LONDON (Thomson Financial) - The question of corporate governance could return to the fore following the reshuffle at British Sky Broadcasting Group PLC in which chief executive James Murdoch was named chairman of the satellite broadcaster. The guidelines set out by the City's Combined Code effectively preclude chief executives going on to chair the same company. However, the code goes on to say that in exceptional circumstances the board "should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in the next annual report". In its statement to the market announcing James Murdoch's appointment this morning, BSkyB moved to quell potential criticism over the issue of independence on the board. Commenting on behalf of the board, senior independent non-executive director Nicholas Ferguson said "Sky has strong independent directors and we were quite clear that our overriding duty in selecting a chairman was to do what was in the best interest of the company and its shareholders. We were unanimous in our decision that the appointment of James meets this key test." The statement also said the decision was made following consultation with major shareholders. Aside from News Corp's 39 pct holding, US investors Templeton Investment Counsel, Harris Associates and Janus Capital Management top the major shareholder list, with the UK's Legal & General Investment Management a close fourth. The Association of British Insurers, which urged its members to register protest votes against James Murdoch's appointment as CEO in 2003, will be looking for an explanation from the company about the latest move. Peter Montagnon, director of investment affairs at the ABI, noted that there are exceptions to the code's guidelines, and said: "We will be looking for a cogent explanation of this decision, which will then be for shareholders to make a judgement on. We would also look to satisfy ourselves that the independent directors are robust enough to ensure the board acts for all shareholders." Shareholder advisory body PIRC (Pensions and Investments Research Consultants) believes the decision does not sit well with the code's guidelines and has further reservations about the consultation process. "It is not clear in this case to what extent consultation went beyond the controlling shareholder," the group said, "therefore we still have concerns about the separation of powers at the head of the company." Analysts were more sanguine about the potential governance issues. Numis securities said in a research note that although there may be corporate governance issues raised "we are pleased to see James Murdoch retain a pivotal role at the group given his strategic successes since he has been at the group." Investec said it believes the nepotism debate "is slightly tired on this basis, but clearly the corporate governance questions will continue - not unusual at Sky". James Murdoch was today appointed chairman and chief executive of News Corp's Europe and Asia business, while his chief executive role at BSkyB will be filled by Jeremy Darroch. email@example.com ks/jrr COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.