Boards shrinking in prepartion for new code
Company boards are rapidly shrinking as companies ready themselves for new codes of corporate governance.
Link: Higgs report special
But while the overall number of directors is rapidly falling there is plenty of extra demand for non-executive director.
Research from Deloitte and Touche has found that the number of directors sitting on FTSE 350 boards has already fallen by 8% this year.
The number of non-executive directors has increased by 2.5% but will need to rise further to address issues of board balance and comply with the new Combined Code.
Rupert McNeil, executive remuneration partner at Deloitte said: ‘We have seen a trend over the past year for boards to become smaller, with fewer executives but more non-executives, as companies review their board structure and processes in anticipation of the requirements of the Combined Code.’
As part of the combined code which comes into effect on 1 November at least half the board is to be made up of independent non-executive directors. Around 30% of FTSE 350 companies are still not compliant with this aspect of the Code, a shortfall of about 125 non-executive directors.
Deloitte warned that even more non-executive directors would need to be appointed, because 240 will not pass the Code’s independence criteria as they were appointed more than 10 years ago.
‘In reality a much larger number of new appointments may need to be made,’ said the report.
A significant number of directors already hold more than one directorship. Of the 315 FTSE 350 companies included in the research 95% of FTSE 100 companies and 90% of FTSE 250 companies have at least one member of the board who has another board position at a FTSE 350 company. Deloitte rejects accusations of boards being too ‘cosy’.
‘Suggestions that a large number of directors sit on each other’s board and effectively push each others remuneration upwards is unfounded,’ said the report.
However Deloitte does believe that boardroom diversity remains an issue with women continuing to be under represented, comprising only 3% of FTSE 350 executive directors and just a 1% improvement compared with last year.’Many companies are still a long way off a diverse boardroom,’ said McNeil.