Mario Christodoulou, Accountancy Age, Friday 28 May 2010 at 09:28:00

New corporate governance rules released

Beginning June, directors of the UK?s largest companies will be have to facean annual election according to new corporate governance proposals releasedtoday, in defiance of mass corporate opposition.

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

The Financial Reporting Council?s changes were widely opposed in thecorporate world with BT, British Airways, GlaxoSmithKline, HSBC, Sainsbury andTesco among those opposed to the measures.

Corporations argue the measures will promote short-termism, and do not givedirectors an oppourtunity to get ?up to speed? with their companies.

?It takes several years for a new director to get fully up to speed followingappointment, and the prospect of being voted out soon afterwards is likely toprove a disincentive to people agreeing to become directors, a problem in anenvironment where it is already becoming more difficult to attract good qualitynon-executive directors,? Tesco said in a submission to the proposals.

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

?The capability of board members and the dynamic of the boardroom arecritical in the setting of corporate strategy and oversight of its execution,?he said.

?Unless chairmen and board members are up to this challenge, they bringpotentially large opportunity costs and risks, even in the short-term, for theentities that they are there to govern.

He said provision for annual election should introduce welcome ?additionalencouragement and discipline? to shareholders.

Further reading:

Electionof directors up for the vote this week

Annualelections could spook company directors: Sainsbury's