2006 – Broadening boards
Three years on from the Higgs
report on corporate governance there are few signs
among the UK’s biggest companies of any
enthusiasm for one of the underpinning recommendations
of the report – that boards broaden their
memberships to take on people from beyond the
ranks of senior executives.
Indeed, the report’s recommendation
that companies created specialist committees to
look after auditing, board recruitment and pay
appears to have led to greater conservatism as
companies, and the headhunters who serve them,
have sought this expertise largely among experienced
Potential recruits from other
walks of society – the public sector, charities,
the professions, politics, academia, entertainment,
the media or sport – have been almost universally
overlooked as companies choose to interpret requests
for more diverse boards as gender or ethnic diversity
rather a diversity of experience.
It seems that companies are saying
that there can be no substitute for board experience,
thereby closing the boardroom door to some of
the most talented and influential people in society.
In a recent issue of Director
magazine, George Cox, chairman of the Design Council,
urged companies to recruit more designers to their
boards. Speaking this week, he said: “At
a recent meeting with about 30 of the UK’s
top designers I asked how many of them had been
invited to join the board of a PLC as a non-executive
director. Not one hand was raised.
“I’m not saying these
people should be recruited for the technical design
contribution but because they are used to solving
problems. They would be on the board, representing
shareholders like everyone else, but they look
at things differently.”
The same could be said of people
in many other roles outside corporate management.
If anything, believes Mr Cox, the funnel for potential
recruits has narrowed rather than widened after
the Higgs report.
“Once there was the ‘old
school tie’ approach when someone on a board
would approach a friend. Post Higgs people are
sensitive to being accused of that so they will
put the recruitment in the hands of a search firm.
That forces conservatism because the headhunters
are reluctant to put forward anyone who does not
fit the corporate mould.”
The “new school tie”,
therefore, belongs to those on existing company
boards, either at full board or executive level
or those who have recently retired from such positions
plus the odd establishment figure such as a former
government minister, ambassador or cabinet secretary.
This narrowing vision in the
composition of boards has occurred as recruiters
warn of the need to replenish a diminishing pool
of existing non-executive directors serving the
FTSE. Recent research by Ernst & Young, the
accounting firm and exec-appointments.com, a recruitment
website, highlighted a need for companies to be
more imaginative in their recruitment and development
of potential board members.*
Liz Airey, who has four non-executive
directorships, including the board of AMEC, is
one of 50 non-executives under the age of 50,
interviewed in the study.
She says there is a need among
board recruiters to challenge headhunters over
the lists they submit. “Regularly in my
roles I am looking at lists that come in from
headhunters for new non-executives and they are
always the great and good. There’s Sir this
or Sir that. Every name on the list you recognise
straight away. If you go back to the headhunter
and say that UK plc experience is not necessary
the reaction is: ‘gosh, are you sure?’”
She says it is part of human
nature that boards should “look to cover
their backsides” by recruiting people in
their own image who have done the job elsewhere.
“With someone who hasn’t proved themselves,
you are taking much more of a risk. This is psychology.
I’m not defending it in any sense.”
Jane Scriven, who sits on the
board of Greene King, the brewery and pub group,
says companies have become more demanding about
the kind of individual skills that are brought
to the board. “In my view over the past
ten or 15 years the job specs have become more
and more detailed and specific. It is almost like
an executive role in terms of the skill sets that
Fields Wicker-Miurin, a founder
of Leaders’ Quest, a leadership development
organisation, and a non-executive director on
three boards, says every board on which she sits
has been considering its role. She argues that
boards are often poor at dealing with unanticipated
events such as the sudden resignation of the chief
Some of the most pressing or
sensitive issues in a company, she says, are sometimes
better addressed initially in pre-meeting get-togethers
or at informal dinners the evening before the
She also thinks that one value
of non-executives working in different organisations
is the ability to “fish in different pools”.
She says: “If we are at a stage in our development
where we are trying to reach out to new pools
of talent, which I think we all are, you are probably
not going to get this from many of the headhunters.
They fish in traditional pools. So I see a big
part of my job in introducing new pools of talent.”
Broadening these talent pools, she argues, is
going to be an important role of the newer generation
of non-executive directors and chairs.
The alternative is to persist
with what Greg Orme, chief executive of the Centre
for Creative Business, has called “brainless
group-think that leads to bad decisions”.
One interim possibility for big companies unwilling
to recruit independent thinking in to the boardroom
may be to introduce a new kind of board –
the stakeholder board.
I have seen this working at
first hand as a member of McDonald’s Europe
stakeholder group – a group of individuals
in different roles and different European countries
pulled together as an advisory body. The group
doesn’t spend hours pouring over balance
sheets but it does scrutinise various policies
such as the company’s approach to employment,
nutrition, leadership and corporate and social
responsibility. Its job is to challenge the company
in some of the most sensitive areas of its business.
Full board-members on the kind
of fees in FTSE 250 companies that would represent
a year’s salary for many people, may be
less likely to criticise if they felt it imperilled
their well-paid position. Stakeholder group members,
are paid nothing more than a daily consulting
fee in return for some gritty and thoughtful contributions.
Members are not accountable
to shareholders, directors, or governance expectations,
nor are they expected to be pleasant to the chairman
because there is no chairman, only a facilitator.
Denis Hennequin, president of McDonald’s
Europe, has described the meetings as an “echo”
for the kinds of issues that are raised within
the company. Like those from the queen’s
mirror in the story of Snow White, however, the
words are sometimes less than soothing. Companies
should be big enough for that.
*The report, Fifty Under Fifty can be found at: www.non-execs.com/includes/EYreport.asp