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May 27, 2010

KPMG supports code’s behaviour emphasis

The new UK Corporate Governance Code’s emphasis on boards’ behaviours, rather than simply processes, will be the key to constructive change, according to KPMG UK.

The new Corporate Governance Code was released by the Financial Reporting Council this week to replace the Combined Code.

KPMG associate partner Tim Copnell said the code recognises that rules alone won’t change anything.

“The key to corporate governance is how the board itself behaves and the direction it sets from the top,” Copnell said.

“The focus on behaviours means that governance will necessarily become more personal. The introduction of externally facilitated board evaluations, dedicated support for non-executive directors and a greater emphasis on training for non-executives are all sensible enhancements that should help directors and the board as a whole operate more effectively.”

 

Negative effect

The one change KPMG is not pleased with is the recommendation that all FTSE 350 directors be subject to annual election by shareholders.

“It may augment personal accountability, but boards and shareholders alike should take care to ensure it doesn’t have the unintended consequence of driving short-term behaviour,” Copnell said.

The new Corporate Governance Code will be effective for financial years beginning on or after 29 June and apply to all companies with a premium listing of equity shares.

A premium listing means a company is expected to meet the UK’s highest standards of regulation and corporate governance in order to attract a lower cost of capital due to greater investor confidence.

 

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