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Earlier this year the Institute of Chartered Company Secretaries (ICSA) published its revised guidance on the terms of reference for audit, nomination, remuneration, risk and executive committees, together with updated guidance on matters reserved for the Board. The guidance incorporates the current edition of the UK Corporate Governance Code (the “Code”), which was released in September 2012.
As part of the guidance, ICSA have updated their model terms of reference for each of the committees and their suggested list of matters reserved for the Board; the key amendments and additions to which are summarised below.
Akin to other ICSA guidance notes, the Model Terms of Reference for Audit Committees draws on the experience of company secretaries and is based on best practice adopted by some of the UK’s largest listed companies.
The following represents a summary of changes to the terms of reference as compared to the previous October 2010 version. These updated terms incorporate both the Code and certain revisions made by Financial Reporting Council (FRC) in its Guidance on Audit Committees (published contemporaneously with the Code).
The duties of the audit committee should include (amongst other things):
The reporting responsibilities of the audit committee should include:
The only changes to the Model Terms of Reference for Remuneration Committees relate to the duties and reporting responsibilities of the committee, as summarised below.
The duties of the remuneration committee should include (amongst other things):
A significant proportion of remuneration should be structured so as to link rewards to corporate and individual performance and be designed to promote the long-term success of the company.
An express requirement for the remuneration committee to give due consideration to guidelines published by the Association of British Insurers and the National Association of Pension Funds, as appropriate.
The reporting responsibilities of the remuneration committee should include:
There were minimal changes to the Model Terms of Reference for Nomination Committees. Nonetheless, it is worthwhile noting that it remains the case that, unlike other Board committees, the chairman of the Board can be chair of the nomination committee.
The Code provides that a majority of members should be independent, rather than all: therefore membership can include executive directors, such as the chief executive.
The sole change to the terms of reference concerned the report prepared by the nomination committee for the purposes of the company's annual report. This report must:
The list of matters reserved for the Board has also been expanded and should now include:
Listed companies, both AIM and main market, should review the suitability of their current committee terms of reference and, following consultation with their legal advisers, NOMAD or Sponsor (as appropriate), seek to update such terms accordingly at the next general meeting of the company.
For more information please contact Mark Howard on +44 (0)20 7203 8902 or at email@example.com