Governance — the new dependency culture?
Times Online - Newspaper Edition
By Niall Fitzgerald
MANY of you will have received questionnaires designed to evaluate governance within your organisations. Some of you may even have filled them in.
One I received in the new year seemed at first glance standard enough. It had the familiar covering letter reminding me that successfully discharging my responsibilities as a corporate board director had never been more difficult and that I should be concerned about improving the effectiveness of my board.
Nothing to quarrel with there, save that the task would be considerably eased if one didn’t have to bother with questionnaires which, in this case, ran to no less than 120 questions. This in spite of the assurance on the front cover that “this questionnaire will take no more than 15 minutes to complete”.
Clearly the authors of the survey were not interested in a considered and thoughtful response to the questions or at least didn’t believe they were going to get one. All that was required to produce the definitive survey was to get as many people to tick as many boxes as fast as possible. To coin a phrase, they wanted you to comply, they didn’t want you to explain.
This minor irritation led to a further, more worrying thought: who actually has got the time and the inclination to do this properly? And I don’t mean responding to questionnaires but rather who has the time, the inclination and the ability to perform the role of non-executive director as envisaged by the regulators both in this country and abroad? Having codified those elements of business practice that can best serve to restore public confidence in the proper governance of our corporations, we now need to identify who will populate those boards and bear the responsibilities. Codes of practice and regulations only get you so far; they are given true life and meaning by those who are charged with honouring them.
A company can have the most fulsome mission statement and the most finely honed business principles, but unless they are administered with true integrity they will not count for much. Remember, Enron boasted an ethics code second to none, but it was suspended when it threatened to get in the way.
It is a truism, but nonetheless worth restating, that good practice is only ever as good as those asked to practice it.
The governance challenge for 2004 and beyond, therefore, is to ensure we populate the boards of our companies with capable people of integrity that shareholders can trust. Without them, the improvements in corporate governance that we plan for will be as illusory and insubstantial as a Cayman Island bank account.
It is not just integrity we want — we also want ability to understand the business issues, comprehend the financial challenges and, most importantly, the courage and independence to speak up and, if necessary, stand alone.
Potential candidates exist in many walks of life — and this is the second challenge. The expansion of the non-executive contribution in British corporate life gives us an opportunity to broaden the diversity of the average boardroom and import other talents and perspectives into the board. A wider pool from which NEDs will be chosen is not only desirable but inevitable.
However, Harvey Goldschmidt, the jurist and Commissioner of the US Securities and Exchange Commission, recently opined that the chairman of an audit committee of a public company could expect to spend up to 200 hours per year on the task. That’s a full month’s working and no weekends off. He may have been exaggerating for effect, but this scale of commitment is beyond most people with a full-time job.
The consequence is that many key board positions are unlikely to be held by working business executives.
This in turn raises the possibility that large numbers of NEDs in the future may draw their principal income from the company on whose board they serve. This need not necessarily impair judgment, but true independence rarely flourishes in a climate of financial dependency.
There is also the risk that the new breed of NEDs will be intellectually dependent on the company too. If they come with no business experience it will be a steep learning curve to acquire the self-confidence to challenge and interrogate. Boardroom decisions need not be rocket science, but some corporate activities are inevitably complex and it is not always easy for inexperienced NEDs to know when to strike the balance between inquiry and trust.
The lesson from all this is simply that we must be vigilant in the exercise of quality control when appointing NEDs to our board. An infusion of new blood and new talent is to be welcomed but financial and intellectual independence must be guaranteed.
Otherwise the corporate scandals of 2010 may be categorised not by megalomania and greed but rather by naivety and inadvertence.
The author is chairman of Unilever
January 28, 2004 at 08:31 PM in Business Models | Permalink
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