Accountability - or a recipe for instability?
14 Dec 09
Should annual re-elections be held for the chairmen or entire boards of listed companies, asks ICAS chief executive Anton Colella
That’s one of the main proposals from the Financial Reporting Council in a revised version of the Combined Code or, as it will now be known, the UK Corporate Governance Code.
The intention behind the proposal is to increase the accountability of boards. With an accompanying push towards greater stewardship of their investments by major shareholding institutions, annual re-election is seen as an important element of strengthening the scrutiny of investors in the companies which they own.
It occurs to me that there is a balance to be struck. If the chairman is singled out for re-election, it may undermine the unitary board concept and the collective responsibility that forms such a crucial part of this. If the entire board faces annual re-election, it may create incentives for certain board objectives to be rushed through within the year – which may not, of course, be best for the company. At a time when companies are also being encouraged to broaden the talent pool on their boards and attract new faces, annual re-election, with the possibility of the increased pressure and scrutiny that brings, may also deter able individuals from putting their hands up.
Greater accountability is a very fine goal, but annual re-election needs to be carefully handled to avoid creating instability on the very boards it seeks to strengthen.