A fairly soft rereading of the British Governance and Stewardship codes

The Financial Reporting Council (FRC) announced mid-September 2012 some "limited changes" to its UK Corporate Governance and Stewardship Codes intended to increase accountability and engagement through the investment chain. Both Codes will continue to apply on a “comply or explain” basis. Changes to the UK Corporate Governance Code include: • FTSE 350 companies are to put the external audit contract out to tender at least every ten years with the aim of ensuring a high quality and effective audit But only a tender carrying a possible change of the incumbent auditor is apparently required and sufficient no change of the audit firm is required... A very shy requirement in regard of the proposal of our http://www.proxinvest.com/index.php/en/news/read/195.htmlinvestors coalition. • Audit Committees are to provide to shareholders information on how they have has carried out their responsibilities, including how they have assessed the effectiveness of the external audit process; • Boards are to confirm that the annual report and accounts taken as a whole are fair, balanced and understandable, to ensure that the narrative sections of the report are consistent with the financial statements and accurately reflect the company’s performance; • Companies are to explain, and report on progress with, their policies on boardroom diversity. This change was first announced in October 2011, but its implementation was deferred to avoid piecemeal changes to the Code • Companies are to provide fuller explanations to shareholders as to why they choose not to follow a provision of the Code. Changes to the Stewardship Code include: • Clarification of the respective responsibilities of asset managers and asset owners for stewardship, and for stewardship activities that they have chosen to outsource; • Investors are to explain more clearly how they manage conflicts of interest, the circumstances in which they will take part in collective engagement, and the use they make of proxy voting agencies; • Asset managers are encouraged to have the processes that support their stewardship activities independently verified, to provide greater assurance to their clients.

All in, not a very demanding program for companies and aset managers.


September 30 2012