May
2003 - Boardroom effectiveness
It may be perverse of me to say
this but I can never watch Marlon Brando and Al
Pacino in The Godfather without admiring the way
they run their business.
Brando as Vito Corleone is the
wise old patriarch with a sometimes impetuous
and competitive team of lieutenants who he knows
he must keep on board by winning and maintaining
their loyalty.
Planning for succession is an
issue, since some of the most experienced members
of his team await the opportunity to run their
own clan. Competing families in the New York crime
syndicate probe constantly to lure away these
members of the inner circle. The old Don accepts
that double-dealing is a permanent feature of
business among the syndicate, so there are few
he trusts outside his family.
One of the most interesting characters
in the story is the consigliere, who advises the
don on the legal aspects of his business. The
consigliere is a valued member of the team but
he is dismissed when the family goes to war.
I could not help but be reminded
of these arrangements at the Institute of Directors
last week, listening to the views of Derek Higgs.
Not many corporate figures could attract an audience
of 200 of their peers at the end of a working
day. Not in the UK, anyway, where company bosses
do not command the same kind of attention as they
get in the US. But there was a palpable sense
of curiosity among the directors and would-be
directors who packed the institute's London headquarters
to listen to Mr Higgs.
It was as if they were trying
to get the measure of the man who has done more
to get under the skin of public company boardrooms
than any of his three predecessors in the succession
of UK-based reports on corporate governance.
Here is an individual who has
prepared a report that, among its prime objectives,
he says, is seeking to balance power within the
boardroom "so as to reduce the chances of
any individual or group of people within the board
dominating its activities in its decision-making".
What would Don Corleone have
made of that? I think he would have warmed to
some of Mr Higgs' ideas, such as the senior independent
director - a consigliere if you like, a valued
but independent individual who is not one of the
family.
The Don did not move without
careful consideration of his options. He would
not have been impressed by committee rule. But
neither, apparently, is Mr Higgs. As he pointed
out during the seminar, his report took him between
eight and nine months to complete as an individual
(with the support, he says, of
various friends and advisers), whereas an earlier
corporate governance report, by a committee under
Sir Ronnie Hempel, took 2 1/4 years.
This revelation says much about
the contradictions of the Higgs report. Mr Higgs
himself values autonomy and informal arrangements.
Critics of his report fear that his guidelines
will become formal rules of compliance under the
combined code that sets the standard of corporate
governance among public companies in the UK.
Now it looks as if Mr Higgs will
have to settle for some committee deliberation
after all. Lobbying by company chairmen has succeeded
in persuading Sir Bryan Nicholson, chairman of
the Financial Reporting Council, whose job is
to interpret the recommendations in the combined
code, to delay what looked initially like a rubber-stamping
exercise.
If there is to be some compromise,
Mr Higgs will need to be a little more conciliatory
than he was last week. He used the event, organised
by Harvey Nash, the headhunter , and the Association
of Chief Executives of Voluntary Organisations
(ACEVO), to reinforce his findings that too many
company chairmen were appointed informally.
"You could find a lot of
"c" words like cosy, clubby and casual
and so on. Let's use 'informal' - but I think
we can also use 'unprofessional'," he said.
"It makes sense to try to describe the qualities
of the individual that is being sought for an
appointment to a boardroom rather more carefully
and helpfully than a good chap or lady."
This is music to the ears of
headhunters , who have everything to gain from
the widespread adoption of more formal recruitment
procedures for boardroom positions. RSM Robson
Rhodes, the consultants, has estimated that compliance
with the Higgs recommendations will cost companies
about Pounds 200m. Most of this would be soaked
up by salaries and by the recruitment and training
of directors, it says.
On the other hand, companies
could save money if tougher remuneration committees
were successful in stemming the spiralling pay
awards for top executives. Most commentators seem
to agree that the pay of big company chief executives
has got out of hand.
But few, other than Mr Higgs,
have come up with constructive ideas for restraining
corporate greed. Condemnation of pay awards alone
has not worked.
The reality of boardroom recruitment
is that there is a market for people and the recruiters
and other advisers who work that market have become
accustomed to using pay and various other incentives
as the bait that will secure their target candidates.
The most important outcome of
the Higgs' report is that it promises to expand,
at least for non-executive directors, a market
that has been too narrow in the past.
It is ridiculous to believe that
there are too few suitable candidates for these
jobs. One aim of last week's seminar was to put
the case for greater recruitment of company non-executives
from the not-for-profit sector. The same case
could be put for women, members of the ethnic
minorities and a greater use of internationally
sourced appointments. Boards should expect their
headhunters to be stretched in the way they go
about their searches.
Broadening the candidate search
is important and it is to be hoped that it goes
beyond the "main chancers" who are using
the debate on Higgs to thrust themselves forward
for preferment.
Jostling for position is as common
in business as it is in the underworld. But boards
should look beyond the "joiners" and
the networkers. Strong and sensible independent
advisers are out there. You just have to make
them an offer they can't refuse.
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