Directors of Top Companies Face Annual Re-Election


Under the new Corporate Governance Code all directors of FTSE 350 companies will be expected to put themselves forward for annual re-election. The new best practice guidelines, which were published on 28 May, were introduced by the Financial Reporting Council despite opposition from business organisations and companies alike.
The guidelines have been introduced to ‘create a strong incentive to understand and respond to shareholders’ concerns’ before any Annual General Meeting takes place. However, the fear has been expressed that this could result in some directors taking the blame for collective board decisions, whilst some investors – perhaps spurred on by a single-issue, short-term or otherwise activist attitude – may decide to use their votes to advance their own agendas.
The other major change these guidelines bring about relates to board reviews. At the moment, FTSE 350 companies are expected to undertake annual reviews, but the new guidelines require them to arrange external board reviews every three years. Companies may be slow to act on this, as concerns have been raised that there are not enough sufficiently qualified ‘external’ organisations to undertake the reviews.
The new Code applies to all FTSE 350 companies with financial years that begin on or after 29 June 2010. For companies with financial years that start prior to this date, the applicable Code remains the 2008 version until next year.

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