Management: Outside directors are the board room: non-executives have lots to give, says Jane Simms

Click to follow
The Independent Online
THE recent departure of Bob Horton, the chairman of BP, was one of the more tangible manifestations of how power can be wielded by non-executive directors. In this case they apparently felt that boardroom friction had reached such a pitch that the board was no longer functioning efficiently or in the best interests of shareholders. They decided Mr Horton should go and shortly later he went.

The episode demonstrates the supervisory aspect of the non-executive's role, but companies should also cash in on the more positive contributions offered by non-executives. The benefits of hiring an outside director include objectivity, experience and complementary skills. They can provide important input to strategic thinking, appraise a company's strengths and weaknesses, and suggest areas for improvement and development.

Colin St Johnston, managing director of ProNed, the organisation for the promotion of non-executive directors, estimates 85 to 90 per cent of UK listed companies have at least two or three outside directors and says the concept is catching on in private companies.

Many companies, however, neither choose nor use their non-executives properly.

The 'chums of the chairman' syndrome may be dying out, but too many companies still hire their non-executives on the basis of who they know. They should start from the opposite premise and determine what kind of skills, qualities and personalities they need to balance the board.

The recent appointments of Francis Maude and David O'Brien as non-executives on the board of Asda, the supermarkets group, reflect the kind of professionalism recommended in the Cadbury report on corporate governance. Mr Maude, as a former chief financial secretary at the Treasury and head of privatisation at Salomon Brothers, will bring his City knowledge to bear. Mr O'Brien, chief executive of the National & Provincial building society, was previously managing director of Rank Xerox and played a key role in turning the company round. He is strong on systems and organisational change, and, like Asda, is based in Yorkshire.

According to Paul Dowling, the corporate affairs director, 'We sat down and said, 'This is where we need to beef up the board.' Then we went out and looked for the right people. We were looking to fill the non-executive slots with the skills necessary to help us with the task of substantially repositioning and changing the organisation.'

Sir Adrian Cadbury, chairman of the committee on corporate governance, suggests going outside the traditional hunting grounds of business and the City - 'the old boy network where everyone knows everyone else' - to academia, the Civil Service, even, dare one say it, women.

The 'comfort factor' of hiring someone who already holds a clutch of directorships (15 is not uncommon) is out of place today as business becomes more complex and the responsibilities of the non-executive grow more time-consuming.

Sir John Harvey-Jones, former chairman of ICI and a non-executive director of Grand Metropolitan, says: 'I am very suspicious of people who hold eight or nine directorships.' When at ICI he imposed a limit on his staff of two external directorships, and since his retirement he has limited himself to three.

'No matter how well a company is run, the job always takes longer than the time you were hired to do it for,' he says.

It would appear that the days of directors holding a clutch of 20-days-a-year pounds 20,000 seats are numbered. Sir Adrian suggests non-executives should put more effort into fewer jobs and be recompensed accordingly. The traditional principle is they should be paid enough to make the effort worth their while, but not so much as to compromise their independence.

But it's no good getting the right people on the board and paying them well if you don't give them the tools or create the climate to enable them to perform effectively. They should also be involved in formulating company strategy.

The need for a thorough understanding of the company means they must have the freedom to talk to whomever they choose, have access to as much information as they require, and make as many site visits as time allows - abroad as well as at home.

Then it's up to the chairman to ensure the right spirit prevails in the boardroom, by clearly defining responsibilities and melding the board. Coats Viyella chief executive Neville Bain recommends holding occasional board meetings in Europe or the US - 'a hard day-and- night working session' - as a way of getting the board together to examine strategic issues.

Since non-executives are brought in for their objectivity, it makes sense that they don't stay too long. Extenuating circumstances aside, any longer than six years and they run the risk of becoming stale or institutionalised.

It's difficult to imagine such a scenario at GrandMet. Sir John Harvey-Jones says: 'We (the non-executives) are a fairly obstreperous lot. Allen (Sheppard, the chairman and chief executive) likes controversy and argument, and we have tremendous rows. After the last strategy meeting he commented it was the first time he and I hadn't resorted to fisticuffs.'

(Photograph omitted)