Newspaper article The Evening Standard (London, England)

The Rational Case for Showing Rolet the Door

Newspaper article The Evening Standard (London, England)

The Rational Case for Showing Rolet the Door

Article excerpt

Byline: Anthony Hilton city comment

MOST corporate governance is a waste of time. It is over-prescriptive. It tries to design in good behaviour by treating businesses as if they were machines rather than organisations of people. As a consequence, it too often becomes an exercise in box-ticking.

But if the entire canon of complying or explaining could be discarded in favour of just one principle, an idea that captures the very essence of what governance is trying to achieve, then it would be that the chief executive is accountable to the board, and the board has a duty to tell him or her when it is time to go.

What makes it so tough is that the problem invariably lies not with poorquality bosses, who are relatively easy to show the door; the challenge is reining in those who have done well, those who have shown the vision and skill to move the business to a new and altogether higher level and who have in the process built a significant fan club. But it needs to be done.

A major reason why good companies fail is that boards fail to exercise proper control over a successful leader who evolves into an over-mighty chief executive, and are then powerless when he overreaches himself.

The danger is hubris. It is hard for an executive to keep a level head when all around are losing theirs in admiration, and it can be even harder in the business world, where those who get to the top have powerful egos to start with.

The warning signs are when the chief executive comes to think that he (and it usually is a he) has made the company what it is, and should be allowed to continue in post unchallenged and for as long as he wants. When the chief executive gives the impression that the rules are for the little people, it is time for the board to tell him he has reached his sell-by date.

When a board does take such a momentous step, the shareholders must support it. Taking these tough decisions is the whole point of having a separate chairman and a board with a majority of strong, experienced independent non-executive directors. Even then, it is hard for directors to summon up the nerve to confront a powerful chief executive. If they think that the whole decision may subsequently have to be explained in every last detail in public, many will shrink from taking the action.

That is a general point. The current London Stock Exchange case, where the chairman faces ousting at an extraordinary meeting called by an infuriated hedge fund, goes even further. The shareholder's declared intention is to reverse a board decision, and that will arouse concerns well beyond the Square Mile.

It is not for me to say whether the desire to set limits on the conduct and tenure of chief executive Xavier Rolet lies at the heart of the current row at the Stock Exchange. But it is a possibility that should be considered, given that he expressed his willingness to step down at the time of the proposed merger with Deutsche Borse a year ago but there has been silence since that merger was blocked. …

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