In its submission to the Higgs Review, looking at the role and responsibilities of Non-Executive Directors (NEDs), the Exchange supported the Review's preferred non-statutory approach to corporate governance, pointing out that the Combined Code has delivered effective corporate governance standards.
Investor confidence is critical to markets, and the Exchange welcomed the range of current initiatives designed to ensure high levels of corporate governance.
The Exchange said that, while it strongly supported moves to ensure full transparency, disclosure and accountability, the range of different corporate governance regulation and legislation being developed in the UK, EU and elsewhere needed to be carefully coordinated.
It also said that the most effective approach was to reinforce existing best practice by increasing existing levels of accountability, transparency and disclosure. Under the UK Listing Authority's rules in relation to the Combined Code, companies must comply with best practice or explain their position to shareholders, prospective shareholders and investor groups.
The Exchange argued that the role and effectiveness of NEDs was crucial to the continued success of the UK's model. The key points of its submission to the Higgs Review were:
- The Combined Code is effective;
- The concept of a unitary Board should be continued;
- The responsibility of a company's Board is to direct, not manage, the business,and
- The Exchange supports requirements for full accountability, transparency and disclosure of corporate governance.
The Exchange also recommended specific ways of reinforcing existing arrangements, including:
- Audit Committees should comprise wholly independent NEDs;
- Audit Committees should publish full statements in Annual reports; and
- There should be full disclosure of the number of Chairs and NEDs that an individual holds.
Don Cruickshank, the Exchange's chairman, said:
"The UK has effective standards of corporate governance, which have contributed to investor confidence in our markets and enhanced their quality and attractiveness to domestic and international companies and investors. Regardless, we must not be complacent.
Current concerns about corporate governance are understandable, and there may be a temptation to try and legislate. However, the UK's current approach based on best practice is flexible and works well, and it is notoriously difficult to legislate on ethics. Instead, we should reinforce current arrangements."
