Developing and implementing
corporate governance codes of best
practice in MENA
The Importance of the Consultation Process
NeAd
Ken Rushton, Nestor Advisors Ltd
12 December 2006
NeAd
Principles of Good Regulation
1
Proportionality
No sledgehammers to crack nuts
Accountability
Justify your policy
Consistency
Implement fairly and consistently
Transparency
Is policy open and user-friendly?
Targeting
Focus on the problem and avoid
unintended consequences
NeAd
UK Government Consultation Criteria
2

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
Why Consult?

To gain information from stakeholders, eg:
– check assumptions
– get new ideas
NeAd
– obtain a broader view
3

Consider all options

Highlight potential problems

Increase stakeholder trust
Planning Consultation

Set objectives for consultation

Continue informal consultation

Identify consultees

Analyse responses to CP and
impact on policy

Carry out preliminary
consultation

Provide feedback to consultees
Write the CP

Draft final proposal
NeAd

4
Allow sufficient time!
Manage stakeholder expectations!
History 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
Higgs report on role of Non-Executive Directors
2003
NeAd
Smith report on role of Audit Committee
5
FRC review of Combined Code
2005-06
FRC Review of Turnbull recommendations
NeAd
Role of Financial Reporting Council
6

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
NeAd
The Code Process
7

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
Case Study
FSA Review of Listing Rules
2001

Research commissioned

Discussion paper:

Policy paper published

Roundtables

Stakeholder meetings

Feedback statement

Draft rules for consultation
April 2005

Final rules published
1 July 2005

D day!
Oct 2003
2003-04
- Summary of research
findings
June 2002
- Themes for review
Oct 2004
NeAd
Jan 2003
8

Feedback statement

Established consultative
committee

Theme teams
2003
Case Study
Higgs Review on Role of Non-Executive Directors
NeAd
2002
9

Post Enron Government
commissions review by Sir
Derek Higgs alone

Higgs commissions
research

Higgs talks to companies,
institutions, investors, etc
Jan 2003

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

Report published
recommending widespread
changes to Code

FRC says, it will consult
only on “fatal flaws or
drafting points”
Case Study
FRC Review of Turnbull Guidance on Internal Control


NeAd
1999
10
Turnbull recommendations
on internal control
published
2005
FRC established Flint
review:
- Flint is CFO of HSBC
- Supported by team
representing companies,
investors, professions

Team gathers evidence and issues two consultation papers

Responses from many companies and investors – consensus reached

Result: A robust defence against S-Ox!
Tips (1)

Start consultation early – consider a
“discussion paper”

Make contacts with key stakeholders prior
to CP

Consider:
– stakeholder working groups and
steering committee
NeAd
– web forum
11
– surveys
– focus groups
Tips (2)

Ask focused questions

Don’t rule out options

Treat responses to consultation seriously:
– new options
– review likely impact of policy
NeAd
– assess opposition
12

Consult on implementation and enforcement issues