What were the non-executives doing? The question became a familiar cry in the wake of corporate disasters over the past decade or more.
A slightly different but related question – what should non-executives be doing? – was the starting point for Sir Derek Higgs’ report (“Review of the role and effectiveness of non-executive directors”), which was published 11 years ago and whose findings were incorporated into the UK’s combined code for corporate governance.
Ancient history? Not at all. The question of independence in the boardroom, and “challenge” as it is sometimes called, remains as important as ever. We are still a long way from finding the right formula and the right balance at the top.
There is at least some agreement in principle as to what the problem is. That it was once possible for the late Roland “Tiny” Rowland to describe non-execs as “baubles on a Christmas tree” revealed how little dominant chief executives expected to be questioned by fellow directors.
When today’s crises and corporate collapses are analysed, it often seems that not much has really changed since the glory days of the maverick empire Mr Rowland ran from the 1960s to the 1990s. Out-of-control bosses have not been so much as momentarily dazzled by the light reflecting off the baubles that sit around the boardroom table with them.
Non-executive directors, if they are enjoying their role, will hope to be reappointed after an initial three-year term. And yet seeking that reappointment might tempt some into moderating (or even suppressing) necessary criticism. “A non-executive director who challenges a powerful CEO will not remain a non-executive for very long,” as one seasoned City lawyer told me recently.
I remember asking Sir Derek a decade ago what he thought “independence” in the boardroom meant. He said it had to do with asking good questions, and remaining a true custodian of shareholders’ interests.
His report did not seem terribly controversial to me at the time, although it provoked a good deal of anger. One especially unpleasant – and anonymous – article appeared in the Daily Telegraph rubbishing the whole thing.
It would be fascinating to hear how he felt his report’s findings had been heeded in the intervening years, but sadly that isn’t possible – Sir Derek died in 2008.
One obvious, if seemingly superficial problem has to do with the job title itself. Who wants to be a “non-” anything? I suspect non-executives need to be paid more, while accepting that they should probably not take on more than two such posts.
The commitment and engagement required, especially in big businesses, is vastly greater than some might imagine. You are not there to be a bauble, have lunch, make polite conversation and pick up a fee. There is a job to do: a vital and challenging one.
This story is not over. The test for non-executive or independent directors is to prove wrong Lord (Michael) Grade, who once observed with characteristic wit: “A non-executive is a bit like the bidet in your bathroom: nobody is quite sure what they are for, but they add a touch of class.”
Stefan Stern is also a contributor to the Financial Times Non-Executive Directors’ Club