7.2.2.2 UK Corporate Governance Code

No further requirements are given in the Companies’ Act. The UKCGC pays attention to appointments to the board in section B.2. The main principle states that: ‘There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.’ The corresponding supporting principles determine that the search for candidates should be based on ‘merit against objective criteria and with due regard for the benefits of diversity on the board, including gender’ and that the succession should be such that balance on the board with respect to skill and experience is maintained.

In order to fulfil this main and supporting principle, a nomination committee1 must be established that should lead the process for board appointments and make recommendations to the board (code provision B.2.1). This nomination committee should evaluate the balance of skills, experience, independence and knowledge on the board (B.2.2). To make this more transparent, a description of the role and the requirements for the board position must be given. The UKCGC provides that NEDs should be appointed for specified terms subject to re-election and to statutory provisions relating to the removal of a director (B.2.3). Any term exceeding six years should be subject to rigorous review taking into account progressive refreshing of the board. These terms and conditions of appointment of NEDs should be made available for inspection at the registered office and during the general meeting (B.3.2). Code provision B.3.2 also requires that a NED should undertake to commit sufficient time to fulfil his tasks. In addition, he must disclose his other commitments together with their expected time consumption to the board before his appointment.

For the appointment of the chairman, the nomination committee ‘must prepare a job specification, including an assessment of the time commitment expected, recognising the need for availability in the event of crises’ (B.3.1). Similar to the requirements for NEDs, the chairman must also disclose his other commitments together with their expected time consumption. However, the commitments of the chairman must also be included in the annual report.

With respect to re-election, section B.7 has the following main principle: ‘All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.’ In code provision B.7.1 the UKCGC determines that directors should be subject to election at the first general meeting after their appointment and thereafter should be subject to re-election at intervals of no more than two years. This code provision is in line with article 21(2) of the model articles of association, which provides that directors appointed by the board should retire from office at the first general meeting after their appointment and may offer themselves for re-election.

NEDs, who have served more than nine years, must be subject to annual re-election (B.7.1). The independence criteria, which are discussed in subsection 7.2.4, consider a NED with such a long tenure to be non-independent. According to code provision B.7.2, the board should ensure that a resolution to elect a NED is accompanied by a statement explaining why the board believes the individual should be elected. Furthermore, this code provision provides that the chairman should confirm to shareholders that the director can still serve effectively and demonstrates commitment to his role, based on performance evaluation.