ABI Warns on Board Diversity
28 September 2011
UK boardrooms have been given the clearest indication yet on executive pay and effective performance by institutional investors, with the publication of two reports from the ABI, the UK’s leading shareholder group.
The ABI’s first report on Board Effectiveness and the revised Principles of Remuneration both help companies to better understand the views of institutional investors on effective boardroom performance and executive pay.
The ABI report on Board Effectiveness focuses on three key issues that help make an effective board:
- Board Diversity – including women in the boardroom
- Succession planning – board engagement in planning for succession for all senior management
- Board evaluation – including discussions on risk management, corporate strategy, geographic markets of operation and reporting
It highlights existing best practice amongst FTSE 350 companies and makes clear that greater progress and transparency on these issues is needed to ensure an effective board and a successful company.
The revised Principles of Remuneration are the latest update to ABI guidance which has evolved over thirty years. They address investors’ renewed concern on executive pay. ABI members believe that non-executive directors have a key role to play in determining the appropriate remuneration and shareholders should be actively involved without micromanaging companies.
Key principles of the guidance show that company boards should:
- Support appropriate reward for exceptional performance
- Strongly resist any payment for failure
- Understand that excessive or undeserved remuneration undermines the efficient operation of the company, adversely affects its reputation and is not aligned with shareholder interests
- Not engage in crude benchmarking when seeking to justify increases
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