New UK Company Board Governance Standards

10th June 2010, To help company boards become more effective and more accountable to their shareholders, the UK’s Financial Reporting Council (FRC) recently announced changes to the UK Corporate Governance Code. The changes include a clearer statement of the board’s responsibilities relating to risk, a greater emphasis on the importance of getting the right mix of skills and experience on the board and a recommendation that all directors of FTSE 350 companies be put up for re-election every year.

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Introducing the new code, FRC chairman Baroness Sarah Hogg said: “The changes we have made are designed to reinforce board quality and focus on risk and accountability to shareholders. In return, we look to see a step up in responsible engagement by shareholders under the Stewardship Code, on which we have consulted and aim to publish by the end of June.”

Some of the key changes include:
• To improve risk management, the company‘s business model should be explained and the board should be responsible for determining the nature and extent of the significant risks it is willing to take.
• Performance-related pay should be aligned to the long-term interests of the company and its risk policy and systems.
• To increase accountability, all directors of FTSE 350 companies should be put forward for re-election every year.
• To promote proper debate in the boardroom, there are new principles on the leadership of the chairman, the responsibility of the non-executive directors to provide constructive challenge and the time commitment expected of all directors.
• To encourage boards to be well balanced and avoid “group think”, there are new principles on the composition and selection of the board, including the need to appoint members on merit, against objective criteria and with due regard for the benefits of diversity, including gender diversity.
• To help enhance the board’s performance and awareness of its strengths and weaknesses, the chairman should hold regular development reviews with each director and FTSE 350 companies should have externally facilitated board effectiveness reviews at least every three years.

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