Major U.K. shareholders should screen and nominate board members, as is done at many Swedish corporations, according to a recent report by Tomorrow's Company, said Mark Goyder, founding director of the London-based think tank.
The report, “Tomorrow's Corporate Governance: Bridging the U.K. engagement gap through Swedish-style nomination committees,” was submitted to the U.K. Financial Reporting Council, which will make a recommendation this month on whether elections of chairmen and board members of public companies should be annual.
“Currently in the U.K., board member selection is led primarily by company chairmen, an approach that is rather unlikely to lead naturally to the environment of 'challenge' that various governance reviews feel is critical to see in the boardroom,” Harlan Zimmerman, senior partner at activist investor Cevian Capital, said in an e-mail response to questions.
Representatives of a company's largest shareholders should be involved in appointing board members because it makes for a more rigorous and “somewhat less incestuous” selection process, and brings shareholders together to focus on the company's long-term prospects, Mr. Goyder said.
The report recommends companies begin inviting major shareholders onto their selection committees as a way to improve governance and involvement of major shareholders. — Drew Carter