Company boards should vote in directors annually and focus on gender and diversity

Company directors will have to be voted in annually by shareholders as part of an overhaul of the code of conduct for the UK’s top employers.

Directors currently face re-election only every three years and the move, which is part of the Financial Reporting Council’s (FRC) new code, is aimed at increasing accountability.

The UK Corporate Governance Code will also demand that gender and diversity is explicitly considered when new board members are appointed.

A quarter of FTSE 100 companies currently have no female board members.

The move is an attempt to remove the “group think” tendency of board nomination committees when hiring. Instead companies should assess candidates “with due regard for the benefits of diversity on the board, including gender”, the code will say.

The guidelines will also urge senior executives’ pay to be more closely linked to the long-term performance of the company, the BBC has reported.

The code will be enforced through a “comply or explain” policy – meaning employers either have to follow the guidelines or explain how else they are acting to promote good governance.

Baroness Hogg, the chairman of the FRC, said: “The FRC responded to the financial crisis by examining the questions it raised about corporate governance and thoroughly reviewing the code.”

Businesses have broadly approved the new code, and Richard Lambert, the CBI’s director general, said: “We welcome most of the measures put forward by the FRC. It has rightly stuck with guiding principles, rather than impose hard-and-fast rules.”

But he warned the target for annual board elections could backfire and promote a focus on short-term results and destabilise boardrooms.

The new edition of the code will apply to financial years, starting after 29 June.

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