NAPF backs away from full support for Higgs

The Influential National Association of Pension Funds, previously one of the staunchest supporters of Derek Higgs' review of the health of UK boardrooms, yesterday added its voice to calls for the proposals to be watered down before being included in the Combined Code.

The turnaround by the NAPF came just three days before all companies and other bodies must submit their final submissions on Higgs to the Financial Reporting Council (FRC) on Monday, the independent organisation responsible for deciding how the review will be included in the Combined Code.

The looming deadline has prompted furious lobbying in the City by companies and industry bodies. The FRC has come under pressure to delay the new Code until January, but is still likely to put forward a draft of its suggested changes when its full board meets on 14 May.

David Gould, director of investment at the NAPF, said: "We would like to see a paragraph at the start of the Code, saying it is quite acceptable for companies not to comply with all aspects as long as they have got a good reason."

There is a growing consensus that the proposals in the Higgs report are broadly acceptable, but that its emphasis should be changed so that it focuses on principles, rather than being made up of a set of rules which could be bypassed.

UK corporate governance has worked on the basis of principles of best practice for years. It is credited to be a major reason why this country has not run into the type of corporate hot water that the US did over Enron and WorldCom, where the regulatory framework is based on rules.

Mr Gould said the language of the Higgs proposals could be "polished up" to make it less prescriptive, giving companies more freedom about how to run themselves.

This view is shared by the London Stock Exchange and the Institute of Chartered Accounts, which both favour much of the review being included as annexes to the Combined Code.

Peter Wyman, president of the Institute, said: "Rather than 'comply or explain' it should be turned around into 'explain how you have complied,'" he said.

The Investment Management Association, which represents fund managers, also said that it was broadly supportive of the Higgs proposals, but thought some of aspects of the rules were unnecessarily detailed.