That was the tweak that was: the new UK corporate governance code retains the light touch of its predecessor, but there are some notable changes. Simon Holden discusses them.

Author:Holden, Simon
Position:Legal update

As a result of the havoc wreaked on the global economy in 2008-09, Sir David Walker reviewed the governance of financial institutions in the UK to assess the systems that might have alleviated the situation. His findings prompted the Financial Reporting Council (FRC) to expedite its review of the combined code on corporate governance. This culminated in the publication of the UK corporate governance code in May 2010, replacing the combined code in its entirety.


The FRC's review drew two main conclusions. The first is that the role of shareholders in monitoring the new code should be enhanced. To this end, it has just produced a "stewardship code" for investors that provides guidance on good practice ( The second is that more attention needs to be paid to following the spirit of the corporate governance code. The FRC focused on changing the code's tone by making "limited but significant" changes to signal the importance of the principles that should guide boards' actions.

The new code applies to accounting periods starting on or after June 29, 2010 and, as a result of the listing regime introduced in April, applies to all companies with a premium listing on the official list. It is still not legally binding. Rather, it consists of principles (main and supporting) and its application is described as "comply or explain". But publicly quoted companies that choose not to comply with it--even if they have a good reason that they explain to shareholders--do so at their peril. Firms can be publicly chastised by the Association of British Insurers (ABI), via its "amber top" alerts, which warn investors to apply their considered judgment.


For a sobering lesson about the risks of non-compliance, companies need only look at the well-publicised alert issued to shareholders of Marks and Spencer in the summer of 2008 when the ABI learned of M&S's plans to give Sir Stuart Rose the dual role of chairman and chief executive. At the meeting to discuss Rose's proposed appointment, 40 per cent of shareholders either voted for or abstained on a resolution calling for his power to be curbed. In the end, there...

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