Review of the role and effectiveness of non-executive directors
Encyclopedia
Review of the role and effectiveness of non-executive directors (or the "Higgs review") was a report chaired by Derek Higgs
on corporate governance
commissioned by the UK government, published on 20 January 2003. It reviewed the role and effectiveness of non-executive director
s and of the audit committee, aiming at improving and strengthening the existing Combined Code
.
There was widespread unrest after the scandals in the US, involving Enron
, WorldCom and Tyco
. The US opted for legislation under the Sarbanes-Oxley Act
.
Higgs strongly backed the existing non-prescriptive approach to corporate governance: "comply or explain". Yet he advocated more provisions with more stringent criteria for the board composition and evaluation of independent directors. He wanted to remove some of the discretion that the Code allowed.
Higgs viewed the earlier scandals, which led to the Cadbury Report
could have been avoided had a Code been in place. The Robert Maxwell
debacle could have been avoided in his view because many firms already refused to deal with him, and disclosure of his company's governance practices would have led to more pressure for change.
In December 2009 the Financial Reporting Council commissioned the Institute of Chartered Secretaries and Administrators to update the Higgs guidance with the assistance of a Steering Group. In July 2010 ICSA launched draft guidance ['Improving board effectiveness'] as part of this process. The Financial Reporting Council intends to publish the final guidance by the end of 2010.
Derek Higgs
Sir Derek Alan Higgs was an English businessman and merchant banker. He was knighted in 2004. His father, Alan Higgs, was a multimillionaire through property businesses in the Midlands.-Early life:...
on corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...
commissioned by the UK government, published on 20 January 2003. It reviewed the role and effectiveness of non-executive director
Non-executive director
A non-executive director or outside director is a member of the board of directors of a company who does not form part of the executive management team. He or she is not an employee of the company or affiliated with it in any other way...
s and of the audit committee, aiming at improving and strengthening the existing Combined Code
Combined Code
The UK Corporate Governance Code 2010 is a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. It is overseen by the Financial Reporting Council and its importance derives from the Financial Services Authority's Listing Rules...
.
There was widespread unrest after the scandals in the US, involving Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
, WorldCom and Tyco
Tyco
Tyco may refer to:* Tyco International, a diversified industrial conglomerate* Tyco Electronics, a former segment of Tyco International* Tyco Toys, a division of Mattel...
. The US opted for legislation under the Sarbanes-Oxley Act
Sarbanes-Oxley Act
The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
.
Higgs strongly backed the existing non-prescriptive approach to corporate governance: "comply or explain". Yet he advocated more provisions with more stringent criteria for the board composition and evaluation of independent directors. He wanted to remove some of the discretion that the Code allowed.
Higgs viewed the earlier scandals, which led to the Cadbury Report
Cadbury Report
The Cadbury Report, titled Financial Aspects of Corporate Governance, is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. The report was published in 1992...
could have been avoided had a Code been in place. The Robert Maxwell
Robert Maxwell
Ian Robert Maxwell MC was a Czechoslovakian-born British media proprietor and former Member of Parliament , who rose from poverty to build an extensive publishing empire...
debacle could have been avoided in his view because many firms already refused to deal with him, and disclosure of his company's governance practices would have led to more pressure for change.
In December 2009 the Financial Reporting Council commissioned the Institute of Chartered Secretaries and Administrators to update the Higgs guidance with the assistance of a Steering Group. In July 2010 ICSA launched draft guidance ['Improving board effectiveness'] as part of this process. The Financial Reporting Council intends to publish the final guidance by the end of 2010.
See also
- Combined CodeCombined CodeThe UK Corporate Governance Code 2010 is a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. It is overseen by the Financial Reporting Council and its importance derives from the Financial Services Authority's Listing Rules...
- Cadbury ReportCadbury ReportThe Cadbury Report, titled Financial Aspects of Corporate Governance, is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. The report was published in 1992...
(1992) - Greenbury ReportGreenbury ReportThe Greenbury Report released in 1995 was the product of a committee established by the United Kingdom Confederation of Business and Industry on corporate governance. It followed in the tradition of the Cadbury Report and addressed a growing concern about the level of director remuneration...
(1995) - Hampel ReportHampel ReportThe Hampel Report in 1998 was designed to be a revision of the corporate governance system in the UK. The remit of the committee was to review the Code laid down by the Cadbury Report . It asked whether the code's original purpose was being achieved. Hampel found that there was no need for a...
(1998) - Turnbull ReportTurnbull ReportInternal Control: Guidance for Directors on the Combined Code also known as the "Turnbull Report" is a report drawn up with the London Stock Exchange for listed companies. The committee which wrote the report was chaired by Nigel Turnbull of The Rank Group plc...
(1999) - Smith ReportSmith ReportThe Smith Report was a report on corporate governance submitted to the UK government in 2003. It was concerned with the independence of auditors in the wake of the collapse of Arthur Andersen and the Enron scandal in the US in 2002...
(2003)
External links
- The Higgs report DBERR website and pdf
- Full text of the combined code 2006
- Full text of the combined code 2003
- The Financial Services Authority Listing Rules online and in pdf format, under which there is an obligation to comply with the Combined Code, or explain why it is not complied with, under LR 9.8.6(6).
- The Financial Reporting CouncilFinancial Reporting CouncilThe Financial Reporting Council is the UK's independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.-Structure:...
's website