What are the subject areas covered by the Combined Code?

They are:


The Board

Chairman and chief executive

Board balance and independence

Appointments to the board

Information and professional development

Performance evaluation



The level and make-up of remuneration


Accountability and Audit

Financial reporting

Internal control

Audit committee and auditors

Relations with Shareholders

Dialogue with institutional shareholders

Constructive use of the AGM

Institutional Shareholders

Dialogue with companies

Evaluation of governance disclosures

Shareholder voting

How must a listed company disclose how it has complied with the Combined Code?

Listed companies are required to make a disclosure statement in two parts. The first part must show how it has applied both the main and supporting principles. The second part must confirm whether or not it has complied with the detailed code provisions and to the extent that it has not, its reasons for not doing so. This second part is sometimes known as 'comply or explain'.

What exactly is meant by comply or explain?

Fears are sometimes expressed that corporate governance could turn into a box ticking exercise, and that companies could be required to blindly follow rules that may not be suitable for their particular circumstances. Almost everyone thinks that, were it to happen, it would be a great pity. This is why the Combined Code is formulated on the basis of comply or explain. Companies may depart from the provisions of the code, but they must disclose that they have done so and give their reasons. It is then up to investors and others to judge whether the reasons are good ones, and act accordingly if they think that they are not.

I invest in a company that does not comply with all the detailed provisions of the Combined Code. Am I right to be desperately worried?

Not necessarily so, and the fact that you are will concern many people who feel that corporate governance is turning into a box ticking exercise. What you should do is study the company's explanation, which you will see, and use your judgment about whether it is a good one. If you think that it is not, you will be right to be worried.

I have looked at the Combined Code and some of its provisions seem bland and obvious. Do others think this?

Yes they do, though of course it is not all like that. As an example of what you mean how about 'All directors must take decisions objectively and in the interests of the company'. Does this really need saying and is there anyone who would disagree?

What does the Combined Code say about combining the role of chairman and chief executive?

This is one of the most controversial topics and you may be able to think of some outstanding individuals who have combined the roles very successfully. On the other hand you can probably think of instances where it has been a disaster. Most people think that it is dangerous and not a good idea, and the Code takes this view. It states:

'The roles of chairman and chief executive should not be exercised by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established, set out in writing and agreed by the board.'

At the time of writing Sir Stuart Rose is both Chairman and Chief Executive of Marks and Spencer PLC. The company has given its reasons but it is regarded as controversial.

What does the Combined Code say about the balance on the board between executive and non-executive directors?

The Code states that there should be a balance of executive and nonexecutive directors (and in particular of independent non-executive directors) so that no individual or small group of individuals can dominate the board's decision taking. Except for smaller companies at least half the board, excluding the chairman, should comprise non-executives determined by the board to be independent.

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