|New Combined Code recommends annual election of board members|
The new version of the British governance code, the most renowned in the world, is fresh out of the oven and boards of directors are its main target for reforms. Under the UK Corporate Governance Code — which replaces the old Combined Code — the election of board members is to be an annual affair. In the previous version, a director could remain in the position for three years before being subjected to a new round of voting.
In fact, this was the most controversial point during the period that the reform proposal was open to public comments, which ended in March. Partisans in favor of an annual election state that this format improves board members' accountability and strengthens engagement between the board and shareholders. Critics say that the formula encourages short-term attitudes on the part of directors.
"Shareholders should have the opportunity to express their opinions on the performance of the board every year. This will give the board members a strong incentive to understand and respond to shareholders’ wishes”, says the Financial Reporting Council (FRC), the entity that coordinated the reform of the Combined Code. The ruling is restricted to large-scale companies listed on the FTSE 350 index.
The boards of British businesses will also have to pay greater attention to the diversity of their makeup. Concerned about low female presence on UK boards - women make up a mere 12% of FTSE 100 company boards — the FRC dictated that "the selection of board candidates should be based on merit, and take into consideration issues of the board’s diversity, including gender diversity ".