UK Law and Practice Contributed by: Gareth Sykes, James Palmer, Isobel Hoyle and Hannah Whitney, Herbert Smith Freehills Kramer
4.3 Board Composition Requirements/ Recommendations Subject to the provisions of the Companies Act, the articles of association may prescribe a maxi - mum or minimum number of directors. Subject to certain requirements, corporate directors are currently permitted, but at least one director must be an individual. However, it is anticipated that, along with other changes in relation to directors being introduced by the ECCTA, a prohibition on the use of corporate directors (except in limited circumstances) will be brought into force in the near future. There are no formal qualifications required under the Companies Act in order to be appointed as a director. The Governance Code provides that the directors have appropriate skills, experience, independence and knowledge of the business to discharge their responsibilities properly and effectively. The Governance Code also contains provisions on diversity and inclusion with regard to both board appointments and succession plans. There has been a focus on board diversity for a number of years in the UK and various initiatives have been launched in this area. These include the FTSE Women Leaders Review, which rec - ommends that by the end of 2025, for FTSE 350 companies, a minimum of 40% of both the board of directors and leadership team should be female. In addition, the Parker Review set a target for listed companies to have at least one director from an ethnic minority background. For FTSE 100 companies the target date set was the end of 2021; for FTSE 250 companies this target should have been met by the end of 2024. The Parker Review also requested FTSE 350 com - panies to set themselves a target for the per - centage of their senior management which self- identifies as being from an ethnic minority group,
which they should meet by December 2027. Aligning with these reviews, under the UKLRs, listed companies are required to make certain disclosures in relation to gender and ethnic diversity at board and executive management level, including reporting on “comply-or-explain” basis against diversity targets for the representa - tion of women and minority ethnic groups on the board and providing numerical disclosures on the diversity of the board and executive manage - ment. Both the FTSE Women Leaders Review and the Parker Review have extended their rec - ommendations regarding board diversity to the top 50 private companies in the UK (as deter - mined by sales). 4.4 Appointment and Removal of Directors/Officers The Companies Act sets out the requirements for appointing directors upon incorporation of a company but is silent on subsequent appoint - ments. Therefore, the process will be set out in the company’s articles of association, which usually stipulate that directors can be appoint - ed by a decision of the board of directors or by shareholders, in each case by simple majority. In line with the provisions of the Governance Code, listed companies typically have a nomi - nation committee that has responsibility for recommending board appointments. Under the Governance Code, all directors should stand for re-election annually at the company’s AGM, regardless of the size of the company (see 1.3 Corporate Governance Requirements for Com- panies With Publicly Traded Shares for details of the application of the Governance Code). There are a number of ways a director can be removed from office. The Companies Act pro - vides that a director may be removed by ordinary resolution (before the expiration of the director’s
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