The ACT’s comments urge the FRC to:
- Retain the main thrusts of Higgs and Smith
- Take comments on next draft of the revised code rather than rushing to finalisation
- Publish final Revised Code in October 2003 - for implementation July 2004 rather than July 2003
- Put more focus on principles rather than details
- Permit the Chairman of the board to chair the nomination committee
- Allow all independant non-executives to attend audit committee meetings
The Association of Corporate Treasurers’ comments made to the Financial Reporting Council this morning urge the FRC to retain the main thrusts of the Higgs and Smith reviews. The ACT would be concerned if material changes were to be made in the face of adverse comments at this time.
We believe that the FRC should seek to take constructive comments on the proposals generally, provided they do not re-open the main conclusions of the reviews. A robust attitude to preserving the main conclusions is desirable.
The Revised Code’s purpose is to influence behaviour. Publication of the Higgs and Smith reports has already begun to influence behaviour as companies prepare for implementation. It takes time to make changes in behaviour which will last and go beyond formal compliance and time too to make new appointments to bring board composition etc. into line with new requirements. ACT
The ACT did, however, support in the main the ICAEW’s April 1 draft comments urging that the code be published with the balance more on the principles and less on the detail.
The detail can so easily be seen as rules for box ticking rather than intelligent, good faith, application Richard Raeburn, ACT Chief Executive
commented Richard Raeburn, ACT Chief Executive.
The ACT disagrees with Higgs’ draft Revised Code’s restriction of the Chairman from chairing the appointments committee. A key role of a company’s chairman is surely to look to the composition of the Board and succession. We presume that the concern arises from the possible need to consider replacing the Chairman, but here the senior independent director would be involved and would convene a meeting of the nomination committee without the Chairman, or, alternatively and preferably, of the independent directors as a whole. We urge deletion of the restriction.
Other ACT comments on the draft Revised Code included:
- Noisy resignation
The Revised Code’s best practice advice should urge resigning directors to consider the appropriateness of making a public statement on resignation.
- Access to internal professional advice
The ACT supports the idea of ensuring access of independent directors to external advisors. However, this can be costly and asking for it make a director seem to be being confrontational. The ACT thus proposes addition of a provision that management should facilitate access of non-executive directors, through the company secretary, to senior professional staff of the company below board level. In the vast majority of cases, a discussion, for example, with the head of taxation or treasury and corporate finance can often reassure/clarify issues. If external advice is considered necessary, a preliminary discussion with the relevant employed professional can make the issues clearer and help the non-executive to better formulate the question to the external advisor
- Avoiding undue influence on the company secretary and internal auditor
The ACT urges that the board or the remuneration committee consider the remuneration and terms of employment of the company secretary and head of internal audit.
Note: ACT's other disagreements with ICAEW's April 1st draft comments to the FRC included:
- The ACT disagrees with the ICAEW comments that the requirements for regular meetings of non-executive be removed. It can be very difficult for an independant non-executive to request such a meeting and such a meeting becomes special and controversial in a way in which a regular meeting does not.
- The ACT regards adequate executive representation on the board as important (to avoid the US and German practice). Accordingly, it disagrees with the ICAEW's proposal that specific urging of adequate executive representation be deleted from the Revised Code.
- Many directors, like people in most walks of life, are inadequately aware of potential conflicts. They over rationalise the impact of their own good faith in the minds of observers. For this reason we support the non-inclusive listing of matter give rise to potential conflicts included in the suggested Revised Code and not the broader wording proposed by the ICAEW draft comments.
- The chairman has responsibility for ensuring the provision of "accurate, timely and clear" information while himself being dependent on management's actually furnishing the information. The ACT thus disagrees with ICAEW's draft comment which proposes deletion of references to management's responsibility in this regard.
Notes to editors
The full text of the response is available here.
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