The Combined Code

The Combined Code on Corporate Governance is published by the UK Financial Reporting Council. The report set down standards of corporate governance for companies listed on the Stock Exchanges in the UK and Ireland. Its contents have become the generally accepted statement of best practice for companies in Ireland and Britain. The Combined Code draws to a significant degree on two other reviews published in 2003, the Higgs Report – Review of the Role and Effectiveness of Non-executive directors, and the Smith Report – Audit Committees, Combined Code Guidance.

The Combined Code is set out as a series of principles for companies and for institutional shareholders. The key principles for companies are presented on (1) directors, (2) remuneration, (3) accountability and audit, (4) relations with shareholders.

Combined Code Principles for companies

1. Directors

• An effective board should head every company, which is collectively responsible for the success of the company
  • There should be a clear division of responsibilities between the running of the board (Chairman) and the executive. No one individual should have unfettered powers of decision.
• The board should include a balance of executive and non-executive directors (and in particular independent non-executive directors)
• There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board
• Appropriate and timely information should be provided to the Board. All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.
• The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
• All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.

2. Remuneration

• The amount should be sufficient to attract, retain, motivate directors of the quality required but avoid paying more than necessary. A significant portion should be linked to corporate and individual performance.
• There should be a formal and transparent procedure for fixing individual levels. No director should be involved in deciding his or her own remuneration.

3. Accountability and Audit

• The board should present a balanced and understandable assessment of the company’s position and prospects
• The board maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets.
• The Board should establish formal arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors.

4. Relations with Shareholders

• There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring a satisfactory dialogue takes place.
• The board should use the AGM to communicate with investors and to encourage participation.

The full Combined Code together with guidance on internal control (The Turnbull Guidance) and on audit committees (The Smith Guidance) can be accessed at the website of the Financial Reporting Council