ePolitix.com Forum members respond to the Higgs review proposals to overhaul the code of practice on corporate governance.

Forum Response: Institute of Directors

George Cox, director general of the IoD, said: "The IoD has campaigned vigorously for higher standards in the boardroom - not to head off scandals but to drive up company performance - and the Higgs' recommendations announced today are an important move in the right direction.

"We are particularly pleased to see that Derek Higgs has included, as a key recommendation, the provision that companies should be required to comply with an expanded Combined Code of best practice or explain why they have chosen to deviate rather than recommending a legislative approach.

"We particularly welcome the fact that Derek Higgs has recognised that it is the role of shareholders to monitor the operation of the boards of their companies, and the proposals give a much better framework for doing so.

"The basic need is to identify and spread best practice, with companies not being rigidly tied to observing every detail but being obliged to explain where and how they choose to deviate. However, for this to operate as envisaged, shareholders - basically the large institutional investors - have to play their role intelligently.

"They have to take a genuine interest in the operation of the company, not simply follow a 'tick in the box' approach to compliance. For many, this will require a change of approach.

"The IoD is concerned however that there should be room for concessions for smaller companies, who find it a difficult challenge to secure sufficient high-quality independent directors. If they are required to follow the recommendations of the largest companies they will end up adding numbers not quality."

Forum Response: Association of British Insurers

Peter Montagnon, head of investment affairs at the ABI, said: "Strong boards make for strong companies that deliver value to their shareholders and prosperity to their employees. This report contains a number of common sense proposals to help independent directors maximise their contribution by supporting sound strategic development and ensuring proper oversight of key issues such as audit, remuneration and the nomination.

"It is important that the review has sought to build on the UK's existing standards by promoting consensual change rather than statutory regulation and by confirming the UK preference for unitary boards. This is not about dividing boards, but making them work better together.

"It makes sense for the senior independent director to participate in meetings of the chairman and management with leading shareholders so that the board can take investor views fully into account. A credible evaluation process will also add to confidence that boards are functioning effectively as a unit."

Forum Response: Rio Tinto

A spokesman for Rio Tinto told ePolitix.com: "Rio Tinto recently acted to strengthen the independent element of its Board of Directors by increasing the number of non executive directors from eight to nine. This is out of a Board membership of 14, excluding the chairman, to make a total of 15. In December 2002 Andrew Gould, president and chief Operating Officer of Schlumberger Limited, a technology and oilfield services firm, was appointed to the Board.

"This means that Rio Tinto is deletion in compliance with the principal Higgs recommendations deletion. With respect to the Higgs Report, Rio Tinto has a majority of independent non executive directors; the chairman and chief executive roles are separate; and there is a strong executive representation, with an executive chairman plus the chief executive, the finance director, the director of planning and development and two product group chief executives on the Board.

Forum Response: ACCA

David Bishop, chairman of ACCA's working group on corporate governance, said: "ACCA welcomes many of the proposals included in both reports which should lead to greater accountability and transparency, which are vital ingredients in restoring confidence in the capital market.

"But the risk remains that smaller listed businesses which try to meet the requirements contained may face difficulties implementing the requirements of the Combined Code of Practice which both reports will feed into. While steps are being taken to increase the pool of potential NEDs, these reports will generate huge demand for an increase in the number of new NEDs.

"This could lead to less qualified and experienced people finding their way into boards, and small listed companies having to spend considerable resources training and supporting them. It would also threaten the unitary board concept. The transition would have to be handled with care.

"One other area of concern for ACCA is the absence of any recommendation in either study to the effect that the Audit Committee or the NEDs as a group should make an annual governance report to shareholders.

"In ACCA's original submissions, this report would have contained a commentary on the independence of the external auditors. In the absence of such a report, it is vital that the government moves quickly to improve the regulations relating to the disclosure of fees paid in respect of audit and non-audit services, especially if the two activities are not now going to forcibly separated."