Board Intelligence, a specialist in board information, is holding a series of debates called “The Board is Dead, Long Live the Board”. Participants (who are not named) are asked: “What should good governance look like?” As part of its Better Boards series, Executive Appointments is publishing the findings from each meeting. Peter Whitehead reports on the second discussion.
A fear that UK boards are confused about their role and who they serve was a key concern of the four chairmen taking part in the debate. They said the contract between companies and society needs to be clarified.
If society is an important stakeholder, they asked how a board could navigate its many conflicting interest groups. One suggestion was to appoint one or two non-executive directors with a particular responsiblity for representing society’s interests.
An alternative would be to revert to the simpler notion of serving the shareholder: it might be a narrow function, but at least it is a role that can be understood, they said.
The chairmen also called for clarity over the status of corporate governance rules. “Governance should be rooted in laws, not codes: ‘comply or explain’ is too ‘fluffy’ and not practical when you are dealing with an international investor base,” say the minutes from the meeting.
The non-binding “comply or explain” requirements of the Corporate Governance Code were deemed too vague and permissive of idiosyncratic behaviour by boards. This affects international investors who are unfamiliar with this model and are not able to deliver the style of stewardship that “comply or explain” requires. It also means investors with a large number of small equity holdings do not have the capacity to fulfil their stewardship duties.
The chairmen said non-negotiable rules would lessen the complexity of corporate governance from the investors’ perspective, and they asked whether it was time for a global solution – a single set of corporate governance rules.
Rules should also extend to the management of a company, they agreed. A governance code for management could provide guidance on how it should behave: “They are the ones running the company and making the day-to-day decisions and their behaviour will have the greatest impact on company performance and behaviour – far greater than the board,” they said.
Other points raised included:
●Boards are expected to be superhuman: expectations need to be more in line with what is achievable;
●Boards should be smaller;
●Passion on a board is more important than anything you can prescribe in a code.
The FT’s Better Boards series of features and videos is at FT.com/management/better-boards
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