Revised City code satisfies both sides

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Business Groups and the investor lobby temporarily ceased their hostilities yesterday in the row about payments for failure, when both groups declared themselves satisfied with the changes to the Combined Code, the City's rulebook, published yesterday.

The Financial Reporting Council, the independent body charged with incorporating Derek Higgs' review of boardroom behaviour into the Code, toned down some of the language and stipulations in the Higgs report following criticism in business circles that the proposals were draconian.

However, the final version of the Code, which will take effect on 1 November, also includes recommendations that companies think carefully about their remuneration policy to avoid problems over payment for failure.

The Code will for the first time contain a section on the recruitment of non-executives to encourage companies to conduct thorough searches for talented board members.

There will also be a section on formal assessment of directors to improve the professionalism of non-executives.

Digby Jones, director general of the Confederation of British Industry, declared the FRC's final guidelines were "a victory for common sense". The CBI has lobbied for the Higgs report to be watered down. It got its wish in that the FRC dropped the suggestion that a company's chairman should not also be allowed to head the nominations committee. The FRC has also heeded the alarm bells about proposals to enhance the role of the senior non-executive director. The Code will continue to emphasise the primary role of the chairman in representing the company to shareholders, though the senior non-executive can also attend meetings to listen to shareholders' views.

Further concessions are that small companies must have two independent non-executives on their boards rather than making sure half of their directors are independent.

The Code will also recommend that non-executives serve a maximum of nine rather than six years.

Peter Montagnon, head of investment at the Association of British Insurers, welcomed the Code. "There has been a lot of acrimonious debate which has created a gulf between companies and shareholders. This has been unhelpful and needs to be bridged," he said.