Listed companies will have to spend millions of pounds on recruiting non-executive directors to comply with the Turnbull report on corporate governance, due to be issued in its final form this month.
In a stark warning issued by Ernst & Young and the Institute of Directors last week, the two bodies said around 40% of listed companies had no non-executive directors and most had no intention of hiring any in the future.
The research found that non-executives brought a wider strategic knowledge to a business while also having the time to look at issues, such as risk, which could be overlooked by busy directors.
The guidelines, developed with the backing of the English ICA, are designed to make boards evaluate all the risks associated with their businesses.
Companies will then have to comply with requirements for accounting periods ending on or after 23 December 2000, or explain their actions to the Stock Exchange. They will need to disclose that this has been done in the annual report for the first accounting period ending on or after 23 December 1999.
However, Rank Group finance director Nigel Turnbull has already warned companies to start implementing the guidance now or risk running out of time.
IoD professional standards director Lord Newton, a former leader of the House of Commons and Conservative social security secretary, said the guidelines would encourage companies to think about the wider values of non-executive directors.
‘The research indicates that boards which consist of both executive and non-executive directors comprise, on average, 40% non-executive and 60% executive, compared with the recommended ratio of not less than a third non-executive directors,’ he said. ‘This demonstrates the importance placed on independent directors for both enterprise and governance.’
Ann Robinson, director-general of the National Association of Pensions Funds, said: ‘I think Turnbull points us towards non-executive directors who are in the position to ask whether the company has undertaken a risk assessment. This will be about asking the directors how the company is being managed.’
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