Asset management giant State Street, which presides over around $3 trillion (£2.3 trillion) of investors' money, has called for reform in how directors are elected to company boards across Europe.
The firm said in a report today that the way directors are elected, and especially the terms for which they serve, needs to change to increase accountability.
State Street held up the UK, where directors face re-election every year, as an example of a country with good corporate governance practice.
“Well-governed companies are better positioned to navigate challenging economic conditions while protecting shareholder interests”, said Rob Walker, State Street's head of asset stewardship.
“Without an annual director election process, shareholders are limited in their ability to hold directors accountable and improve board quality. Furthermore no matter how dissatisfied shareholders are, in some cases they have to wait several years to hold board members accountable.”
State Street pointed out that there was significant variation across western Europe. It said board accountability was weakest in Germany, where directors stand for election only once every five years, and also faced problems in France, Spain, the Netherlands and Belgium.
As well as the UK, State Street also praised Ireland, Switzerland and the Nordics for having one-year terms.
The firm further found that although national corporate governance codes may not be legally binding, introducing them often improved practices at companies.
The UK's code was introduced in its currently recognised form in 2008 by the Financial Reporting Council (FRC), and has been updated over the last decade. Last year the FRC proposed changes, such as requiring chairmen to step down after serving nine years on a company's board.