For three reasons, I am particularly pleased to be making this address at this time at the ICSA Corporate Governance Conference.

The first reason is the support I have had from the whole army of Company Secretaries who have assisted me in nearly forty years of chairing companies, particularly since 1991 when I became a professional non-executive Chair. Company Secretaries are unique among professionals in their access to what goes on in boardrooms and I have relied countless times on their advice and discretion. I have been fortunate indeed in the calibre of the ones who have helped me and I acknowledge gratefully their preservation of my sanity and the board's coherence.

The second reason I am pleased to be here is that ICSA itself materially assisted the Financial Reporting Council at a critical stage in the FRC's development. Although the FRC is now nearly twenty years old and was one of the three original sponsors of the 1992 Cadbury Committee, much of our present remit was given to us in 2003 in the aftermath of the Enron affair. We have since then had the task of knitting together constructively six highly competent and independent boards, responsible for the various parts of our remit under a governing body which itself had become newly directly responsible for publishing and periodically reviewing the Combined Code of Corporate Governance. To make the enlarged FRC greater than the sum of its parts was a big challenge which ICSA was called in to help us face in 2005. Through painstaking interviewing and objective analysis of responses, ICSA greatly helped the FRC to lay the foundations for its successful restructuring. I still on occasion refer to the ICSA Report and value its professionalism, focus and lack of consulting flamboyance.

FRC announcement
The third reason I am pleased to be here is that it is a most appropriate occasion to comment further on the announcement the FRC has made today that we are starting forthwith a review of the Combined Code.

While there is no assumption that the Code is fundamentally flawed or that a different regulatory framework for corporate governance could have alleviated the financial crisis, we are clear that the time is now ripe for testing the Code's content and application against the fresh thinking that the financial crisis must provoke.

Our announcement today requests general views by the end of May from any source interested in giving them. During this time, the FRC will also be conducting a repeat of the personal consultations with Chairs of publicly-quoted companies subject to the Code, very much along the lines of similar consultations which we carried out in 2006. The response rate then to our invitations was nearly 70% and the first-hand impressions gained were of great value to the consultation process. We hope to get at least a similar response this year and that it will form a strong basis for the review's eventual findings.

As announced by the Government last month, the governance of banks is the subject of a separate review by Sir David Walker. We will be in close touch with that review and share relevant research and information. The two reviews will certainly overlap in the issues on which they will focus and will be concerned, amongst other things, with the extent and effectiveness of engagement between companies and shareholders.

The Code
I want to take this opportunity to talk generally about the Code in the present situation. Please regard what I say as my personal views, not those of the FRC, which we will of course be forming in the light of the coming consultation.

The financial crisis is the result of a massive failure of governance at every level involved, going way beyond, though not excusing, the failures of corporate governance in publicly-quoted UK banks.

The failure of those governing to see the wood for the trees - or, if it was seen, to generate appropriate action - points to a need for reappraising governance at every level from first principles. It will require leadership, co-operation, imagination, patience and nerve to do this reappraisal job well enough to obtain some lasting benefit to offset the huge damage that has been done.

As far as corporate governance under the UK Code is concerned, the title ICSA gave this address without knowing what I was going to say was "A system battered but not broken", which makes the Code sound like London in the blitz.

Actually, I like the title but I prefer it with a question mark added. In the context of the financial crisis I think it would be inappropriate to do anything other than to retain an open mind. The damage done has been too severe to take anything for granted. Just because little was altered in the last Code Review two years ago does not mean that the opportunity for reappraisal should not be taken both by the FRC and by all those with a vested interest in the UK quoted company corporate governance system.

Frankly, I think reappraisal at this time is so important that every corporate board subject to the Code should carry out its own thoroughgoing individual governance reappraisal taking as its desired outcome the need to make the board work better in the long term interests of the company. If some aspect of governance is thought to do more harm than good, it should be up for change. Change is much easier to effect in an individual company than in the system as a whole and one of the great things about the UK system is the flexibility it gives individual companies to change subject to their shareholders' agreement. So - I repeat - I hope that the directors of every quoted company will as a result of the crisis have a no-holds-barred review of how they can do better as a board.

I shall comment further in this address about individual Board governance appraisal because it is the key to the health of the whole system. But let me first talk about my own relationship with the Code.

In my career I have seen corporate governance from many angles. The whole of my career as a full-time executive was in the pre-Code era. In that time I transgressed at least three or four of the current Code's main prescriptions, including being Chairman and CEO combined for twelve years at the head of a major company.

As a professional non-executive Chair, I agreed to be an adviser to, but not a member of, the Cadbury Committee which drew up the original Code in 1992 but thereafter, until joining the FRC in 2006, I have avoided any involvement with extensions of the Code. I was simply too heavily involved in the practice of Chairing to be able to take time out in defining corporate governance standards.

However, if you Chair Boards of public companies for any length of time, you become acutely aware of the basic principles of good corporate governance, namely: accountability, transparency, objectivity and putting the company's long term interests ahead of all other considerations.

