Management: Director excellence is not out of reach: When the price of shares is seen as the priority, the temptation to make other decisions fit that goal may be irresistible

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The Independent Online
One of the more curious aspects of corporate life is the fact that anyone seeks, or accepts, responsibility as a director. Yes, of course, the perks have a certain allure, as do the power and the glory. The perceived freedom of action of directors may look mightily attractive. But reality is something else.

A glance at the relevant sections of the Companies Acts on the statutory duties of directors makes reading the Gothic horrors of Edgar Allan Poe look as terrifying as Trollope. Surely, only the seriously deranged would sign up to these awesome fiduciary standards and penalties for infraction? Recent statistics from the Department of Trade and Industry show that nearly 3,000 directors have been disbarred from holding office on the grounds of being unfit.

Besides fiduciary responsibilities, the role is fraught with dilemma. Consider the challenges. Sustainable growth in shareholder value, every year. Choice of strategic direction - this market, that technology. Creation of wealth for employees, 'them and us'. Satisfying customers - for ever. Demands of regulators. Resolving the passions of special interest groups, from environmentalists to local communities. Communicating in the spotlight of the media. Accountability, as well as responsibility, to all these stakeholders.

If that were not enough, the art of clairvoyance and the decisiveness of Solomon are further minimum requirements. As they say, some are born to greatness, some have greatness thrust upon them - but to seek it?

Perhaps if the various stakeholder interests in corporate direction were perceived as broadly aligned - shareholders seeing the need for investment in service quality as well as for improved return, for example - the task would be relatively easy.

I say perceived as broadly aligned, with deliberate emphasis. Too often directors are constrained to make invidious choices between what they think is right for one stakeholder interest versus another - much depending on their power and influence. When the price of the shares is seen as the priority, the temptation to make other decisions fit that goal may be irresistible.

A dramatic example comes from the water industry, where investment in capital plant is now often based upon a 'useful working life' formula of 15 years rather than a pre-privatisation norm of 73 years. While the latter may have been excessive, the former reflects the directors' view that shareholders will only support this minimum level of investment, since a higher level would be prejudicial to dividends and growth.

At its worst, the distortion of these priorities leads to the horrific excesses of a Maxwell or Polly Peck. The dilemma faced by Alan Sugar of Amstrad reflects the divergence of view between institutional shareholders and the company's management on the best way to restore shareholder value.

A classical, textbook, view suggests that directors must have the common interests of stakeholders in their hands. It is through the satisfaction of these legitimate needs that resultant benefits are enjoyed by all. A neat embodiment of this comes from BTR, the industrial giant: growth is the goal, profit is the measure, security is the result. It would be difficult for any reasonable stakeholder to object to this guiding principle.

All of this comes together under the contemporary heading of corporate governance - the responsibilities of being a director as compared with the task of managing the business. The report and recommendations of Sir Adrian Cadbury's Committee on the Financial Aspects of Corporate Governance are having a profound influence.

The birth of audit committees and the increase in the appointed numbers of well-qualified non-executive directors through the agency of Pro Ned are symptomatic of the wider recognition of the need to set high standards for governance, as well as continuing to demand energy and enterprise in the management of the business. Going are the days when, in the words of Professor Walter Woon, vice-dean of the law faculty of the National University of Singapore, non-executive directors have 'impeccable pedigrees but no discernible IQ'.

At a conference organised recently by the Singapore Stock Exchange, the Institute of Certified Public Accountants of Singapore and Sundridge Park, the wider interest of the state in corporate governance was clearly established.

The Minister of Finance, Dr Richard Hu, made it clear that, if Singapore is to attract international investment, its standards of governance must be of the highest. The conference, attended by politicians, officials and directors, agreed that directors needed to distinguish between the 'trees' of managing the business and the 'wood' of corporate governance - this would require new skills as well as new attitudes.

Everyone agreed with John Chadwick, conference chairman, when he said: 'Excellence in corporate governance may still be out of sight, but it's not out of reach - the critical lesson for directors everywhere is that they sign up to the need to have a clear view of the balance in stakeholder interests.'

The drive to achieve this is very much in the UK's national interest. The focus of the Institute of Directors and Sundridge Park on this subject in coming months will add further momentum to the recommendations of the Cadbury Committee. If the guardians cannnot master the responsibility themselves, will it be left to government to guard them, through the Companies Acts?

The author is director of marketing at Sundridge Park Management Centre.