The clock is ticking for board members who've served on a board for 9 years or more.
AJ Bell, JD Sports, and Cineworld, are just three well-known FTSE 350 businesses that have a long-serving chairman on their boards with a tenure of 10 years or more.
According to a report from Minerva Analytics, there are currently 110 companies in the FTSE 350 whose chairs have sat on the board for over 10 years and 137 companies whose chairman has seen 8-years or more. This means that 31% of the FTSE 350 fail to meet what is outlined in the current UK Corporate Governance Code.
On the 1st January 2019, the latest revision to Finance Reporting Council’s (FRC) UK Corporate Governance Code was released. The code, which UK and Irish public companies must follow was revamped at the start of the year and includes a requirement that chairs must step down after serving on the board for nine years.
The new provision came into place to facilitate effective succession planning and to encourage more diverse thinking from the board of directors. With now a much greater focus on environmental, social and governance issues, as well as cyber and corporate purpose, the diversity of boards, breadth of experience and new blood is something that matters to investors and good succession planning at chair level will facilitate this.
The new requirement was met with its criticisms. Including being publicly criticised by Tim Martin, Founder and Chairman of pub giant JD Wetherspoon. He has sat on the board of the pub chain for 36-years, citing that the nine-year rule was “deeply-flawed” and that the revision “institutionalised inexperience.”
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.”
There are some organisations however, that are actively trying to change. In February, FTSE 100 tobacco company, Imperial Brands, announced that it had begun searching for a successor to chairman Mark Williamson who had sat on the board since 2007.
Also Mike Turner, Chairman of Babcock, who had sat on the company board since 2009 announced he was to stand down. He claimed that two of the top-20 shareholders had informed him they thought the company would have more credibility if he were to resign.
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.
The effectiveness of the board of directors plays a crucial part in the success or failure of any organisation. Which is why having frequent, structured board assessments is so important. Through our Business Services function, we can help you conduct a board evaluation to understand where your knowledge gaps are find the right people to help you fill them. Click here to learn more