Governance Gets Personal Under New U.K. Code

by Neil Baker, for Compliance Week, May 31, 2010

The directors of the top 350 U.K.-listed companies will face re-election every year, instead of holding the typical three-year tenure, under a revised version of the country’s influential corporate governance code.

The new code released today says performance-related pay should be aligned to the long-term interests of the company and its risk policy. And it includes new principles on how directors should be selected and what makes for a well-balanced boardroom.

The changes on board composition are aimed at avoiding “group think” and encouraging diversity, according to the Financial Reporting Council, the governance regulator responsible for the code.

The code says the board chairman should hold a regular “development review” with each director, and companies should bring in outsiders to organize board effectiveness reviews at least every three years.

It calls on companies to publish an explanation of their business model, and it includes an explicit statement that the company’s board is responsible for determining the nature and extent of the significant risks it is willing to take.

Tim Copnell, an associate partner at KPMG, said a focus on boardroom behavior in the new code meant that “governance will necessarily become more personal.”…(continue reading)


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