UK - The National Association of Pension Funds (NAPF) has updated its Corporate Governance Policy and Voting Guidelines urging investors to adopt a "stronger stance" on companies' application of the Combined Code.

These voting guidelines, published ahead of the 2009 Annual General Meeting (AGM) season, are designed to help shareholders interpret the Combined Code for business when voting at company meetings.

Amendments to the previous policy include guidelines on the role of the chairman in maintaining corporate governance standards, and in the case of "continued material non-compliance with the Principles of the Combined Code" investors may consider an "actively withheld vote or a vote against the re-election of the board chairman".

The NAPF also sets out guidelines on the combination of the chairman and chief executive roles as under the Combined Code these roles should be kept separate, and although investors "may be willing to accept non-compliance for a short time it will only be where there is an explicit statement setting out the reasons for combining the roles and a clear timetable for their separation".

In cases where the roles may be combined for more than one year then the NAPF suggested investors "may consider an actively withheld vote or a vote against the board chairman".

This has already been demonstrated in July 2008 when the Local Authority Pension Fund Forum (LAPFF) planned to file a resolution at the Marks & Spencer AGM calling for an independent chairman if the corporate fails to split the two roles - held by Sir Stuart Rose - by 2009. (See earlier IPE article: LAPFF issues deadline for M&S governance)

Meanwhile, although the NAPF has not made any changes on the issue of remuneration, it has suggested that in light of the economic crisis investors "can be expected to focus on companies' application of a few principles", such as ensuring executive pay policy is clearly aligned with the pay policies in the company as a whole.

Other amendments to the rules include the introduction of a non-audit fee cap of 100% of audit, following a tendency by companies to use auditors for non-audit work, and a suggestion for investors to vote against a resolution proposing a waiver of rule 9 of the takeover code - which requires an offer for all the shares in a company when an individual, or group of individuals acting together, acquires over 30% of the voting rights in a public company. 

David Paterson, head of corporate governance at the NAPF, said: "In the light of the current economic climate it is likely that investors will take a less tolerant view of non-compliance with the Combined Code especially where the explanation is deemed unsatisfactory."

"The NAPF will be consulting with members in the coming months on ways in which the NAPF Policy might be further amended in order to better protect the interests of long-term investors," added Paterson.

In the meantime, the full version of the updated guidelines also includes changes on other issues such as the length of service of non-executive directors and borrowing limits of companies.

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