The Guidance on Board Effectiveness is one of a suite of guidance notes issued by the Financial Reporting Council (FRC) to assist companies in applying the principles of the UK Corporate Governance Code. It replaces ‘Good Practice Suggestions from the Higgs Report' (known as "the Higgs Guidance”), which was last issued in 2006.
This guidance relates primarily to Sections A and B of the Code on the leadership and effectiveness of the board. As with the separate guidance notes on audit committees and internal control, the new guidance is not intended to be prescriptive. It does not set out "the right way” to apply the Code. Rather it is intended to stimulate boards' thinking on how they can carry out their role most effectively. Ultimately it is for individual boards to decide on the governance arrangements most appropriate to their circumstances, and interpret the Code and guidance accordingly.
The guidance does not seek to address all the issues covered in Sections A and B of the Code, but only those where consultation with companies, individual board members and investors suggested that further guidance might be helpful. Nor does it include all of the material contained in the Higgs Guidance, for example, draft letters of appointment and terms of reference for board committees. Helpful material on these issues is provided by a range of organisations, and some links are provided in the Appendix.
The UK Corporate Governance Code has evolved since it was first introduced in 1992. It has always placed great importance on clarity of roles and responsibilities, and on accountability and transparency. It has become increasingly clear in the intervening period that, while these are necessary for good governance, they are not sufficient on their own. Boards need to think deeply about the way in which they carry out their role and the behaviours that they display, not just about the structures and processes that they put in place.
This change of emphasis is reflected in the most recent edition of the UK Corporate Governance Code, published in 2010, and also in this guidance. For example, boards are encouraged to consider how the way in which decisions are taken might affect the quality of those decisions, and the factors to be taken into account when constructing the board and reviewing its performance. The FRC hopes that this guidance will assist in those considerations.
Source: Financial Reporting Council
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