Compensation & Benefits: FRC issues final report on corporate governance and commences consultations on draft revised Combined Code and a new stewardship code

Posted on 3rd January, 2010

Estimated reading time 3 minutes

Current Combined Code is “broadly fit for purpose”.

The Financial Reporting Council (FRC) has confirmed that it has found no evidence of “serious failings in the governance of business outside the banking sector” but, nevertheless, it now proposes “sensible improvements” to “benefit governance in all major businesses”.


On 1 December 2009, the FRC published its final report on its latest review of the UK’s Combined Code on Corporate Governance (the “Combined Code”) and announced a consultation on its proposals to revise the Combined Code.  See link to article in Resources below for background to the issue.

The latest proposals follow on from the recent publication of the final Walker Review report.  The FRC considers that its review will be more far reaching than the Walker report but, following the publication of this, the FRC has confirmed that it plans to “adopt the recommendations in Walker that it considers, after consultation, are appropriate for all companies”.

Proposed reforms – the risk management agenda

The Combined Code is to be renamed The UK Corporate Governance Code.

The draft revised Code sets out several amendments concerning directors’ remuneration, the most notable of which is a new Supporting Principle which sets out that performance related elements of remuneration should be aligned to both the long term interests of the company and the interests of the shareholders.  In a nod to the recent findings of the Walker Review, a further change is proposed to note that “remuneration incentives should be compatible with risk policies and systems and criteria for paying bonuses should be risk adjusted”.

In addition, the FRC considers that companies should be able to ‘claw’ back executive bonuses in cases of misconduct and misstatement.

The FRC also supports the stance that performance related remuneration should be extended to executive directors only, by the specific inclusion of wording “for executive directors”.  Non-executive directors should not be entitled to receive any form of variable pay.

Consultation on the draft Code will end on 5 March 2010 and it is envisaged that the revised Code will be implemented shortly thereafter such that it will apply from mid 2010.

Stewardship Code

As part of the recommendations resulting from the Walker Review, it was proposed that the FRC’s remit should be extended to regulate best practice stewardship for institutional investors through implementation of a new Stewardship Code.

A consultation has now been issued to determine whether the current code on institutional investors’ responsibilities published by the Institutional Shareholders’ Committee (the ISC Code) should be taken as a framework for the Stewardship Code.  The consultation invites views as to whether this ISC Code is appropriate in its current form, the types of arrangements which should be used to monitor compliance, what information should be disclosed under the requirements of the new Stewardship Code and to whom it should apply.

This consultation closes on 16 April 2010.

'The post-Walker corporate governance environment’

‘ABI- new executive remuneration practices’

‘Corporate Governance - what now for listed non-financial services companies?’

‘Report published on risk governance in non-financial service companies’

Walker report
For further information or to discuss the issues raised, please contact Guy Abbiss ( or Libs Davies ( on +44 (0) 203 051 5711.