This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Long standing directors and investment trusts

The UK Corporate Governance Code has a clear rule about non-executive directors who have served for more than nine years (Code B.1.1.) which states “The board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including if the director: has served on the board for more than nine years from the date of their first election“. This rule was not introduced to ensure that the “jobs for the boys” get regularly rotated, but to ensure that such directors do not get stale and that the board is regularly refreshed with new views and fresh blood. The wording clearly suggests that the board should provide justification for directors who have been serving for more than 9 years to be re-elected (i.e. on the usual “comply or explain” basis), and it is generally considered good practice if directors are replaced before then.

In investment trusts there is a particular problem though that all the directors are usually non-executive and often very long-standing (and also often aged). For example this issue arose at the AGM of Baronsmead VCT 3 where Andrew Karney and Gillian Nott had been on the board since 2001. But the explanations given for retaining such directors are often trivial and simply say that the board considers them independent.

In addition, it is often the case that the Chairman claims, or it is stated in the Annual Report, that the company complies with the AIC Code  (which has a somewhat different wording) and hence they don’t need to comply with the UK Corporate Governance Code. Indeed the Chairman of Baronsmead VCT 3 made such a claim at their AGM.

This is what the relevant part of the AIC Code says:

“4. The Principle – The board should have a policy on tenure, which is disclosed in the annual report.  


As mentioned in principle 2, some market participants believe directors should not be considered independent after nine years service, whereas others consider a longer tenure enhances the ability to be independent. Many boards function best when working together for years; others find regular changes to be desirable but awkward to achieve. 

Provision B.1.1 of the UK Code contains a provision that boards should state their reasons if they consider a director to be independent notwithstanding the fact that the director has served for more than nine years from the date of their first election.  

Whilst the boards of investment companies, in common with the boards of other companies, are likely to benefit from a regular infusion of new blood, they are perhaps more likely than most to benefit from having at least one director with considerably longer than nine years’ experience. Continuity, self-examination and ability to do the job should be the relevant criteria.”

This of course drives a coach and horses through the UK Corporate Governance Code principles.

Investment companies have also relied on a letter from the former Chairman of the FRC, Baroness Hogg, to the AIC that suggested that compliance with the AIC Code would satisfy the requirements of the UK Corporate Governance Code.

But ShareSoc recently took up this issue, and it has been confirmed by the current Chairman, Sir Winfried Bischoff, that the AIC Code does not “absolve AIC members from their obligations under LR 9.8.6, including the obligation to provide an explanation when choosing not to follow the Code” to quote from his letter.

So when you see a moribund board of directors, challenge why they are still there after 9 years and make it clear they do need to comply with the UK Corporate Governance Code or provide adequate explanations. The explanations should not be trivial, i.e. they should be specific and explain why the people concerned could not be easily replaced. And you might also tell them that as a shareholder you don’t accept they can rely on the AIC Code, which is a body that represents the interests of investment companies (primarily the managers in practice), and not investors.

Here’s a couple of investment trust AGMs where you may want to consider how to vote for the directors at forthcoming AGMs: Monks Investment Trust on the 5th August where CC Ferguson and EM Harley have served since 2003, DCP McDougall has served since 1999, and the Chairman James Ferguson has served since 2002; and Rensburg AIM VCT on the 23rd July where the Chairman R.G. Battersby was first appointed to the board in 1999, and the two other directors B.A.Anysz and P.C. Smart have served for more than 9 years.

Yes it’s a common problem that the directors of such companies think they should go on and on and on. They need dissuading.

Lastly of course the principle of regular refreshment of the board is supported in ShareSoc’s Non-Executive Guidelines document where it says: “All Non-Executives should be subject to an annual election by shareholders at the AGM and should not remain on the Board for more than nine years as per the Corporate Governance Code but we recommend that each NED should be subject to a thorough review of their performance and contribution after three years and the company should then choose whether or not to extend their appointment” – see  for the full Guidelines.

Roger Lawson

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