The combined code on corporate Governance, which is now known as the UK Corporate Governance Code are a set of principles of corporate governance applicable to UK’s listed companies. A body known as the Financial Reporting Counsel (FRC) oversees and takes responsibility into the implementation of the code. In May 2010, the FRC updated the code with a conclusive report of the recent consultation process along with the review period that was raised. The code applies to companies, with reporting period, starting from 29th June 2010.

The FRC has reached the conclusion that the code fits its purpose, as the earlier versions of the code have shown clear improvements in governance since the introduction of the first code in 1992. The changes made to the code principally work upon emphasis and tone; some of the changes are as follows.

The code speaks of annual reelection of all directors of FTSE 350 companies. While this only applies for the larger companies, the smaller companies are also encouraged to do the same. There has however been a concern raised, that such an application may not bring stability to the board and may also bring in short term-ism. The FRC in its conclusive reply indicated that the code benefited shareholder, who were made more capable to apply their views, towards the company’s performance in relation to the annual report.

New provisions have been made relating to boardroom diversity. Board appointments are thus required to be made based on the merit against the objective which should consider the diversity of the board, including gender considerations. By doing this the FRC aims to improve the quality of decision making in the board room, thus avoiding grouped stereotyped thinking.

Performance related pay of the executive director is required to harmonize with the long term company goals as well as its risk policies. This is terms of Remunerations, the FRC has added as a new principle. It is also worth considering here that companies should consider the use of their provision, which in an unlikely time of a misstatement or misconduct the paid out variable component should be retrievable.

The above changes to the code are an attempt to increase company and shareholder engagement, with an aim to improve performance and governance.