Watchdog launches beefed up governance code

Performance related pay should related to the “long term interests of a
company and its policy on risk”, according to new corporate governance
guidelines published today.

The Financial Reporting Council made the recommendations as part of its
reform for the Combined Code on Corporate Governance and comes as a direct
response to issues that emerged during the credit crunch.

The FRC is proposing much greater accountability to shareholders through the
annual re-election of company chairman or the whole board.

Boards should also be externally evaluated at least every three years,
according to the watchdog.

FRC chairman Sir Christopher Hogg said that the FRC had failed to find
widespread failing in corporate governance outside the banking sector but
believes the changes would benefit all businesses.

“The principal lesson of the financial crisis is that those on boards must
think deeply about their individual and collective roles and responsibilities.
The chairman has a vital role to play in ensuring that the executives have
appropriate freedom to manage the business but also accept the importance of
opening themselves to challenge and earning the trust of the whole board. For
their part, the non-executives must have the skills, experience and courage to
provide such challenge.”

Sir Christopher also stressed the need for shareholders to consider the
actions of company boards “seriously”. The FRC will take on the management of
the new code for shareholders on the invitation of government.

The code names will also change to the UK Corporate Governance Code