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In the wake of recent corporate fiascos, it’s only seconds before negative attention is turned to Board members to see how they could have managed their businesses better.
One of the issues seems to be a tendency to reward well deserving colleagues and acquaintances with a Board position without understanding whether they are actually the right people for the job. A while ago, the government tried to encourage a shake-up of boardrooms – The Higgs Review advised there needed to be greater representation of all aspects of commercial life in the boardrooms and to draw on a much bigger talent pool. The impression is that fundamental change to board make-up (e.g. more women, more ethnic minorities etc) is not happening.
The Financial Reporting Council (FRC) has recently undertaken a review of corporate standards for listed companies and produced four clear recommendations for board members:
To increase accountability, all directors of FTSE 350 companies should be put forward for re-election every year.
To promote proper debate in the boardroom, there are new principles for the leadership of the chairman, the responsibility of the non-executive directors to provide constructive challenge, and the time commitment expected of all directors.
To encourage boards to be well balanced and avoid groupthink, there are new principles for the composition and selection of the board, including the need to appoint members on merit, against objective criteria, and with due regard for the benefits of diversity, including gender diversity.
To help enhance the board’s performance and awareness of its strengths and weaknesses, the chairman should hold regular development reviews with each director and FTSE 350 companies should have externally facilitated board effectiveness reviews at least every three years.
What do you think? These guidelines seem eminently sensible, but do you think they will help? Or do we need more stringent performance metrics, such as external auditing, to prevent further corporate disasters? And equally, what effect (if any) do you think these standards will have on the demand for C-level interim resource in the future? Your thoughts would, as ever, be welcomed.
Liz Sinclair is an Account Director at Interim Partners.
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September 16th, 2011 at 6:27 am
They work in the introduction of the Board of Directors at the recommendations without reference to practical experiences and curious that the damage in the markets for commodity products or minerals even oil made the lack of expertise in addressing the problems they cause harm many markets and negative speculation on the market without the benefit of diversification arouses in other projects with fixed profit dividend.
Because agricultural commodity portfolio should folow from agriculture and transport logistics stages, subsidiarity and shipping, pricing and market listing without compromising the commodity speculation in the market to provide the product to the consumer
September 16th, 2011 at 6:47 am
What is needed is Capable, Credible, Competent members with responsibility and accountability.
The guidelines sound practical and if adopted and subsequently, under mandatory reporting, the progress and adherence reporting in half year and year end accounts as a prominent feature, this would help improve corporate accountability and governance.
It is impossible to develop a system that will prevent future corporate disasters, there are too many influencing factors. At best the board needs to have an adaptive and flexible direction of travel which constantly monitors and deals with emergence, that is the answer.
“Certainty” is dead, at best we can acknowledge and deal with uncertainty through communities of influence and the complexity sciences.
Metrics, KPI etc are simply indicators, easy to manipulate (let’s consider Enron et al )
It is behaviour that is the issue and it is this that needs to be evaluated.
September 16th, 2011 at 7:15 am
The big issue is on focusing on the right person for the job and not trying to fill quotas e.g number of women, ethnic minorities etc.
Also re-election every year is in my view impractical an expensive and encourages a short term view, as no one will be able to implement a long term strategy for the benefit of the company if they are only in post for 12 months.
September 16th, 2011 at 7:45 am
Liz Sinclair is quite right. The problem is that the sorts of things she flags as being wrong with the way the system works have gone on in the past and will continue into the future. It is all self perpetuating.
The 2006 Companies Act (section 172 onwards) requires all
directors (including NEDs) to take account a range of what can be described as stakeholder considerations. These extend well beyond the ‘here and now’ and beyond immediate financial exgencies and reporting time frames. How far do chairman take these factors into account when appointing NEDs? How far do NEDs have the skills to be able to effectively address these concerns? The pervasive “spirit” of the Higgs report is pretty well entirely ignored. Having spoken to NED headhunters in the past about these matters I can say the response reflects a knowing recognition that these realities are better left unchallenged: let sleeping dogs lie! He who pays the piper calls the tune. And so we lumber on.
September 16th, 2011 at 8:18 am
I totally agree with the recommendations, but I am bit unsure about the ethnic minorities, etc…representation at Board level should be purely based on professionalism, the core capabilities required in a given business to compete in its the industry – then select those individuals that add value in these areas..
Not sure if this is possible to do, but raising the awareness in the right places, might start the education process and change the way some CEOs see the world.
In all – thumbs up from me.
September 16th, 2011 at 8:37 am
There needs to be an enforced culture change at the top, which appears not to be on anyone’s agenda that is in power. The work done by Prof Roger Steare, CASS Business School on ethics and values and in particularly the Moral DNA profile , clearly demonstrates (over 50,000 participants across 120 countries) that women have a significant higher moral profile. Oh dear it is going to take another 70 yrs to get gender parity on Boards, never mine diversity in all it’s forms including diverse thinking.