We still need to work out what non-executives are for
Sunday 25 April 1999
True enough, the relatively benign economic environment that has characterised much of the current decade means that there have been few of the collapses that prompted the bout of soul-searching that began with the Cadbury Committee and has continued with Greenbury, Hampel, the Combined Code and, just last week, the Institute of Chartered Accountants' Turnbull report on internal control. But that does not mean that the issue has gone away.
As a survey published earlier this month by the accountants and management consultants KPMG points out: "Non-executive directors are facing greater pressures and challenges as corporate governance practices are implemented throughout UK plc."
Gerry Acher, senior partner in the firm's London office, says he is "delighted that non-executive directors' perception of their roles is now moving back towards wealth creation and corporate strategy as opposed to the checks and balances side of governance, thereby achieving a sensible balance".
But the survey notes that, even though non-executives are not "over-emphasising" their corporate governance role (as they appeared to be doing in a previous survey carried out by KPMG four years ago) this aspect of the job is still close behind what are generally termed the more positive facets. And no wonder. Hardly a week goes by without somebody somewhere opining about corporate governance or lack of it.
Nor is it just the UK. The latest issue of Fortune magazine offers a counterpoint to its annual round-up of "America's Largest Corporations" with a listing of "America's worst boards of directors".
So it is predictable that another book should appear laying out a model for introducing a system of corporate governance. However, it appears that this volume by Adrian Davies, a management consultant, might be more valuable than some others of its ilk.
The reason lies in its title - A Strategic Approach to Corporate Governance. This is especially apposite at a time when executives are struggling to get to grips with the introduction of the Combined Code (essentially, the Stock Exchange's distillation of the previous codes and recommendations) and assessing the worth of the Turnbull report on internal controls, while others are exhorting them to down-play the policeman role.
Mr Davies's book, published by Gower this week at pounds 42.50, sets out to explore the link between corporate governance and business strategy and, as well as examining the importance of the board's leadership in both aspects, seeks to escape what has hitherto largely been a financial focus. As Sir Adrian Cadbury points out in his foreword: "The essential point is that good governance is an aid to effectiveness. It is not there to shackle enterprise, but to harness it in the achievement of its goals."
The view has developed among some that this corporate governance business has been got up by zealots obsessed with executive pay and other excesses. But Sir Adrian adds: "The interest which investors have taken in the governance of publicly-quoted companies originated in their concern about the performance, or lack of it, of the businesses in which they held shares." In other words, there is a business case, pure and simple.
The fact that some boards are, even today, made up of members of a fairly tight circle of people who might be described as cronies rather than independent- minded business people is, of course, another issue.
Suffice it to say that being a fully-rounded non-executive capable of challenging the executive directors on their stewardship as well as able to provide fresh ideas means more than just turning up a few times a year in return for a nice cheque.
Not for nothing has it frequently been joked that the difference between a supermarket trolley and a non-executive director is that the former has a limited capacity for food and drink and a mind of its own.
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