Higgs to unveil widest shake-up of boardrooms for a decade

Companies are today bracing themselves for the publication of Derek Higgs' review of boardrooms, which is expected to issue the most wide-ranging shake-up of corporate governance since Sir Adrian Cadbury formulated his landmark code more than a decade ago.

Mr Higgs, who is a well-respected adviser to UBS Warburg, will warn companies they must meet much more stringent standards for the independence of non-executive directors. He will also recommend companies should justify a range of important decisions in their annual report, such as why a particular audit firm and new board member is appointed.

Mr Higgs, who was appointed by the Government in August to consider ways to boost the role of non-executives, will attempt to stamp out cosy relationships often found on boards by recommending that at least half the board should be independent.

At the moment the Combined Code, the current official guide on corporate governance, recommends there should be more non-executives on a board than executives. Many companies ignore the advice.

Mr Higgs will emphasise the majority should not only be non-executive, but also fulfil new criteria of being "independent", which he will define as having no financial ties or other types of relationships with executives. According to a report over the weekend, a fifth of FTSE 100 companies would be in breach of a rule forcing them to ensure half their board was "independent" under his definition.

He will also urge the Government to change the code to stipulate that executives should only be allowed to hold one other non-executive post at another company.

Christine Farnish, the chief executive of the National Association of Pension Funds, said: "The most significant thing in the Higgs review is likely to be the strengthening of independent directors in the boardroom, which will plug a gap in the Combined Code." Michael Hughes, the chairman of assurance at KPMG, said: "This is evolution not revolution. It will formalise a lot of things that are already being done by the best audit committees."

Mr Higgs will also address the issue of non-executives' pay, saying the post should attract more than the current average salary of £37,000 that a FTSE 100 non-executive receives.

Increasing directors' pay is seen by some as the easiest way of attracting a wider pool of talented candidates to non-executive directorships, a move the Department of Trade and Industry is keen on as a way of avoiding a repeat of the Enron and WorldCom scandals.

Mr Higgs' review will be published alongside a separate report on audit committees, compiled by Sir Robert Smith, the chairman of Weir.

The reviews will dramatically increase the clout of the audit committee, by, in effect, making the company's audit firm report to it rather than the finance director.