These principles are deeply important in countering the adverse effects of power, which can be particularly corruptive in corporates. They are deceptively simple, but endlessly difficult to observe properly because they so frequently go dead against the grain of human nature. Think about it. Is accountability the guiding spirit of the RemCo? Does transparency dominate information to the Board? Is the determination of strategy totally objective? How often do directors, for reasons great and small and in one way or another, let their interests obtrude into those of the company?

The Code attempts to translate these key general principles into standards defining a sort of highest common factor in the behaviour of Boards. It is this translating of principles into actual standards that I came to see as making a significant difference between the pre-Code and post-Code eras. It stiffened the resolve and the ability of Chairs (myself included) to obtain more effective behaviour from the members of their Boards. Gradually I became interested in such a potent influence on Boards and hence three years ago I took on the task of Chairing the FRC as the Code's publisher.

The reason why it is a privilege to chair the FRC is that it offers such an unrivalled perspective across the board, if you will forgive the pun. What I mean is that hitherto, despite having had nearly fifty years cumulatively of chairing FTSE 100 companies, I have had only a narrow, albeit deep, perspective of management spanning only a handful of companies and industries (no, banking was not one of them, though I do admit that my first commercial training after Harvard Business School was three years in what was then called "merchant banking"). Now, through the eyes of the FRC, I can look across the whole range of UK quoted companies and have to be concerned also with what is happening in governance in quoted companies around the world.

"So what?" you may say. "Does that make you any more able to be certain what is good governance when you see it? Can you rationalise and focus the principles of good governance so that they can be enshrined in a Code which is a proxy for good governance? Above all, can you enable us to be so prescriptive about the governance of banks in future that we can stop worrying about another financial crisis?"

I'm afraid the answer to all three questions is "No". Why? Because governance is about behaviour. It is about people responding to events. Events are only imperfectly predictable and controllable and people likewise. Any governance hierarchy is behavioural and as it gets bigger the summit rapidly loses the capacity to control in detail. It therefore has to delegate and has to rely increasingly on broadcasting general principles of good practice, and trusting that they will be observed.

So if governance fails, as it appears to have done corporately to a greater or lesser extent with most of the world's banks, what does it mean? Are the governance standards effective but simply not followed properly in that the letter is observed but not the spirit? Or are the standards themselves misconceived or insufficiently precise or defective in some other important way? What's merely battered and what's actually broken?

The answers to those questions need more time and thought and also a lot more input from consultation, which is why I was urging earlier that Boards individually do their own absolutely clear-minded governance assessments.

The most important point about reappraising corporate governance is that Chairs should Chair. This is a crisis; little happens without leadership; and the Chair is the leader of the Board and the person who, for above all other Board members, can make or break a Board's effectiveness.

For any group to break out of its rut, it has to contemplate afresh how it interacts, what it is trying to achieve and how achieving it can be reconciled with the permanently acute problems for a Board of inadequate time and imperfect knowledge.

At best this is uncomfortable because if the reappraisal is done properly, there has to be full openness of communication among Board members and between the executives and the non-executives. There will not otherwise be the understanding and trust which will make commitments to new behaviour stick.

It is one thing to advocate full openness of communication but quite another to achieve it. In every boardroom there are the sensitivities to criticism, the mixed motives, the difficulties of seeing oneself as others do, the personal antipathies, the incompetencies, the threats to personal survival in the group, the lack of appreciation of contribution which can make all the difference to individuals' commitment, and so on.

I acknowledge that the Code is a piece of grit in the Board's oyster. It may or may not assist the Board to produce a pearl eventually but in the meantime it can be a pain. All the time it keeps reminding everyone that Boardmanship is a game of two halves: executive and non-executive. Each side privately thinks the other always plays downhill with a following wind; and big issues are at stake: jobs, remuneration, the company's performance, personal reputations. Under these circumstances, it is very necessary, but also very difficult, to keep a board united and focussed.

Chairs of public companies, in fact, face a hell of a challenge - a sort of crash course in Kipling's "If". There must be something bewitching about the challenge of Chairing boards because I've noticed throughout my working life the surprising number of people who keep on trying to rise to it. If they do succeed, they become mature and respected people provided the power doesn't get to them. But it may not, because Chairs don't effectively have anything like as much power as the CEO.

So to conclude, I think it is Chairs who will determine over the long run whether the system as we now know it recovers from its battering and remains relevant and flexible. You Company Secretaries can make a lot of difference to the Chairs' load. I know you will help Chairs to uphold the underlying principles of corporate governance because those are certainly not broken. But regarding the Code itself, by all means treat it with respect but remember that it is meant to be the servant of the underlying principles, not their master. So if any part of it, when examined in the spotlight of experience and the financial crisis, seems after all not to be conducive to good governance, then we must think again - both individual companies and the FRC in relation to the system as a whole.

Sir Christopher Hogg, Chair, Financial Reporting Council
18 March 2009
ICSA Corporate