Directors will face annual election under new governance rules

Beginning June, directors of the UK’s largest companies will be have to face
an annual election according to new corporate governance proposals released
today, in defiance of mass corporate opposition.

In what is the most significant governance change since the crisis, directors
of FTSE 350 companies will now face an annual vote, rather than the three year
term they often held.

The Financial Reporting Council’s changes were widely opposed in the
corporate world with BT, British Airways, GlaxoSmithKline, HSBC, Sainsbury and
Tesco among those opposed to the measures.

Corporations argue the measures will promote short-termism, and do not give
directors an oppourtunity to get “up to speed” with their companies.

“It takes several years for a new director to get fully up to speed following
appointment, and the prospect of being voted out soon afterwards is likely to
prove a disincentive to people agreeing to become directors, a problem in an
environment where it is already becoming more difficult to attract good quality
non-executive directors,” Tesco said in a submission to the proposals.

However the measures received support from Sir David Walker, who authored the
Walker Review on corporate governance in the wake of the financial crisis.

“The capability of board members and the dynamic of the boardroom are
critical in the setting of corporate strategy and oversight of its execution,”
he said.

“Unless chairmen and board members are up to this challenge, they bring
potentially large opportunity costs and risks, even in the short-term, for the
entities that they are there to govern.

He said provision for annual election should introduce welcome “additional
encouragement and discipline” to shareholders.

Further reading:

of directors up for the vote this week

elections could spook company directors: Sainsbury’s

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