NAPF questions non-execs independence

UK - The National Association of Pensions Funds has suggested an independent non-executive director of a company may not be able to continue to be considered ‘independent' the longer they hold their position.

Details of a corporate governance guide issued yesterday by the UK pensions association suggest deciding how long a non-executive individual can still be considered ‘independent' has triggered a great deal of discussion among its membership, when trying to revise its corporate governance guidelines for pension funds and trustees.

While officials formulating the document note length of office served as the non-executive of a company does not necessarily denote loss of independence, there are question marks over such status so investors therefore ought to pay close attention to the working of an executive board.
"The NAPF appreciates that nine years is a milestone, rather than a fixed date after which independence is entirely lost, and before which it is entirely present. A pragmatic
approach from companies and investors is therefore required. As an over-riding principle, the NAPF does not dismiss the possibility that a long serving Non-Executive Director can remain independent. However, independence is likely to diminish with time and the Company has a responsibility for explaining why a long-serving Non-Executive Director remains independent," he added.

While suggesting investors should always review the past ‘independence' of a company's board when judging whether this is currently the case, the NAPF has also offered to go one step further in assisting pension funds in their engagement with corporate entities, by facilitate meetings among members where appropriate.

"Engagement with companies is a necessary part of good ownership. The NAPF and its members will engage with companies at various levels on routine and more serious matters. In addition, the NAPF is prepared to facilitate confidential Case Committees for members who have concerns about particular issues and/or about the strategic direction of Companies," said the NAPF in its guidance.

In recent months, shareholders, including pension funds, have shown themselves to be more active in the voting practice of a listed entity's business plans, and in some circumstances voted to reject a board of directors remuneration proposals.

Much of the NAPF document is based on existing governance principles but has been widened to suggest pension funds and investors ought to consider adopting globally-recognised governance and remuneration principles, as to set out by the UN, in order to ensure they achieve the best possible standards of its own governance requirements and have the opportunity to engage with companies at an international level

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email

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