Non-executive directors can be thin-skinned souls. When they come up for routine re-election at annual meetings, they like to get as close to 100 per cent of the “yes” vote as possible. Grown men can be reduced to wounded anxiety when they score a mere 90 per cent, especially if others are getting 95 per cent or if they received 99 per cent last time.
That sensitivity could, in theory, be harnessed to good effect in producing better boardroom decisions and making directors more accountable. Hence the proposal that all listed company directors should stand for re-election annually, rather than once every three years.
It doesn’t seem particularly controversial that company owners should have the chance once a year to sack their agents but it has taken a financial crisis to get the idea as far as the drawing board. Companies such as HSBC, BP, AstraZeneca and Vodafone have not waited for the corporate governance wallahs to opine. They already operate annual re-election for all and the sky has not fallen.
A regime of annual voting would enable shareholders to be more targeted in voicing their displeasure. If, say, they are unhappy with the financial reporting of a company they could vote against members of the audit committee.
In theory boardroom stability and continuity could be threatened if an entire board were unseated. But shareholders are highly unlikely to be so reckless. In theory, too, the threat of the sack might encourage excessive short-termism. But that is an argument for more pressure for long-termism from pension fund members.
Advertisement
Annual votes would nudge corporate governance away from box-ticking and should encourage directors to heed shareholder concerns earlier. But it ought to be more about signals than defenestrating recalcitrant directors.