Board chair tenure - how will companies respond?

FTSE 250-listed food retail company SSP Group holds its AGM on 21 Feb 2019 and shareholders may have noticed that the board chair, Vagn Sørensen has served on the Board since June 2006. The new UK Corporate Governance Code, however, states that the chair should not serve on the board for over nine years.

The direct consequence of this change is that, as with SSP Group, a significant number of the top 350 UK companies will soon find themselves out of step with the Code's recommendations. New research by Minerva has identified that almost 40% of the top 350 UK companies have a chair that has served on the board for eight or more years and 31% for nine or more years.

During the Code consultation process, some stakeholders raised concerns that the tenure limit could impact diversity, succession planning and internal promotion. Accordingly, some investors may be supportive of the use of “limited time” beyond nine years provided a meaningful explanation has been offered.

Although the new provisions apply to financial years beginning on or after 1 January 2019, the Code is already having an impact on succession planning. In January, Babcock International Group cited the introduction of the Code as a contributing factor for Mike Turner’s decision to retire from the Board after 10 years in the role.

In developing the tenure recommendation the UK Financial Reporting Council indicated that the change was introduced to encourage boards to think about succession planning, skills and diversity issues in the round rather to create a cliff edge. In the first year of implementation therefore, investors may wish to review the disclosures provided by a board with a tenured chair with a view to escalating to a dissenting vote if there is a lack of board response after engagement.