Shareholders turn heat on directors

Two powerful shareholder groups controlling £960bn of funds are preparing a fresh assault on "fat cat" directors as part of a drive to promote good corporate governance.

The National Association of Pension Funds and the Trades Union Congress expect to call for a record number of votes against the appointment of company directors in cases where they believe good practice is being flouted.

The push is due to begin in earnest in March, the start of the annual general meeting season. However, the NAPF already has a number of companies in its sights. On Wednesday, the association will urge members to abstain in the re-election of two non-executive directors at Punch Taverns' AGM. The NAPF believes chairman designate Phil Cox and Randl Shure, a non-executive director, are not sufficiently independent.

The NAPF is also recommending that its members abstain in the re-election of an executive director at Allied Domeq's AGM on 4 February. The NAPF is unhappy that Richard Turner is being re-appointed on a two-year rolling contract.

The NAPF wants to stamp out the practice of awarding directors' contracts that run for more than a year. The announcement last week that Cable & Wireless's chief executive, Graham Wallace, is to leave his job sparked controversy. Because he is on a two-year contract he will receive a minimum £1.55m pay-off.

Meanwhile, the TUC is planning to use its network of 630 pension trustee members to target companies it believes are overpaying their directors.

Union officials will be urged to take an active role in corporate governance at a TUC conference on 24 February. The strategy will be endorsed by Ruth Kelly, financial secretary to the Treasury. Tom Powdrill, the TUC's institutional investment officer, said: "We will be looking for examples where the overall pay is too high or executive performance criteria are not challenging enough."