August 8, 2010 10:18 pm

Non-execs in short supply

 
Lord Browne

Lord Browne has recruited to the public sector

British companies are facing an acute shortage of non-executive directors, as new corporate governance rules drawn up after the financial crisis demand the more frequent replacement of board members, according to research by Norman Broadbent, the City headhunter.

Aimed at encouraging greater scrutiny of companies by their owners, the new rules, set out by the Financial Reporting Council last month, are part of the most comprehensive overhaul of corporate governance in almost 20 years.

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Although the changes should be beneficial in the long term, widening the talent pool and increasing diversity, they mean the existing cadre of experienced non-executive directors will shrink dramatically in the near future.

In the FTSE 100, 32 per cent of non-executive directors have served on the same board for more than six years and should probably resign, according to the new code, while 10 per cent have served more than nine years and will almost certainly have lost their independence.

“The corporate governance code was drawn up with the best of intentions, but it will cause an acute shortage of non-executive directors at FTSE 100 companies,” said Andrew Garner, chief executive of Norman Broadbent.

“This is not an isolated incident but systemic.”

Additional rules that discourage non-executives from working for more than one company will also contribute to the depletion of non-executives, as will requirements for board members to devote at least 30 hours a year to the company, or two-thirds of their work time for chairmen. There are 65 chairmen who serve on more than one FTSE 100 board.

A further compounding factor is the growing competition from the public sector, as Lord Browne, the former BP chief executive, recruits non-executive directors to government departments. Terms and conditions tend to be less onerous, there is less pressure to perform and there is the chance of winning a title, such as a position in the House of Lords.

Nevertheless, the dearth of experienced non-executive directors could finally force UK plc to make more imaginative appointments, Mr Garner said. The median age of a FTSE board chairman is 63 and there are just 100 female non-executives out of a total 757 non-execs sitting on FTSE 100 boards.

“There has been a degree of sterility among FTSE 100 boards so it makes sense to force plcs to be more imaginative and bold in looking for non-executive clout,” said Mr Garner. “There are people who are well capable of providing value-added service who are going to be drawn in.”

Although the new FRC code of practice is not mandatory, with companies given the choice to “comply or explain”, there will be pressure on non-execs to retire, he added.

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