London: UK regulators are looking at tightening guidelines on company succession planning because of growing concerns over the way some of the biggest groups are dealing with new appointments at executive and board level.
The move by the Financial Reporting Council follows investor criticism of retailer Tesco for leaving the post of financial director vacant for several months and at one stage only having one person on the board with retail experience. The death of Christophe de Margerie, chief executive of French oil group Total, when his jet crashed on take off at a Moscow airport, also highlighted the need for companies to have a clear succession strategy in place.
David Styles, director of corporate governance at the FRC, the guardian of the UK corporate governance code, said: “Board succession planning and the quality of management are very important, and it is not just at chief executive level, but throughout companies too.”
Jim Stride, head of UK equities at Axa Investment Managers UK, said: “For good governance, investors should be told at least once annually about succession planning, and that is not just at the chief executive, finance director and head of sales level, but at the lower levels too to make sure the bench is being nurtured.”
The FRC plans to publish a discussion document on succession planning next spring, with a view to strengthening guidelines to ensure that companies have a clear and consistent policy. Current corporate governance guidelines say a company should have plans in place for orderly succession for appointments to the board and to senior management, so as to maintain an appropriate balance of skills and experience within the company.
The FRC will look at whether guidelines should make clear that succession planning should be a permanent exercise with an emphasis on the board and nomination committee thinking much further ahead over who will succeed in a range of posts.
The head of UK corporate governance at a big UK investment group said: “When a company makes an appointment, they should immediately be thinking about who might succeed that person. They should be thinking about the next but one appointment.”
Tesco came in for criticism because they had no finance director in place as controversy raged over the company’s overstating of its first-half profits. They had to ask Marks and Spencer for permission to allow Alan Stewart to start as finance director earlier than scheduled to replace Laurie McIlwee, who left in April.
However, investors say some companies are getting it right. GlaxoSmithKline gave investors advance notice that Sir Philip Hampton will succeed Sir Christopher Gent as the pharmaceutical company’s chairman.
— Financial Times
