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The Clock is Ticking for Long-Serving Chairs

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Hayley Stephenson
Hayley Stephenson

It’s been little over a year since the latest revision to the UK Corporate Governance Code advising organisations to change their chairmen after a period of nine years was released. However, according to a report published Minerva Manifest, there are still 110 chairmen in the FTSE 350 who have served more than ten years and a further 27 who are coming up to their eighth year.

The code, which UK and Irish public companies must follow, or explain why they do not, was revamped at the start of last year to include the new best practice. While organisations are not forced to change their chairman after 9 years, they must be able to explain why they have chosen not to comply.

The new provision came into place to facilitate effective succession planning and to encourage more diverse thinking from the board of directors. Businesses now require a greater focus on environmental, social, cyber and governance issues and welcoming new blood around the board table, particularly chairs, can help to keep the agenda current and forward-thinking.

In Touch member, portfolio NED and Chairman, Stephen Moss CBE believes that board rotation can help businesses to be forward-thinking and innovative. He said: “There is no doubt that in this very fast-moving global high tech world, companies do need to keep up with the latest developments and not shy away from innovating.

“Ensuring that the board has the right mix of skills and experience to drive a business forward in that context, does inevitably mean that board membership must rotate to bring on fresh ideas, talent and a challenging environment for the senior leadership team. That may mean the chair needs to move on but it will depend on a holistic look at the whole board rather than just that one person.”

The new best practice has been met with its criticisms, including being publicly criticised by Tim Martin, chairman of pub giant JD Wetherspoon who has held his board seat for 37-years. He cited that the nine-year rule was “deeply-flawed” and that the revision “institutionalised inexperience”.

In January 2020, Martin’s reluctance to comply with the code was challenged by the (PIRC) Police Investigations and Review Commissioner. In response to the criticisms, he said: “The main consequence of the current governance system is short-termist and inexperienced boards, which have minimal representation from executives and the workforce – the people who are best placed to understand and run the business.”

Martin’s criticisms were echoed by Simon Laffin, Chairman of Flybe and former CFO of Safeway who suggested the new rules around corporate governance had become overly prescriptive and that “rules are the antithesis of good performance.”

One industry that has battled to rule against this new legislation is Investment. In fact, just last week the Association of Investment Companies announced that chairs of investment firms will no longer have to step down after nine years. The trade body, AIC, persuaded the Financial Reporting Council (FRC) that investment companies need more flexibility and said chairs should be able to be in post beyond nine years as long as they publish a clear policy on tenure and succession planning.

In contrast, there are some organisations that have actively committed to changing their chairmen. In January, Virgin Money announced that its chairman, Simon Pettigrew, would step down by September 2021, having served 9 years on the board.

National Grid also announced they had begun the search for a new candidate to replace their chairman of 9 years, Peter Gershon. However, the organisation did have to explain they were going through a period of change and were keeping Gershon in his role until a replacement was found to maintain the continuity of experience and knowledge.

Ultimately, governance codes are a fact of life for many organisations and by failing to adhere to them, organisations risk an influx of negative attention. It also becomes harder for these organisations to attract good boardroom talent.

Regulatory bodies are quickly moving from making recommendations to issuing quotas, along with a sidebar which asks them to comply or explain. If few too boards pursue diversity and do not change their chairs, we’re likely to see some legislative remedies in the near future.

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