If Theresa May is really serious about taking a “new approach to strengthen big business through corporate governance” she is currently sending mixed messages according to corporate governance expert (and The Independent Director author) Gerry Brown.
The recent DfBEIS Corporate Governance Reform Green Paper notes, “The UK has long been regarded as a world-leader in corporate governance, combining high standards with low burdens and flexibility. It is an important part of what makes the UK such an attractive place for both business and investors.”
If our attractiveness is measured by the frequency of ongoing corporate scandals*, the ineffectiveness of six previous corporate governance reports**, extremely light (to non-existent) touch supervision of board composition and diversity, cronyism in board selection and no requirement for any formal qualifications to be a board member then our corporate governance is already truly world leading.
Mr. Brown comments, “The Green Paper focuses on a few of the SYMPTOMS of ineffective company boards especially executive pay. In that these proposals lead to greater transparency and scrutiny of this issue they are to be welcomed. However, it does not make any proposals to deal with the CAUSES of executive pay abuses, which are much more to do with ineffective Remuneration Committees and Company Boards as well as the lack of formal training and qualifications for company directors.”
Brown continues, “If Theresa May is serious about really tackling these issues rather than window dressing to fool electors then she need to be making proposals to really make a difference in the way that companies behave. Quite rightly Theresa May talks about the needs for ‘the right checks and balances’ to ‘strengthen decision-making’. Here are five ways to re-boot and strengthen the current Green Paper to ensure greater good corporate governance and board diversity:
(1) Legal requirement for Directors to be properly trained and qualified (like any other profession!)
(2) The requirement for the selection of Directors to be the subject of a proper search and selection process, including the oversight by investors (the recent Harvey Nash survey shows that over fifty percent of public companies are not)
(3) Board Directors to be much more publically held to account for abuses not just on a one off basis by Select Committees (for example, Sports Direct)
(4) Shareholders to be much more active in the supervision of the Boards of Companies in which they invest
(5) Business Schools to be encouraged in their management training to place much greater emphasis on the role of Boards and Directors responsibilities.”
* Too many to list but recently these include RBS, Tesco, BP, Sports Direct, BHS, Co-op
** The Cadbury Report (officially titled “Financial Aspects of Corporate Governance”, 1992), the Greenbury Report (1996), the Hampel Report (1998), the Higgs Report (2003), the Walker Report (2009) and, most recently, the Code of Corporate Governance (2012)