The revised Combined Code and corporate governance : An empirical survey of 50 large UK companies

The purpose of this paper is to investigate the extent to which a sample of large UK companies comply with the main provisions of the revised 2003 Combined Code on corporate governance. The new Code incorporates a number of key principles of compliance with regard to the roles of a company's chairperson and chief executive, the composition of its Board of Directors and the composition of the Board's three main committees – the Nominations, Remuneration and Audit Committees. Companies are expected to fully comply with the provisions of the Code or proffer an “acceptable” explanation as to why they have not done so under the Code's “comply or explain” philosophy. The Code gives greater prominence to the role of non‐executive directors in a company's corporate governance structures and decision‐making processes and emphasizes the importance of non‐executive directors being “independent”.

The paper looks at the extent of compliance in respect of the governance provisions referred to above presenting a survey of 50 large UK companies reporting in 2005 drawn (at random) from the FTSE‐250 listing.

A total of 17 companies fully complied throughout their reporting year. Twenty‐two companies took action to comply or proffered “acceptable” explanations as to why not during their reporting year. Eleven companies, however, remained in breach of the Code on one or more counts.

The paper discusses some of the issues which have arisen concerning the effectiveness of non‐executive directors and addresses the controversial matter of what constitutes “independency”.

This is one of the first papers to present an empirical study of the initial impact of the new Code.