The Investment Association is to write to the boards of FTSE companies to warn them of their concerns about “kitchen sinking” .
The term describes the action of freshly appointed chief executives significantly revising profit forecasts or dividend expectations shortly after taking up their new posts.
Writing in The Telegraph, Andrew Ninian, director of corporate governance and engagement, says the association “takes exception to the practice” and blames boards for failing to properly supervise management prior to a change in CEO.
“If the prospects of the business are presented as being fundamentally different following the appointment of new management, leading to the revaluation of assets and a cut in the dividend, then questions are raised about the board’s oversight of the previous management and why these issues were not addressed earlier,” writes Ninian.
Ninian says the letter will highlight how often “kitchen sinking” appears to be occurring and will say it is unacceptable.
He goes on to argue that the underlying issue in the City is short-termism, caused by quarterly reporting requirements.
The association has proposed scrapping quarterly reports in favour of changes that encourage a culture of long-term thinking.