US fund giant State Street Global Advisors has called for changes to the way company directors are appointed across Europe.
A white paper published by the $2.7 trillion (€2.3 trillion) fund house concluded that shorter director terms result in more accountable boards that are more responsive to shareholder interests.
The report, ‘Board Accountability in Europe: A Review of Director Election Practices Across the Region’, recommends that directors be elected on an annual basis.
While most European countries set legal limits on company board terms, the research found that terms were often too long and failed to meet shareholder preferences for shorter election cycles.
German firms have the weakest board accountability, the paper said, as directors there only stand for election every five years.
Germany is closely followed by France, Spain, the Netherlands and Belgium, where board terms are four years.
The UK, Ireland, Switzerland and the Nordics were found to have the strongest board accountability, with one-year terms for company directors.
“Well-governed companies are better positioned to navigate challenging economic conditions while protecting shareholder interests”, said Rob Walker, State Streeet’s head of asset stewardship for the Emea region.
“Without an annual director election process, shareholders are limited in their ability to hold directors accountable and improve board quality.”
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