responsibility for leading the board;  
  • the non-executive directors’ role in challenging and developing strategy;  
  • the need for the board to have the appropriate balance of skills, experience, independence and knowledge to enable directors to discharge their duties and responsibilities; and  
  • the need for directors to have sufficient time to discharge their responsibilities effectively.


These changes may be evolution rather than revolution, but the increased emphasis on the role of chairmen, stronger risk analysis, the requirement for directors to be re-elected annually and the promotion of performance evaluation in particular will be welcomed by the investor community. It will be interesting to see if the new guidance on diversity will lead to more women playing a role on the boards of listed companies.