Cadbury bandwagon rolls to a halt

The great corporate governance bandwagon shows every sign of having the brakes slammed on, at the behest of the Confederation of British Industry, the Stock Exchange and the Institute of Directors.

They do not want the conduct of directors to face yet another serious scrutiny from a report by the great and the good, in the wake of the upheavals caused by the Cadbury Committee, and especially the Greenbury Committee on top pay.

The first brought a big increase in disclosure and in the power and influence of non-executive directors; the second took this much further, andmade remuneration committees of non-executive directors a new focus of power and influence on company boards.

Sir Ronnie Hampel, chairman of the newly formed Cadbury Committee Mark II, shows every sign of having taken on board what Adair Turner, the CBI director-general, calls industry's "corporate governance fatigue". He made clear that his work will focus on consolidation, not continuing revolution.

Sir Ronnie, the chairman of ICI, believes that it will take at least two sets of annual reports to see how Greenbury has bedded down. He has also sided with the CBI view that in some areas - such as smaller quoted companies - a certain amount of deregulation of the new rules might be desirable.

The Greenbury report was written in haste, under political pressure. Ever since, companies have been discovering awkward new side-effects that did not leap from the page when they first read it.

Geoff Lindey, a City fund manager who was the National Association of Pension Funds representative on the Greenbury Committee, found another yesterday in a speech to the association's autumn conference. The most important Greenbury recommendation, he believes, is that the remuneration committee chairman will attend the AGM to answer shareholders' questions on pay.

The corollary is that before they can justify high pay, companies will first have to spell outthe corporate performance objectives at which they are aiming. Very few now do. Mr Lindey says shareholders will ask questions, focusing managers' attention on performance in a way impossible before.

As this thought sinks in around British boardrooms, it will give new strength no doubt to the rearguard action against the report, which has already successfully delayed full incorporation in the Stock Exchange listing rules and led to a row about pension disclosure.

But there is a more fundamental reason why the corporate governance bandwagon has probably rolled about as far as it can go for the moment. Non-executive directors have exactly the same legal responsibility for stewardship of a company as executives. Yet the thrust of Cadbury and Greenbury has been to turn them into boardroom police, supervising executive directors on behalf of the shareholders.

This is where the Greenbury idea of a powerful non-executive remuneration committee, reporting over the heads of the rest of the board directly to shareholders, may run into the buffers. It gives the non-executives a separate status they do not have in law, and is thus an attempt to embrace surreptitiously some of the better characteristics of Continental two- tier boards without admitting they are a good idea.

As a fudge, this solution will work as long as nothing dramatic is expected of it. Such reforms are fine for well-run companies of the type in which Sir Ronnie and Sir Adrian Cadbury have spent their lives, and may even produce an improvement in the general performance and accountability of British business.

But they are more than likely to break down where they are most needed - at companies under strain, where boards are in disarray and businesses have problems.

Even at Cable & Wireless, hardly a corporate basket case, the supposedly influential non-executives do not appear to have grasped the extent of the row on the board until it was too late.

Perhaps the underlying reason business does not want to stir the corporate governance pot again is that the logical next step from the Cadbury and Greenbury reports would be to give legal reality to their attempts to create a special type of non-executive director-cum-police officer.

That might well lead to the imposition on an unwilling industry of a British version of the Continental two-tier boards. Business and the City are adamantly opposed to these, believing that they slow decisions and blur accountability between owners and managers.

The Labour Party recently came close, with a proposal that remuneration committees should contain a wholly independent director representing shareholders or employees. With an election looming, it is no wonder that business wants to put corporate governance on the back burner.

This is a serious tactical mistake, as Mr Lindey pointed out yesterday. Anything less than total enthusiasm for the present voluntary methods of improving the conduct of boards could provoke legislation and that could bring anything - even two-tier boards.

Start your day with The Independent, sign up for daily news emails
News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
ebooks
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power