Britain's listed companies will face tougher corporate governance rules with effect from today, including new requirements designed to hold directors to account and to boost the number of women on boards.
Baroness Hogg, chairman of the Financial Reporting Council, said the Corporate Governance Code would "reinforce board quality, focus on risk and accountability to shareholders".
A review of the code was launched in the aftermath of the credit crunch two years ago, amid concern that the directors of leading banks and other financial services companies had failed to hold their executives to account, or to understand the risks their companies were taking.
The updated code requires directors of all FTSE 350 companies to stand for re-election every year and also introduces rules to align performance-related pay more closely to companies' long-term risk profiles.
In addition, the code sets out new duties for chairmen and non-executive directors, as well as guidance on how board members should be chosen. One new principle is that members of the board should be selected "on merit, against objective criteria, and with due regard for the benefits of diversity, including gender diversity".
Benjamin McCarron, an investment analyst at Co-operative Asset Management, said the new code was a forward step in improving governance standards but that more needed to be done to ensure that boards were selected from wider pools of people.
"This is a step change that will aid scrutiny and transparency as well as providing a more rounded approach to board dynamics at a time when the need has never been greater," he said. "We all want the best people for the job, but the stark statistics tell us we're either failing to look at the whole field of talent – or failing to nurture it."
The CBI also said much of the code was welcome. "However, we remain concerned that annual re-election may pose problems for larger companies," Richard Lambert, its director general, warned. "It could promote a focus on short-term results, make boards less stable and discourage robust challenges in the boardroom."