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Chairpersons

Warning Signs: ABI to Flag Chief Executives' Elevated Roles to Investors

Strategic Insights

— 2 min read

Britain's top investor group, the Association of British Insurers (ABI), will send out an "amber top" warning to investors next month about companies promoting their chief executives to chairmen without sufficient reason. According to ABI's head of investment affairs, Peter Montagnon, this is a significant step that could have damaging consequences. Since the corporate governance guidelines came into effect in 2003, there have been several instances of companies breaching these rules, including HSBC and Barclays. The ABI is concerned that companies are flouting the guidelines regularly and will now issue an amber warning each time a chief executive becomes chairman.

Key Takeaways:

  • The Association of British Insurers (ABI) will issue an amber top warning to investors about companies promoting their chief executives to chairmen without sufficient reason.
  • The ABI is concerned that companies are flouting corporate governance guidelines, which state that promoting chief executives to chairmen should not be done by default.
  • Since 2003, there have been several instances of companies breaching these rules, including HSBC and Barclays.
  • The ABI will now issue an amber warning each time a chief executive becomes chairman, signaling to companies that this is not a routine choice.
  • Manifest, a corporate governance service, reports that 63 chief executives in the FTSE 350 are either also chairmen or have been appointed chairmen since January 2004.
  • Investors fear that a former chief executive will not be independent enough to question strategies put in place under their stewardship.
  • Companies must comply with the code on corporate governance or explain why they have broken it.
  • HSBC will promote Stephen Green, its chief executive, to chairman in May, and shareholders will be required to vote on the move at its annual meeting next month.
  • Barclays was forced into talks with investors over promoting Matt Barrett, and Close Brothers appointed its former chief executive, Rod Kent, as chairman this month.

Statistics:

  • 63 chief executives in the FTSE 350 are either also chairmen or have been appointed chairmen since January 2004 (Manifest).
  • Since the corporate governance guidelines came into effect in 2003, there have been several instances of companies breaching these rules (ABI).
  • 2 companies, HSBC and Barclays, have been cited for breaching the guidelines (ABI).
  • HSBC will promote Stephen Green to chairman in May (HSBC).
  • Shares will be required to vote on the move at HSBC's annual meeting next month (HSBC).

Sources:

  • ABI: "Amber Top" Signal on Companies Promoting Chief Executives to Chairmen.
  • HSBC: Press Release, Stephen Green to Become Chairman.
  • Manifest: Corporate Governance Service, FTSE 350 Companies with Chief Executives as Chairmen.
  • Barclays: Press Release, Matt Barrett's Appointment as Chairman.

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