2009-07-01

By Editor, CIR

Blue chip companies in the FTSE100 are pressing for a relaxation of the code of best practice for UK boardrooms, with greater flexibility to opt out of its guidelines.

The Financial Reporting Council (FRC), which oversees the code, last week published responses to a consultation over possible amendments to the code. Companies including British Airways, Cable and Wireless, Marks and Spencer and SAB Miller that the duty to ''comply or explain'' encourages investors to be unduly critical of any departure from the best practice code.

According to M&S "comply or explain" can be interpreted as "comply or else" by some shareholders.

The GC100, the association of general counsel and company secretaries of the FTSE100 wants the FRC to replace the comply or explain mechanism with "apply or explain", thereby removing a presumption of compliance with rules. It claims that the change should "avoid the concerns around box-ticking and the generally perceived negative reaction to non-compliance".

"Any lack of understanding can sometimes lead to a stand-off between company and investor which ought to be capable of resolution through better and more informal dialogue," adds the GC100 in its submission to the FRC.

The FRC is reviewing the effectiveness of the best practice code and boards in the financial crisis. Any changes are likely to represent the most significant shift in the UK's combined code of good corporate governance since a review published in 2003 by Sir Derek Higgs. The FRC's review will feed into Sir David Walker's report on the governance of banks.

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