Blast from Non-Executive Grenade Still Reverberating

The Birmingham Post (England), July 4, 2002 | Go to article overview

Blast from Non-Executive Grenade Still Reverberating


Byline: Philip Williams

Lord Young chose his moment to throw a grenade into the debate over corporate governance last month. He waited until the last gasp of his presidency of the Institute of Directors before stunning it with a remarkable attack on a supposed cornerstone of modern company structure - the non-executive director.

What are they for? thundered the Conservative former trade secretary whose advice on business was valued by the likes of Margaret Thatcher.

After the disasters of Enron, Marconi, Equitable Life and now WorldCom, what use are 'box tickers' who can do little more than 'judge what management tells them'.

'Even if they spend one day a week in the company, as the National Association of Pension Funds has suggested, can they ever know the business as well as the executives? No, they can't. In that case, why bother? Why bother with non-execs at all?' he said.

He has a point. If all a non-executive director is expected to do is to roll up to the quarterly board meeting, ask a question or two before rubber stamping what the executive officers recommend and fix their pay in matey remuneration committee before collecting the pounds 25,000 annual fee, he might be right.

A concensus seems to be emerging that the system and the boardroom environment has to change.

The Government has already recognised that there is a genuine debate and has asked the City banker Derek Higgs to look into the role of non-executive directors in modern companies and report before the end of the year on how to make them more effective.

The NAPF and the Association of British Insurers have already had their say and will no doubt be offering their threepence-worth to the Higgs inquiry.

The ABI's suggestions were twofold - increase the fees for non-execs to reflect and underscore their increased responsibilities.

That move would also help to discourage people from accepting multiple non-executive roles. Some directors have built up up to a dozen or more such posts.

Not only could they not be effective in guiding a company's fortunes, that proliferates the 'I'll sit on your board if you will sit on mine' businessmen's mafia.

The ABI doesn't want to commit itself to an exact number of directorships to be allowed, but the National Association of Pension Funds, is more specific.

It says that five should be a maximum, enabling non-execs to spend at least a day a week at each company and that no director with an executive role at one company should be allowed to take on more than one non-executive job anywhere else.

You don't need to have the same detailed knowledge as an executive director. But a non-exec should make a contribution to strategy, bring new skills to the board and have a corporate governance role to play in audit, remuneration or nomination committees, the association argues.

It too supports higher non-executive pay (at least pounds 50,000-pounds 60,000) and more rigorous selection and interview procedures to eliminate the excesses of the old boys' club. …

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Blast from Non-Executive Grenade Still Reverberating
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