Prompted by an outcry over “fat cat” salary increases at British Gas and other public utilities, in the mid-90s John Major persuaded Marks & Spencer Chairman, the late Richard Greenbury, to examine the governance of directors’ pay.
His committee recommended that directors’ pay should be more closely linked to performance (& that proceeds from executive share options should be taxed more highly, as income rather than capital gains). While, the government instantly complied with the tax recommendation, the agreement that public explanation of pay rises was desirable – in the absence of legislation – still remains elusive two decades later.
In tribute to his work and report on corporate governance (as well as his highly successful career at Marks & Spencer), independent directorship advocate and expert Gerry Brown has called upon the government to commemorate the late Sir Richard Greenbury with legislation that properly addresses the key issues he raised. “Over two decades later, simple low-cost measures that would immeasurably improve public and shareholder confidence in the governance of UK businesses are remarkably easy for the government to implement without further discussion or consultation. They would deliver considerable tangible benefits rather than be worthy ideals or window-dressing.”
Brown notes, “There is a long tradition of positive noises, mood music and government reports* echoing current sentiment without that translating into action. I suggest that the following measures (below) honour the direction and analysis of the original Greenbury report**. These measures are still relevant today and would be fitting practical and pragmatic memorial to his work and impact upon British business”. The measures Brown recommends as a fitting and lasting Greenbury Memorial with British business corporate governance best practice are:
· Requirement for companies to publish their Board improvement plans resulting from Board evaluation so that they would be more committed to, for example, improve Board diversity and more training for Board members.
· The FRC to be more rigorous in enforcing the Code requirement for all Board appointments to follow a proper selection process.
· Change the legal title of Non-Executive Directors to Independent Directors to better describe their role.
Notes to Editors
[*] Responding to corporate scandals by commissioning reports into corporate governance as well as defining the roles of directors and non-executive directors has delivered much sound and fury while, still today, leaving many of the key issues either unresolved or without effective legislative teeth. These committees and reports include the Cadbury Report (1992) the Greenbury Report (1996), the Hampel Report (1998), the Higgs Report (2003), the Walker Report (2009) and the Code of Corporate Governance (2012).
[**] Other notable Greenbury recommendations, based upon best company practice largely arising from the work of the Cadbury Committee, included:
The roles of Chairman and Chief Executive should be separate to avoid undue concentration of power.
Boards require a minimum of three non-executive directors.
Non-executive directors should be selected by a formal process.
Remuneration Committee membership should be independent non-executive directors, while the Chairman of the Committee should also be a non-executive.
Audit Committees should consist of at least three independent non-executive directors.
One-third of the entire Board should retire annually by rotation.
The Annual Report should state reasons for retaining directors aged over 70 on their election/re-election.