David Prosser: Another challenge for the LondonStock Exchange

Outlook Do non-executive directors go native in the end? That they may do is the assumption of the UK Corporate Governance Code, which sets nine years as a possible limit on the service of non-executives at publicly listed companies. After that time, the concern is that non-executives will have become so close to the companies they serve that their independence might be compromised.

Pirc, the corporate governance group, is recommending that shareholders in the London Stock Exchange should vote against the re-election of two of its directors at the forthcoming annual general meeting. Janet Cohen and Robert Webb, Pirc points out, have both been LSE non-executives for longer than nine years.

Nor are Pirc's worries confined to Ms Cohen and Mr Webb. It also suggests that shareholders ought to veto the reappointment of two more non-executives, Sergio Ermotti and Andrea Munari, because they are closely linked to banks that have large shareholdings in the LSE. The Code suggests that non-executives' independence might be compromised if they are representatives of significant shareholders.

It should be said that the LSE rejects the criticism, arguing that all four directors have given convincing demonstrations of their independence while going about their duties. It's also true that Pirc's position is not shared by all corporate governance watchdogs. The Association of British Insurers, for example, which has become increasingly interventionist on these sort of issues, is not making the same recommendations as Pirc.

Still, there will be many investors who worry about even the suggestion that there are question-marks hanging over the independence of four of the nine non-executives on the LSE's board. And all the more so given the difficult experience that the exchange has just been through, with the collapse of its deal to merge with TMX, the Canadian exchange.

That reverse has prompted feverish speculation that the LSE, the target for a string of admirers over the past decade, might once again be the subject of a bid – with Nasdaq the most likely contender. Should such a bid emerge, it would be just the moment, of course, when shareholders want to have a board in which they can be really confident – the independence of non-executives included.

The Corporate Governance Code does not preclude companies having non-executives that fall foul of the guidelines above – it says they should explain why they have reached the conclusion that the independence of the directors has not been compromised. The LSE has done so, most recently in its annual report, but though it will undoubtedly win the day at its agm in a two weeks' time, it shouldn't expect these questions to go away.

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