Magazine article Management Today

So You Want to Be a Director?

Magazine article Management Today

So You Want to Be a Director?

Article excerpt

Tighter rules on corporate governance and the risk of personal liability for executives at rogue firms make a boardroom seat less inviting, reports Alexander Garrett.

For nine former board members of insurance company Equitable Life, it is probably an understatement to say that the attraction of being a company director has faded somewhat. Some time in the next year - April 2005 has been pencilled in - a court case will begin in which the insurance company seeks more than pounds 3 billion from its erstwhile directors on the grounds that they were negligent and 'acted unreasonably' in the terminal bonus dispute that led to its virtual demise four years ago. If successful, the action will result in a group of high-flying business people, pillars of the establishment, being made bankrupt by virtue of the position they once held.

Disgruntled policyholders may have little sympathy, but Sir John Banham, chairman of Whitbread and a veteran of Britain's boardrooms, believes the action is a travesty. 'I know some of the individuals involved in Equitable Life, and I think the prospect of such decent, honest, clever people being sued down to their cufflinks because of a rogue judgment by the House of Lords is outrageous,' he says.

Does he think it will act as a deterrent to people considering taking up board positions in future? 'I'm sure it will. It is not just a matter of finance, it is also a question of reputational risk. In the last few years, some of the finest people I know, who have made a major contribution to British business, have had their reputations trashed and seen the end of their careers. It (a non-executive directorship) has become a much less attractive proposition, and if somebody rang me and asked me to become chair of one of the several companies currently being touted around the market, I wouldn't dream of it - even if I had the capacity.'

Banham sums up how the equation has changed: 'The liabilities and risks on individual non-executive directors have increased substantially, and the amount of time you have to put in has increased dramatically. You have a lot more responsibility without the concomitant authority.'

Non-executive directors have been in the spotlight ever since the Enron affair first erupted in 2001. As allegations of massive fraud surfaced, critics began to ask what the non-execs - among them former Tory grandee John Wakeham - had been doing.

More corporate scandals ensued, amid a growing clamour for non-execs to be held to account. The Government appointed former UBS banker Sir Derek Higgs to look at how the role of non-execs should be tightened.

His report, published last year, not only increased the number of non-executive directors a company must have, but spelt out their increased responsibilities. Higgs also made it clear that the days when leading business figures were allowed to 'go plural' by taking on a dozen or more directorships would soon end.

It may be hard for the rest of us mere mortals to feel a twinge of sympathy for non-exec directors. After all, earning a respectable salary for a few days' work a year, which consists mostly of attending meetings, might sound like nice work if you can get it. But the rising crescendo of bleating from company boardrooms reflects a serious concern that the people who are really qualified for the job increasingly don't want it.

The result, headhunters have discovered, is that high-calibre non-execs are becoming harder to recruit. Julia Budd, a founding partner of the Zygos Partnership, says the problem is particularly acute with chairmen of FTSE-100 companies and chairs of audit committees. 'A number of people are simply saying: why bother? I don't need the grief,' says Budd.

And Stephen Lawrence, chief executive of Whitehead Mann, says that whereas inside the FTSE 250, candidates for non-executive roles are becoming more choosy and exercising more due diligence, those in smaller companies are demanding higher rewards for the increased workload. …

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