City & Business: The right questions

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The Independent Online
The mounting dissatisfaction among shareholders with Sir Desmond Pitcher, executive chairman at United Utilities, has been used as an argument for why the Hampel committee should have been more prescriptive. Many commentators have noted that the report does not outlaw the combination of the roles of chairman and chief executive and point to Sir Desmond as a reason for why this is a weakness in the committee's findings.

It is true that Hampel does not conclude that the roles should never be combined. But it makes clear that in most circumstances the differing demands of the roles of a chairman and of a chief executive will dictate the jobs are split. It sensibly accepts, however, that in some cases it is entirely acceptable to combine the roles. In these cases Hampel suggests that the onus is then on the board to explain why it is appropriate for the combination to take place.

Such an explanation from the United Utilities Board is now essential to clear the murky air which surrounds Sir Desmond Pitcher. It has been reported that Sir Peter Middleton, a non-executive director at United Utilities, has been been taking soundings from institutional investors and has identified some malcontents. There is a lobby arguing that Sir Desmond should relinquish the chief executive's role and become non-executive chairman.

What is less clear is why investors are upset. Is it because of United Utilities' poor performance or is it because Sir Desmond is both chairman and chief executive? Is the former a function of the latter?

Simply depriving Sir Desmond of one of his jobs would not have improved the performance of United Utilities. He is a determined and powerful leader. The enthusiasm he shows for the job has yielded success but also disappointment. To imagine you can change a man's character and personality by changing his job title is fanciful.

The ructions at United Utilities are evidence in fact that Hampel is right not to make splitting the roles of chairman and chief executive compulsory. The key to good governance is to have not the politically correct structure but the right personalities in place to ensure that right questions are properly asked at the right time. That is what Sir Peter Middleton is doing now.

Sir Desmond is rightly credited with being the driving force behind United Utilities. If he has been driving it in the wrong direction of late he must be put back on course or ejected from the driver's seat.

At United Utilities we are seeing Hampel-style governance in action. So far it is working rather well.