7.1.3 Combined Code 1998

The Hampel Report ends with a conclusion for 56 issues. In conclusions 3 and 4, the Hampel Committee advises the London Stock Exchange to use their input, together with the Cadbury Report and Greenbury Report, to change the listing rules and consult on this document (Hampel Committee 1998: 57). The result of this process was The Combined Code - Principles of Good Governance and Code of Best Practice, which was issued in 1998. It combines the recommendations and best practice provisions of Cadbury, Greenbury and Hampel (Financial Services Authority 1998: 1). The best practice provisions of the Combined Code should be implemented by a comply or explain principle. The Combined Code comprises two sections, which are divided into principles and code provisions. Section one focuses on the company, section two focuses on institutional investors.

The Combined Code emphasises the importance of internal control, principle D.2 states that ‘The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets.’ In accompanying code provision D.2.1 this principle is elaborated upon further: ‘The directors should, at least annually, conduct a review of the effectiveness of the group’s system of internal control and should report to shareholders that they have done so. The review should cover all controls, including financial, operational and compliance controls and risk management.’ The principles and best practice provisions regarding independence are in line with the recommendations of the Hampel Committee.

The Turnbull Committee, established by the Institute of Chartered Accountants in England and Wales, was asked to set up guidelines in order to comply with the internal control requirements in the Combined Code. To be more precise: ‘The guidance in this document should be followed by boards of listed companies in: assessing how the company has applied Code principle D.2; implementing the requirements of Code provisions D.2.1 and D.2.2; and reporting on these matters to shareholders in the annual report and accounts’ (Turnbull Committee 1999: 7).