Review of the effectiveness of the combined code on corporate governance second consultation

Comments from ACCA to the Financial Reporting Council (FRC), October 2009.

Executive Summary

Since we made our submission ... in May, we have been able to reflect on those made by others and on recent developments. We were particularly interested in the comments from investors as we see their role as fundamental to ensuring good corporate governance.

The improvements in corporate governance practices that we consider are necessary are dependent not so much on procedures and structures as on achieving changes in corporate values and individuals' behaviour. The FRC needs to consider how these issues can best be integrated into the Code.

The Combined Code should make reference to the duties of directors as set out in S172 of the Companies Act.

The right kind of behaviour might be better encouraged if regulators, investors and companies paid more attention to how good governance principles, particularly Principle 1 of the Combined Code and its supporting principles, are being applied by both companies and investors. This would require both greater awareness of the importance of the principles and fuller and more informative disclosure of how these principles are applied.

There needs to be a better understanding of which generally accepted tenets of good corporate governance 'work' and which others do not. The FRC should lead a project to understand the key drivers of board and investor behaviour in relation to key corporate governance issues.

The assumption which underpins the Code, namely that corporate governance guidance will ultimately be enforced by shareholders, now seems misconceived, since shareholders rarely have the power, motivation or co-ordination to do this to an effective extent. We support efforts to encourage enhanced levels of involvement on the part of shareholders and other stakeholders but consider that their involvement can never guarantee compliance. We therefore believe that steps should be taken to consider whether it is necessary to make some of the Code's provisions mandatory.