Annual director re-election "raises eyebrows"

Investor and business groups have cautiously welcomed plans to put the UK top
directors up for re-election by shareholders on a yearly basis.

Reaction to the Financial Reporting
Council’s introduction of annual re-election for FTSE 350 directors
has been good, but caveated with concerns about the move creating short-termism
among investors.

The CBI said the annual re-election could make boards less stable.

“It could promote a focus on short-term results, make boards less stable and
discourage robust challenges in the boardroom,” said CBI director-general
Richard Lambert.

Governance lobby group F&C applauded the FRC’s move to re-elect director
every year, which it believes will strengthen director accountability.

“…We believe that long-term shareholders, which account for the vast majority
of institutional shareholders, will exercise these additional voting rights
responsibly, and will use their shareholder rights to preserve and build the
long-term value of their investments,” said F&C corporate governance
director George Dallas.

Sir David Walker, author of the Walker Review into banking governance, said
the FRC’s move would introduce more discipline into boardrooms.

“Provision for annual election of the chairman and other board members should
introduce welcome additional encouragement and discipline to both shareholders
and board members in seeking to promote the best possible long-term performance
in the intensely competitive environment in which so many UK companies now
operate,” said Sir David.

KPMG associate partner Tim Copnell said the annual re-election would “raise
some eyebrows”, but the FRC’s introduction of broader training and evaluations
of director performance was welcome.

“The introduction of externally facilitated Board evaluations, dedicated
support for non-executive directors and a greater emphasis on training for
non-executives are all sensible enhancements that should help directors and the
Board as a whole operate more effectively,” said Copnell.

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