ProNed attacks old boy network

Chairmen of British companies who rely on the old boy network to appoint non-executive directors are taking part in an outdated and potentially disruptive practice, according to ProNed.

Sir Adrian Cadbury, chairman of the body that promotes independent non-executive directors, says in the organisation's 10th annual review, published today, that chairmen should adopt professional and objective processes to select non-executives and give board members a greater say in their appointment.

Some of the same issues are likely to be covered in the final report of the Cadbury committee on corporate governance - also chaired by Sir Adrian - due in November. He says that although there is now unanimous support for good non-executive directors, there are widely differing views about their functions and priorities.

Sir Adrian believes the selection of board members should involve the board as a whole, preferably through a nomination committee that would agree on the skills and experience required. 'The search should start with the task, not, as it often does, with the names,' he says.

Moreover, companies would benefit by drawing on a wider pool of talent and ability. This would allow them to take on more women, he adds. 'It makes sense to look beyond the limited circle which chairmen and their boards normally have in mind.'

Colin St Johnston, managing director of ProNed, says: 'Clearly, too many companies are limiting their choice of non-executive directors by using the traditional network. This practice is outdated, amateur and, as our research has shown, threatens the ability of boards to function effectively as a team.'

He says boards need to be more explicit about what they expect from non-executives. Recent research by ProNed showed that fewer than 200 of the 600 non-executive appointments in the financial year 1991-92 were made through a professional process.

Only 23 per cent of companies had prepared a job profile for a non-executive director, while just a third of non-executives had received a formal letter of appointment and two-thirds said they had insufficient understanding of what was expected of them.

ProNed was founded in 1982 and is backed by the Bank of England, the Stock Exchange, the Confederation of British Industry and other bodies. In the 12 months to June 1992, it was involved in 74 of 600 appointments of non-executive directors and part-time chairmen to the boards of listed companies. It also carried out assignments for building societies, private companies and other organisations.

Last January, it published its Guidelines for Remuneration Committees. In July, a survey it conducted with the Stock Exchange revealed that 86 per cent of respondents were dissatisfied with the appointment process of non- executive directors.