NeA

d

Developing and implementing corporate governance codes of best practice in MENA

The Importance of the Consultation Process

Ken Rushton, Nestor Advisors Ltd

12 December 2006

2

NeA

dPrinciples of Good Regulation

Proportionality No sledgehammers to crack nuts

Accountability Justify your policy

Consistency Implement fairly and consistently

Transparency Is policy open and user-friendly?

TargetingFocus on the problem and avoid

unintended consequences

3

NeA

dUK Government Consultation Criteria

Consult widely; allow at least 12 weeks for written consultation at least once

Clarity as to proposals, who may be affected, questions asked and timetable

Consultation must be clear, concise and accessible

Give feedback on responses and how policy has been influenced

Carry out a regulatory impact assessment if appropriate

4

NeA

dWhy Consult?

To gain information from stakeholders, eg:

– check assumptions

– get new ideas

– obtain a broader view

Consider all options

Highlight potential problems

Increase stakeholder trust

5

NeA

dPlanning Consultation

Set objectives for consultation

Identify consultees

Carry out preliminary consultation

Write the CP

Continue informal consultation

Analyse responses to CP and impact on policy

Provide feedback to consultees

Draft final proposal

Allow sufficient time!

Manage stakeholder expectations!

6

NeA

dHistory of UK Codes

1991-92 Committee on Financial Aspects of Corporate Governance: Cadbury

1995 Greenbury report on remuneration of directors

1998 Hampel review Combined Code

1999 Turnbull recommendations on Internal control

2005-06

FRC review of Combined Code

2003

Higgs report on role of Non-Executive Directors

Smith report on role of Audit Committee

FRC Review of Turnbull recommendations

7

NeA

dRole of Financial Reporting Council

Maintaining an effective Combined Code

Promoting Code’s application

Ensuring related guidance (eg on internal control) is kept up to date

Influencing global corporate governance developments

Promoting boardroom professionalism

Encouraging dialogue between boards and investors

8

NeA

dThe Code Process

Set up project team or committee

Research the policy

Plan the consultation

Identify and manage difficult stakeholders

Make good use of feedback

Publish and implement code

Monitor implementation

Review lessons learned

Recommendations for improvements

9

NeA

dCase Study

FSA Review of Listing Rules

2001 Research commissioned

June 2002

Discussion paper:

- Summary of research findings

- Themes for review

Jan 2003 Feedback statement

2003

Established consultative committee

Theme teams

Oct 2003 Policy paper published

2003-04 Roundtables

Stakeholder meetings

Oct 2004 Feedback statement

Draft rules for consultation

April 2005 Final rules published

1 July 2005 D day!

10

NeA

dCase Study

Higgs Review on Role of Non-Executive Directors

2002

Post Enron Government commissions review by Sir Derek Higgs alone

Higgs commissions research

Higgs talks to companies, institutions, investors, etc

Jan 2003

Report published recommending widespread changes to Code

FRC says, it will consult only on “fatal flaws or drafting points”

Market outcry including FSA warning

FRC Chairman establishes team to consult stakeholders

July 2003: Revised proposals approved by FRC council

FRC establishes committee to keep Code under review

11

NeA

dCase Study

FRC Review of Turnbull Guidance on Internal Control

1999 Turnbull recommendations

on internal control published

2005

Team gathers evidence and issues two consultation papers

Responses from many companies and investors – consensus reached

Result: A robust defence against S-Ox!

FRC established Flint review:

- Flint is CFO of HSBC

- Supported by team representing companies, investors, professions

12

NeA

dTips (1)

Start consultation early – consider a “discussion paper”

Make contacts with key stakeholders prior to CP

Consider:

– stakeholder working groups and steering committee

– web forum

– surveys

– focus groups

13

NeA

dTips (2)

Ask focused questions

Don’t rule out options

Treat responses to consultation seriously:

– new options

– review likely impact of policy

– assess opposition

Consult on implementation and enforcement issues