Is Your Board Still Compliant?

The 2024 UK Corporate Governance Code now applies to all premium-listed companies on the London Stock Exchange, including FTSE SmallCap firms, to accounting periods beginning on or after 1 January 2025.

The long-standing exemptions for smaller companies around director re-election, board composition, and committee membership have now been removed.

Odgers’ Board Practice has a long-established track record in building, developing and advising boards, from scaling businesses to multi-national corporations. Rachel Middleton, Consultant in our Chair & Board Practice, gives an overview of the key updates and guidance on next steps for boards to keep compliant.

What’s Changed For Boards?

Premium-listed companies are now subject to stricter governance requirements. All directors must stand for annual shareholder re-election, a rule that previously applied only to FTSE 350 companies.

Additionally, the exemption that allowed smaller companies to operate with just two independent non-executive directors (NEDs) has been removed. Boards must now ensure that at least half of their directors, excluding the Chair, are independent.

And while two-member audit and remuneration committees are still permitted, the Chair can no longer sit on the audit committee in any capacity. 

Changes to board composition can reshape board culture, often positively, but if poorly managed, they can disrupt cohesion and effectiveness.

What Is Your Compliance Plan?

For boards that are non-compliant, there are three primary options which require careful consideration: add independent non-executive directors; ask non-independent NEDs to step down and/or remove an executive director from the board.

Adding Independent NEDs

Most non-compliant boards will need to appoint additional independent NEDs.

Chairs should consider:

• Board culture dynamics: a shift in the independent-to-executive ratio may alter board conversations. Ensuring executives continue to feel heard remains critical. 
• Board size implications: adding members increases board size, which can affect governance, relationships and decision-making. 
• Committee planning: with the Chair excluded from the audit committee, boards may need to strengthen financial expertise and reassess committee capacity. 
• Recruitment timeline: successfully hiring a NED is a complex process that requires stakeholder management and engagement. Launching a search for a NED can take anywhere from three to six months. Businesses should take time to find the right person, ensuring they are aligned with the core values and culture of the business.

Asking ‘Non-Independent’ NEDs To Step Down 

Around 14% of FTSE SmallCap board members will no longer be considered independent by the 2026 AGM season according to tenure guidelines. With annual re-election now required, these directors will face increased scrutiny. 

A phased succession plan is essential and may require difficult conversations with board members about stepping down early or keeping longer tenured board members for longer.

Balancing continuity and renewal is a key challenge for Chairs as it takes time to establish an effective board culture and dynamic between board and executive leadership. This tone is often set by longer serving directors. They also carry valuable institutional knowledge. Chairs may need to consider executing the ‘explain’ principal in the next AGM season to justify retaining key individuals in the short term.

Removing An Executive Director From The Board

With 6% of FTSE SmallCap boards having three or more executive directors, some companies may prefer to reduce board size rather than expand it.

Removing an executive director can help achieve compliance but must be handled sensitively. Clear, respectful communication and having the conversation directly is key, as ultimately the executive director is likely to feel that their removal from the board is a ‘demotion’. 

Hold Your Nerve

The comply or explain principle allows for a degree of flexibility in its application, stating: “Companies should provide full and meaningful explanations so that shareholders and other stakeholders understand why a departure is necessary and how it achieves effective governance for the company”.

Boards must present thoughtful, transparent rationales for any non-compliance. Early engagement with shareholders is advised if reporting non-compliance in the next AGM season.

A board is only as strong as its individual members. Effective board culture is built gradually - but can unravel rapidly. Chairs must approach change with strategic foresight, empathy, and a commitment to long-term governance excellence.

If you are unsure whether your Board is fit for purpose, or you would like to explore your options, Odgers can support through every step. 

________________________________________________________

  
Get in touch. Follow the links below to discover more, or contact our dedicated Board leadership experts from your local Odgers office here.