“Our convention is to provide NEDs with letters of appointment for 3 years, subject to AGM re-election, and at the end of 3 years provide them with a further letter extending the initial term by a further 3 years. With the new Corporate Governance Code and the requirement for annual re-election of all directors, do companies still believe such extension letters are necessary and/or desirable?”
For the reasons already outlined in other responses, we have retained the 3 year letter of appointment and are proposing to supplement it with an annual letter confirming re-election post AGM – all other terms of appointment will be as per the 3 year term letter as reviewed by the Nomcom and Board. This feels preferable to producing a new appointment letter each year when we might otherwise feel obliged to review all terms and conditions annually.
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We adopted the ridiculous new provision that all directors stand for annual re-election as there seemed no downside, other than a longer meeting. I then sent them updated letters and will do so annually. Why wouldn’t we? What’s the issue there?!
We too concluded that there was some merit in retaining the three year terms of office, on the same basis as an earlier answer in that it indicates some sort of longer-term expectation and commitment from both the company and the NEDs. Have to admit I’m less precious on extension letters themselves, the record is within the minutes of the NomCo and Board meetings.
I n recent times we have moved to a rolling term, subject to annual re-election. Directors have been subject to annual re-election for a number of years now. Each year the Nominations and Governance Committee consider the submission of Directors for re-election. The term is also subject to the recommendation of the Combined Code, i.e. after nine years service, directors will not be submitted for re-election.
We have continued with the three year initial and extension letters.
We have always reviewed the terms of each NED’s appointment annually and issued an updated letter following each review.
We adopt the same approach as the questionner.
We have not addressed this specifically but I see merit in continuing with the same approach (subject to some reference to annual re-election) for the same reasons as described by the FTSE 100 company.
Having a term set out in the letter of appointment is better than leaving it open to the AGM process. The sense of commitment given by both the appointing company and the NED is an important ingredient.
Opportunity to stop doing the extension letters, so will be using the AGM re-election to go on the file of the NEDs.
We debated this and concluded that there was some merit in retaining the three year terms of office, as it indicates some sort of longer-term expectation and commitment on both the company and the NEDs part. This is despite the move to annual re-election, but means the three year term has to be expressed as being “subject to re-election”. I’m just about to do three extension letters!
We have the NEDS on 12 month rolling letters of appointment, subject to AGM re-election, in our case every 3 years as we do not need to comply with the Code as an AIM company but it would be easy to make this do so.