A lot of water has passed under the bridge since Tiny Rowland described non-executive directors as decorations on a Christmas tree. We have had the Cadbury, Greenbury, Hampel, Turnbull and Myners reports, all of them designed to get corporate Britain and its helpers in the City to clean up their act, either by improving standards of boardroom behaviour or by making the relationship between the providers and the users of capital more transparent and equitable.
We have also had Maxwell, Brent Walker, Marconi, Allied Irish Banks (AIB), Enron and a legion of lesser cases of corporate failure to demonstrate that all the combined codes in the world will not stop the wheels from coming off if management is determined enough or the internal controls are insufficient to the task of holding them on.
Now we have the Higgs review, the latest knee-jerk response to the latest corporate calamity. The Government has asked Derek Higgs, the former corporate financier, to take a long hard look at the effectiveness of non-executive directors, those guardians of shareholder interests, to make sure an Enron-style scandal could not happen here.
The Secretary of State for Trade and Industry Patricia Hewitt says Mr Higgs is "admirably equipped" to lead the review. This is not a reference to the failure of Mr Higgs and his fellow non-executive directors at AIB to spot the £487m black hole that opened up under their noses over a two-year period. Rather, this is because of his "wealth of relevant experience". Ms Hewitt can say that again.
Apart from his AIB job, Mr Higgs is also a non-exec at Egg, British Land and Jones Lang La Salle, chairman of Partnerships UK, a director of London Regional Transport and Coventry City Football Club, chairman of Business in the Environment and a senior adviser to UBS Warburg. Phew. Presumably his first recommendation will not be a cap on the number of non-executive posts anyone can have.
There are plenty of other questions for Mr Higgs to get his teeth into. Should we encourage a new breed of professional non-executives with qualifications and a pay structure to match is one. Another is whether the gene pool from which non-execs are drawn is too shallow and too restricted. Mr Higgs has undertaken to squeeze the review in alongside his other commitments and report back by Christmas. Fortunately, he has already promised not to come up with anything which might lead the Government down the road towards legislation. With splendid disregard for those that have appointed him, he announced in yesterday's Financial Times that one of his main reasons for accepting the job was "as a way of disinclining the the Government from enforcing inappropriate legislation".
Just as well. Mr Higgs, like all his predecessors, is unlikely to do much good, but at least he has promised not to do any harm either. One more box-tickers' charter will solve nothing.
Costly legal challenge
There were always only two targets of any substance that Vanni Treves, chairman of Equitable Life, could go after for the disaster that has befallen Equitable's policyholders. One is the regulator, the Financial Services Authority, which handled the situation badly and may yet be shown to have been guilty of regulatory failure. The other is the auditors, Ernst & Young. Mr Treves is still waving his stick at some former directors too but, even if they can be held culpable, none of them is sufficiently wealthy to make any kind of a difference to already disadvantaged policyholders. Of those involved in the débâcle, only the FSA and E&Y have pockets deep enough to make them worth suing.
Yesterday, the society formally moved against Ernst & Young for signing off on accounts which as Mr Treves delicately puts it should have been presented "in a different form". In outline terms, the case against E&Y is easy enough to make. Though it was the House of Lords that finally holed Equitable below the water line by ruling that guaranteed annuity rate policies had to be honoured, the train was plainly heading towards the buffers from well before then and the auditors failed to flag it down. Indeed, according to Equitable, they made everything appear as if fine and dandy.
Whether stopping the train was actually the responsibility of the auditors is something that will now be tested in court, for E&Y was making it absolutely plain yesterday that it has no intention of settling. A long, bloody and exceptionally costly legal battle is in prospect. Mr Treves says he will resist any opportunistic legal claims against the society, or those based on hindsight. E&Y may have a point in accusing him of hypocracy. Only the lawyers are guaranteed a feast. Other beneficiaries are much more doubtful.
As for the FSA, Mr Treves says he will await the government-sponsored report on the affair by Lord Penrose before deciding whether to act against the regulator. Unfortunately, Lord Penrose's wheels are grinding exceedingly slowly, and a report originally expected this summer is now unlikely to be published until next year. Even if it does show failure, the FSA and its predecessor regulators are so hedged around with legal immunities that the case for compensation may have to rely more on moral than legal obligation.
Mr Treves is duty bound to pursue all legal channels open to him, and the lawyers say he has a strong case, but in the end he's unlikely to get anything other than small change from the legal chase. Equitable only has itself to blame for its calamitous decline into financial ruin. The attempt to hold others accountable could prove both costly and futile.
The Brown boom
It is not an exact repeat of the Lawson boom quite yet, but figures from the British Retail Consortium show that the British consumer is doing a very passable imitation right now. According to the BRC, retail sales in March were up an astonishing 10 per cent by volume, the fastest level of growth since the building society demutualisations of the mid-1990s. This time it's cheap money and easy credit that's fuelling the spending spree. There are some similarities with the Lawson boom, which started after the Government sharply cut interest rates in response to the stock market crash of October 1987. But that's where the parallel ends. Nigel Lawson, then Chancellor, proceeded to compound the effect by cutting taxes. That's not going to happen this time around. Mr Brown will be able to take some comfort when he announces tax rises tomorrow from the fact that this is the correct policy response to the present boom, even if that's not why he's doing it.Reuse content