The National Association of Pension Funds (NAPF) has encouraged its members to investigate how Britain’s top companies are prepared for the unexpected departure of their chief executives or other senior boardroom members.
The trade association has told its members, which between them manage around £900 bn ($1.5 tn) in assets, to investigate boards’ leadership and succession plans, particularly at companies with complicated hierarchies or long-standing CEOs. Will Pomroy, the association’s policy lead on stewardship and corporate governance, says the issue should be considered an increasingly important one for NAPF members.
‘With many companies becoming ever-more global and complex, management succession is a primary shareholder risk in a number of circumstances,’ he explains.
‘The development of detailed succession plans, including an internal pipeline of talent, coupled with strong independent boards is vital in ensuring smooth transition. There is an increasing desire for greater reassurance to be provided via transparent reporting and open dialogue.’
Leadership questions appear to be hanging over a significant number of FTSE 100 firms, including household names like British Gas, Prudential and Tesco. The NAPF has previously highlighted similar succession questions for members that hold stakes in Centrica and oil exploring firm BG Group.
In a suggested list of ‘questions for your manager’ dated May 2014, the NAPF encourages its members ‘to ensure investee companies are adequately managing succession issues in both short-term and long-term scenarios’, in light of BG chief executive Chris Finlayson’s abrupt resignation.
Pomroy’s recent comments directly follow the news that Lord Harris, founder of UK furnishings retailer Carpetright, has reversed plans to step down from the company before new chief executive Wilf Walsh arrives.
Carpetright, which has already made pre-tax losses of £7.2 mn in 2014, recalled Harris to run the business after former CEO Darren Shapland unexpectedly quit. With Walsh due to join the company next month, Harris confirmed at an AGM in September that he would leave Carpetright’s board, only to later say he would remain as a non-executive director on the strength of his family’s 20 percent stake in the company.
The NAPF has previously named and shamed companies its members have invested in for their approaches to executive pay and the proxy contests that followed. In September 2013 the association identified 10 British companies that had encountered more than 15 percent dissent over pay in the 2013 proxy season, including FTSE 100 companies Babcock International, WPP and Afren, which was the only company to have its remuneration report voted down by its own shareholders.
