The UK governance watchdog is to review the effectiveness of the Combined Code on Corporate Governance in the light of the financial crisis.
Sir Christopher Hogg, Chairman of the Financial Reporting Council (FRC), announced the move at today's inaugural ICSA Corporate Governance Conference. He commented that the financial crisis was the "result of a massive failure of governance at every level involved, going way beyond, though not excusing, the failures of corporate governance in publicly-quoted UK banks."
"The failure of those governing to see the wood for the trees -or, if it was seen, to generate appropriate action – points to a need for reappraising governance at every level from first principles," he added. "It will require leadership, co-operation, imagination, patience and nerve to do this reappraisal job well enough to obtain some lasting benefit to offset the huge damage that has been done."
Therefore, he argued, while "there is no assumption that the Code is fundamentally flawed or that a different regulatory framework for corporate governance could have alleviated the financial crisis, we are clear that the time is now ripe for testing the Code’s content and application against the fresh thinking that the financial crisis must provoke."
The review will begin forthwith, revealed Sir Christopher, and will continue until the end of May. It will also share relevant research with Sir David Walker's review of the governance of banks, which was announced by the Government last month. Sir Christopher remarked that the two reviews will "certainly overlap in the issues on which they will focus" and will be concerned, amongst other things, with the "extent and effectiveness of engagement between companies and shareholders."
He also commented that reappraisal at this time is so important that "every corporate board subject to the Code should carry out its own thoroughgoing individual governance reappraisal", taking as its desired outcome the need to make the board work better in the long term interests of the company. Additionally, he stressed that the role of chairmen in leading corporate governance is crucial, especially in the current climate.
ICSA has welcomed the review of the Code.
"I am delighted that Sir Christopher Hogg should have chosen ICSA's corporate governance conference as the forum in which to announce the Financial Reporting Council’s decision to undertake a review of the Combined Code," says ICSA Policy and Strategy Director, David Wilson.
"All companies and their governance advisers will be encouraged by the open mind the FRC is adopting to the continued validity of the Code, and the free-ranging nature of the review they have launched. The review may result in no change; it may result in some changes. We shouldn’t seek to pre-empt its findings, but we should welcome it as a meaningful and relevant exercise in the context of the current crisis and Sir David Walker’s review of governance in the banks."
