Compensation & Benefits: Corporate Governance – what now for listed non-financial services companies?

31 January 2012 |


Following the global banking crisis, much has been detailed in the press regarding corporate governance for banks and financial institutions. In July 2009 Sir David Walker published his review on the issue which was commissioned by the UK Treasury.

The review made recommendations which it proposes should be incorporated into the UK’s Combined Code on Corporate Governance (the “Code” is the UK’s principal source of corporate governance practice for UK listed companies).

His review did not, however, cover whether (and if so, how far) proposed changes to the Code in respect of banks and other financial institutions should be extended to the non-financial services sector.

Financial Reporting Council’s ongoing review – second consultation

As part of an ongoing review into the effectiveness of the Code, the body responsible for it, the Financial Reporting Council (FRC) announced that it would be working closely with Sir David to “share relevant research and other evidence.”  In July 2009, the FRC sought comments and views on a number of aspects of the Code, including its intended approach to the case for changes to the Code, whether more guidance is needed and whether this should be contained in the Code itself or should be set out in the form of additional non-binding guidance, how reporting on risk might be improved and consideration of the framework set out by Sir David for engagement between board and shareholders, and the appropriate role for the FRC.

GC 100 Responses on both the FRC’s progress report and the Walker Review

On 1 October 2009, the Association of General Counsel and Company Secretaries of the FTSE 100 (GC100) published its response to the recommendations of the Walker Review.

“One size does not fit all”

Broadly, the GC100 has concluded that the Code is still fit for purpose. It noted that any changes to the Code brought in to apply specifically to banks and other financial institutions may result in non-financial institutions being caught by the same provisions and commented that “it will be essential that the FRC amends the Code…in a way which does not impact adversely” on non-financial institutions.

Furthermore, there is particular concern that the recommendations contained within the Walker Review on risk management are not appropriate to non-banking and other non-financial institutions and therefore “one size does not fit all.”

Rejection of claw backs

The GC100 does not agree with the claw back of remuneration concept set out in the Walker Review, noting that this would “result in overly prescriptive rules or be subject to hindsight judgements” and stating that, in its view, “management should only be penalised for bona-fide commercial judgement going wrong if it adversely impacts shareholders generally through the value of their shares”.

Clarity on “banks and financial institutions”

The response also calls for a clear definition of what sort of entity will fall within the class of a bank and other financial institution.

Suggestions – changes only to be made where absolutely necessary and for the benefit of shareholders

On 13 October 2009, the GC100 responded to the FRC’s second consultation. The response makes a number of suggestions but reiterates that it does not consider there to be any requirement for “substantial change” to the Code, clearly stating that any changes should be made on the basis of benefiting shareholders through enhanced disclosure.

The key conclusions are set out below.

The GC100 supports the adoption of the three guiding principles laid down by the FRC in its assessment of the case for changes to the Code. It suggests that the behaviours expected of high performing boards should be set out in a new preamble or introduction to the Code, citing the Listing Rules as an example, which set out the overarching principles applicable to the more detailed rules thereafter.

Adoption of overarching principles to apply to the Code

The overarching principles that the GC100 proposes are:

  • the role of the board is to govern, not manage;
  • the board should determine and then annually review the tasks which it should be engaged with, the matters reserved to it and the level of authority delegated to the executive; and
  • the board should review behaviours annually.

The response notes that both the Walker Review and the FRC “have recognised that board behaviours are as important to good governance as the structures and processes adopted by the board.”  A further suggestion is that companies could be required to explain how they have met the principles of the Code through their reporting activities.

However, the response firmly states that it does not wish to see increased prescription of the Code and notes that careful consideration should be given to ensure that the Walker recommendations do not apply automatically to non-banking or other non-financial institutions.  The response also resists increased monitoring by the FSA or the FRC of “comply or explain statements” (where a company must provide an explanation as to why it has not complied with the Code) and believes that neither party should take on an enforcement role.


Together with the recent ICAEW report (see link under Resources below) this is encouraging for those who do not wish to see further prescription for those sectors unconnected with the breakdown of the financial markets.


ICAEW report

For further information on this issue or the comments contained in the ICAEW report please contact Guy Abbiss ( or Libs Davies ( on +44 (0) 203 051 5711.


Content is for general information purposes only.  The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice.  If you require assistance in relation to any issue, please seek specific advice relevant to your particular circumstances.


Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

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