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UKPLC won’t have enough non-execs -Norman Broadbent

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Britain’s top companies face a shortage of non-executive directors (NEDs), which may cost ‘UKPLC’ more to hire high-calibre staff in an increasingly competitive market, according to research by Norman Broadbent (LON:NBB) - a specialist head-hunter and management consultant.

Norman Broadbent’s survey, entitled "The Future of FTSE NEDs", reflects on the changes made to the UK Corporate Governance Code in June.

Following recommendations from the Walker Report, the Financial Reporting Council's (FRC) UK Corporate Governance Code now recommends that companies change their NEDs every six years, and NEDs who have held the same position for more than 9 years may no longer be considered ‘independent’.

The Walker Report on the governance of banks and other financial institutions was published in 2009.

According to the FRC, its new Corporate Governance Code helps company boards “become more effective and more accountable to their shareholders”. The corporate regulator believes that the changes include a clearer statement of the board’s responsibilities relating to risk and a greater emphasis on “getting the right mix of skills and experience” in the boardroom.

However, Norman Broadbent said that whilst the code has been “drawn up with the best of intentions”, it will cause an acute shortage of non-executive directors, particularly among FTSE 100 companies.

According to the consultant’s survey, the need to change NEDs every six years means that the 32% of NEDs should step down or be 'subject to rigorous review', and up to 10% of the NEDs within the FTSE 100 who have served more than 9 years will be judged to have lost their independence.

Furthermore, the consultant highlights that executive directors currently serving as NEDs on two FTSE boards will be encouraged to have no more than one position. “The continual training and evaluation demanded by the Code will cause NEDs to think twice about the non-executive directorships as too onerous for the financial return.”

“65 NEDs serve on more than one board, but the new demands of the Code will make it almost impossible to continue doing so”. 

“The current pool of NEDs will shrink dramatically due to the restrictions of the Code, UKPLC will be in head to head competition with the increasingly attractive, and indeed less onerous roles, within the public sector”, Norman Broadbent chief execurive Andrew Garner commented.

“This can only result in either UKPLC having to pay more to bring top NEDs on board or a dramatic change in the type of candidates seeking NED positions.”

"Whilst the revisions have already caused rumblings of discontent amongst some institutional shareholders our survey proves that the true extent of knock-on effects which will come from these changes is yet to be felt."

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