Link: Higgs special report
The combined code on corporate governance, which incorporates Derek Higgs’ recommendations, takes effect on 1 November. The code states that the chief executives of listed companies should not take on the chairmanship of the same company. If they do so, companies must clearly explain why they are adopting that course of action, a requirement known as ‘comply or explain’.
Both Barclays and WH Smith have opted to explain why their CEOs are taking on the chairmanship.
WH Smith delivers its annual results today, and will confirm that chief executive Richard Handover will take over as chairman on 1 November to make way for incoming chief executive Kate Swann.
A spokeswoman for the embattled high-street group said: ‘Martin Taylor indicated that he wanted to step down as chairman at the same time that Richard said he wanted to step down as chief executive.’
She said Handover would continue in the chairman role until January 2005, and that part of his role would be to help find a new chairman. ‘We felt it was the best deal for the company in terms of continuity.’
Colin Melvin, director of corporate governance at institutional fund manager Hermes, would not comment on individual companies, but said the option to explain was ‘a very important part of the process’.
But he also warned that, while a ‘pragmatic approach is very important’, investors have an extremely important role to play.
‘It’s only useful if investors put the time in to consider the explanation,’ he said. ‘The difficulty comes when investors take a box-ticking approach rather than considering the explanation. It is important that investors take this issue seriously.’
Diane Hay, chief executive of share scheme lobbying group ProShare, told Accountancy Age that while the option to explain is a good idea, ‘it has got to be a proper explanation’ which had not yet been seen.
‘We feel private stakeholders are out of the loop,’ she said. ‘There may well be a good explanation, but is the man in the street going to hear it and understand it?’
Barclay’s current chairman Sir Peter Middleton will step down at the end of next year to make way for current chief executive Matthew Barrett.
John Varley, currently chief financial officer, will work alongside Barrett from 1 January before taking over as chief executive a year later.
A spokeswoman for Barclays said it would be publishing a full explanation with its annual report next year. ‘We have talked to institutional shareholders and kept them informed, and are grateful for their comments. It is, however, a decision for the board,’ she said.
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