UK companies need more effective boards of directors A. пустоMany external bodies being held responsible for problems After a number of serious failures of governance
(that is, how they are managed at the highest level), companies in Britain, as
well as elsewhere, should consider radical changes to their directors’ roles.
It is clear that the role of a board director today is not an easy one.
Following the 2008 financial meltdown, which resulted in a deeper and more
prolonged period of economic downturn than anyone expected, the search for
explanations in the many post-mortems of the crisis has meant blame has been
spread far and wide. Governments, regulators, central banks and auditors have
all been in the frame. The role of bank directors and management and their
widely publicised failures have been extensively picked over and examined in
reports, inquiries and commentaries.
B. пустоThe possible need for fundamental change in every area of business The knock-on point of this scrutiny has been to
make the governance of companies in general an issue of intense public debate
and has significantly increased the pressures on, and the responsibilities of,
directors. At the simplest and most practical level, the time involved in
fulfilling the demands of a board directorship has increased significantly,
calling into question the effectiveness of the classic model of corporate
governance by part-time, independent non-executive directors. Where once a
board schedule may have consisted of between eight and ten meetings a year, in
many companies the number of events requiring board input and decisions has
dramatically risen. Furthermore, the amount of reading and preparation required
for each meeting is increasing. Agendas can become overloaded and this can mean
the time for constructive debate must necessarily be restricted in favour of
getting through the business.
C. пустоThe impact on companies of being subjected to close examination Often, board business is devolved to committees
in order to cope with the workload, which may be more efficient but can mean
that the board as a whole is less involved in fully addressing some of the most
important issues. It is not uncommon for the audit committee meeting to last
longer than the main board meeting itself. The process may take the place of discussion
and be at the expense of real collaboration, so that boxes are ticked rather
than issues tackled.
D. пустоA proposal to change the way the board operates A radical solution, which may work for some
very large companies whose businesses are extensive and complex, is the
professional board, whose members would work up to three or four days a week,
supported by their own dedicated staff and advisers. There are obvious risks to
this and it would be important to establish clear guidelines for such a board
to ensure that it did not step on the toes of management by becoming too
engaged in the day-to-day running of the company. Problems of recruitment,
remuneration and independence could also arise and this structure would not be
appropriate for all companies. However, more professional and better-informed boards
would have been particularly appropriate for banks where the executives had
access to information that part-time non-executive directors lacked, leaving
the latter unable to comprehend or anticipate the 2008 crash.
E. пустоThe falling number of board members with broad enough experience One of the main criticisms of boards and their
directors is that they do not focus sufficiently on longer-term matters of
strategy, sustainability and governance, but instead concentrate too much on
short-term financial metrics. Regulatory requirements and the structure of the
market encourage this behaviour. The tyranny of quarterly reporting can distort
board decision-making, as directors have to ‘make the numbers’ every four
months to meet the insatiable appetite of the market for more data. This serves
to encourage the trading methodology of a certain kind of investor who moves in
and out of a stock without engaging in constructive dialogue with the company
about strategy or performance, and is simply seeking a short¬ term financial
gain. This effect has been made worse by the changing profile of investors due
to the globalisation of capital and the increasing use of automated trading
systems. Corporate culture adapts and management teams are largely incentivised
to meet financial goals.
F. пустоA risk that not all directors take part in solving major problems Compensation for chief executives has become a
combat zone where pitched battles between investors, management and board
members are fought, often behind closed doors but increasingly frequently in
the full glare of press attention. Many would argue that this is in the
interest of transparency and good governance as shareholders use their muscle
in the area of pay to pressure boards to remove underperforming chief
executives. Their powers to vote down executive remuneration policies increased
when binding votes came into force. The chair of the remuneration committee can
be an exposed and lonely role, as Alison Carnwath, chair of Barclays Bank’s
remuneration committee, found when she had to resign, having been roundly
criticised for trying to defend the enormous bonus to be paid to the chief
executive; the irony being that she was widely understood to have spoken out
against it in the privacy of the committee.
G. пустоBoards not looking far enough ahead The financial crisis stimulated a debate about
the role and purpose of the company and a heightened awareness of corporate
ethics. Trust in the corporation has been eroded and academics such as Michael
Sandel, in his thoughtful and bestselling book What Money Can’t Buy, are
questioning the morality of capitalism and the market economy. Boards of
companies in all sectors will need to widen their perspective to encompass
these issues and this may involve a realignment of corporate goals. We live in
challenging times.