On 28 July 2009, the Financial Reporting Council (FRC) published a progress report on its review of the effectiveness of the Combined Code on Corporate Governance and announced various areas for further consultation.

Feedback to date on consultation announced in March 2009

Since it announced its effectiveness review in March 2009, the FRC has received 114 responses and has also met with the chairmen of nearly 100 companies. On the basis of feedback received to date, the FRC believes that the Combined Code is generally considered to have contributed to clear improvements in governance standards since the first code was introduced in 1992. It is recognised that the quality of corporate governance ultimately depends on behaviour not process and there is therefore a limit to the extent to which any regulatory framework can deliver good governance. Further, market participants have expressed a strong preference for retaining the current approach of 'soft law' underpinned by some regulation, rather than moving to one more reliant on legislation and regulation.

Recent developments

In the period since the FRC commenced its initial consultation, there have been a number of developments in the corporate governance arena. In particular, Sir David Walker's consultation paper (the Walker Report) on corporate governance in UK banks and other financial industry entities was published in July 2009 (see our July 2009 E-Bulletin article: HM Treasury publishes the Walker Report on Corporate Governance in UK banks). The European Commission has also published its further recommendations on the remuneration of directors of listed companies (see our May 2009 E-Bulletin article: European Commission recommendations on directors' remuneration).

FRC second consultation

While no specific proposals to amend the Combined Code are being made at this stage, the FRC is now consulting on various general and specific matters, including the extent to which any of the recommendations set out in the Walker Report should apply to other listed companies (as well as banks and other financial institutions).

The FRC's latest paper provides a helpful overview of some of the key corporate governance issues currently facing UK companies.

Any comments or views should be submitted by 9 October 2009. The FRC aims to publish its final report, and begin consultation on whatever changes may be proposed to the Code, before the end of 2009. Subject to the outcome of that consultation, it is envisaged that a revised Code would take effect in mid-2010.

View the FRC paper (34 page pdf).