Directors to face regular reviews under Higgs reform

The City's rulebook on good corporate governance, known as the Combined Code, will urge companies to carry out regular formal assessments of their boards, under proposals unveiled this week by the Financial Reporting Council.

The body, which was charged with the task of transferring Derek Higgs' proposals on the role of the non-executive director into the code, has formulated its views ahead of a meeting on Wednesday to discuss the final list of changes to the existing code.

The FRC will suggest directors and board committees ought to be frequently appraised in order to make sure companies are run by able people with the right skills.

While the new guideline will create a considerable amount of new work for companies, in many other ways the FRC's document will water down Mr Higgs' suggestions following an outcry of protest from business figures. It will, for instance, ignore suggestions that a company's chairman should be barred from being head of its nominations committee. However, the FRC's decision to include a separate section on assessment will put companies under pressure from a different direction.

The FRC will almost certainly soften Mr Higgs' suggestion that non-executives should serve only six years but encouraging companies to assess non-executives' performance frequently could in fact curtail the amount of time many part-time directors spend on boards.

Tim Copnell, director of corporate governance at KPMG, said: "This could actually make the pool of non-executives smaller because the demand for really good people could increase. But on the other hand maybe [boards] will go for a range of people, including in the not-for-profit sector."

The FRC, whose 34 members include City grandees such as Sir John Bond, chairman of HSBC, and Sir Victor Blank, chairman of Trinity Mirror, will also relax the Higgs review's proposals for companies below the FTSE 350.

Separately, the Confederation of British Industry has sent its recommendations on ways to stamp out payments for failure to every chairman of FTSE 100 companies to calm nerves about what it contains and for final feedback on the proposals.

The guidelines, intended as a way to head off legislation on directors' pay by the Government, urges companies to scrap bonuses chief executives sometimes receive on arrival, because while called a "bonus", the payments are often not linked to performance. The CBI is keen for them to be replaced with a more transparent joining fee.

The CBI is keen on companies handing out severance pay on a monthly basis, so that if an ousted chief executive gets a new job he or she would not be paid by both the old and the new employer.