The National Association of Pension Funds has withdrawn its backing for the proposed change to the corporate governance code for all directors to be re-elected annually. It has joined leading FTSE 100 companies that fear they could be left leaderless if whole boards are removed, but other investor groups are split on the issue.
BA has warned the revised code could allow disgruntled employees to remove all its directors, and Sainsbury's chairman, David Tyler, called it a "charter for mischief making". But NAPF, led by its chief executive, Joanne Segars, originally backed the proposal. The association, whose members control £800bn of pension funds, has changed its view, however, and now says funds want to retain the current practice of directors standing for staggered re-election every three years.
The new code is due to be published next month and take effect from June. Its authors, from the Financial Reporting Council, are due to decide next month whether they will recommend annual re-election to apply to the whole board or only chairmen.
Other fund managers and trade bodies are divided. Legal & General, Royal London and UBS favour annual votes whereas, USS, the £28bn universities' pension fund, and Hermes, which manages BT's fund, are against.
Prudential admits that as an investor it supports annual re-election but as a quoted company it thinks boards should be given a choice. But Standard Life opposes annual votes both as an investor and a listed company. Malcolm Wood, Standard's company secretary, warns that directors could be removed by investors trying to score points rather than acting in the company's best interests. "It would be very unfortunate if this proposed principle were to contribute to short-tern boardroom behaviours," he says.
Opponents not only fear boards being hijacked by disgruntled staff or other activists, but believe annual votes will make succession planning and recruitment harder, and destroy boardroom unity. They say directors will concentrate on the short-term to ensure re-election. But Aviva Investors' corporate governance director, Anita Skipper, says: "We know of no instance whereby the right of annual re-election of all directors has been abused by shareholders. We do not believe it would lead to short-term thinking."
NAPF told FRC last year that its members favoured annual votes but now says: "Our latest sample of members' views points towards a balance in favour of retaining the status quo".
Guy Rainbird of the Association of Investment Companies warns that investors would face many votes, saying: "Distracting shareholders in this way discourages proper consideration of critical areas." However, the Council of Institutional Investors and the Forum of Local Authority Pension Funds back annual votes, as does Pirc, the group which advises investors on governance issues.Reuse content