This is not just Code...this is M&S Code

On 18 March 2009, the FRC published a call for evidence, as part of its review of the effectiveness of the Combined Code ("Code"). The FRC is seeking views on both the content of the Code and the way it has been applied by companies and enforced by investors using the "comply or explain" mechanism. The FRC is inviting comment on any aspect of the Code, including the respective roles of the chairman, executive and non-executive directors with comments requested by 29 May 2009.


Fashionista imagines that Marks and Spencer's shareholders will be one group that will have strong views on the way that the Code has been applied by companies. As reported in the Sunday Times on 22 March 2009, it seems that institutional investors have met with Jan Du Plessis (an independent non-executive director of M&S) recently to raise concerns that Sir Stuart Rose, the M&S boss, has too much power. They want Rose to split the role of executive chairman and chief executive, a position which is contrary to corporate governance best practice - and appoint a new senior independent director. The meeting comes almost a year after 22% of M&S investors abstained or voted against Rose's appointment to executive chairman.

The Code Provisions state that:

• The roles of chairman and chief executive be separated and the division of responsibilities between them set out in writing by the board (Code Provision A.2.1).


• A chief executive should not become chairman of the same company; and if the board decides otherwise, the major shareholders should be consulted in advance of the appointment and the reasons should be set out in the next annual report (Code Provision A.2.2).


• At the time of appointment, the chairman should meet the independence criteria set out in the Code ( Code Provision A.2.2). In addition the board needs to agree a high level statement of which decisions are to be taken by the board and those that are delegated to management.

Companies admitted to listing by the UK Listing Authority and incorporated in the UK are required to "comply or explain" their approach to corporate governance by including a statement in their annual financial reports confirming their compliance with the Code or giving reasons for any non-compliance.

The Code provides that if a Board decides that a chief executive should become chairman, the Board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in their next annual report. M&S's statement indicates due to concerns over the risk of leaks and the sensitivity of the changes, the Board did not meet these requirements. However since the announcement, the statement explains that Lord Burns has consulted with a number of principal investors and shareholders to set out the detailed reasons behind the Board's decisions. Despite these efforts, one leading investor told The Sunday Times: “We retain concerns about the M&S board - and we know a lot of other shareholders do. It is difficult to point to evidence that Rose's combined role is benefiting the company and there are growing questions about the performance of the business.”