Like it or not, shareholders will always rule the corporate roost

The Hampel committee’s report rejects politically correct posturing and puts the shareholder above the stakeholder. By George Pitcher. George Pitcher is chief executive of issue management consultancy Luther Pendragon.

Tiny Rowland had a way with words, as anyone who crossed him discovered. In the wake of an attempted coup at Lonrho by what were known as the “straight eight” fellow directors, Rowland called non-executive directors “the decorations on the Christmas tree”. Sir Garry Weston, chairman of Associated British Foods, agreed, and there are many others in British industry who believe that the running of companies is an executive function and that non-executive is another term for non-entity.

These people are a long way from a meeting of minds with the corporate governance “Bury” committees – Cadbury and Greenbury. The former was chaired by Sir Adrian Cadbury, the choccy baron, and the latter by Sir Rick Greenbury, chairman of Marks & Spencer. Cadbury was probably most famous for ruling that the roles of chairman and chief executive should be carried out by different people and that non-execs were a good thing. Greenbury will be remembered for recommending that share-option schemes be restricted, thereby leading to a knee-jerk reaction by the Treasury that meant supermarket check-out assistants lost their meagre tax relief on paltry share schemes. And for the M&S apron that he produced at a parliamentary select committee hearing with the legend “if you can’t stand the heat, get out of the kitchen.” How we laughed.

The point of these exercises on board structures and executive pay was largely to persuade politicians that efforts were being made to curb corporate excesses and to make businesses more “accountable”. Accountability has turned out to be a catchword of the Nineties. Accountants are no longer enough to make businesses accountable – there has to be a raft of tick-box responses in place to ensure that a “code of conduct” is being observed.

And now we have the Hampel committee’s report, presented by Sir Ronnie Hampel, chairman of ICI, and supported by such luminaries as Sir Clive Thompson of Rentokil, Christopher Haskins of Northern Foods and the ubiquitous Lord Simon, who knows a thing or two about corporate governance. Out go the tick-lists of Cadbury and Greenbury in favour of broad principles of corporate governance. Hampel’s report is startling in its blandness – so some of its main recommendations are worth recording.

For starters, institutional investors – such as major pension funds – are to be encouraged to draw up a considered policy on how they should use their votes at company annual general meetings. Don’t they do that already? Are Hampel and his colleagues telling us that the likes of the man from the Pru and the Merchant Navy Officers Pension Fund managers simply toss a coin when it comes to voting at AGMs? Or that they don’t have a policy as shareholders other than always to back incumbent managers? The last of these probably does have some currency, but the recommendation seems nonetheless limp.

Smaller companies should not enjoy a lighter code of corporate governance, says Hampel. Fair enough. But where is the evidence that smaller companies exploit a supposed leniency from regulators? If anything, I would say that smaller companies are more observant of corporate governance requirements – they are less arrogant, have more to lose and like, in any event, to be perceived as proper, grown-up companies with rules to observe.

Companies, we are told, should continue to check that they have a proper system of internal controls to stop fraud. This falls into the “well, knock me down with a feather” category. So, companies should try not to be ripped off by fraudsters. Companies should also, presumably, seek to ensure that staff are not machine-gunned at their desks.

Cadbury’s recommendation that companies should confirm in the annual report that their anti-fraud techniques are effective is even to be modified or dropped. One would hardly have thought that this requirement was unduly onerous in the first place.

And so it goes on. A two-tier board structure for companies, similar to the German model, is rejected. Companies should keep an eye on whether their external advisers have potential conflicts of interest. The debate on how to show the real value of pensions in company accounts is to be avoided. Companies should seek to demonstrate in their annual reports how they have followed Hampel’s principles.

Now, it would be easy, not to say tempting, to conclude that this is a flabby exercise in self-serving obfuscation and complacency. That Hampel and his colleagues have served the interests of shareholders over customers and other stakeholders and that, in short, it’s a whitewash job.

But I do think Hampel and his colleagues have done us a service. What this committee has done is approach the business of corporate governance with honesty. The principal message of Hampel is loud and clear: companies are, first and foremost, accountable to their shareholders. To pretend otherwise is to fly in the face of capitalism.

It may be fashionable politically to pretend otherwise – much of the Government’s current philosophy is based on the principles of a stakeholder society. But Hampel shows that the shareholder is pre-eminent. We may not like that, but it is true. And it may be that the perceived blandness of Hampel is, in reality, bluntness and that the previous efforts of Cadbury and Greenbury will be seen as a result as so much politically-correct posturing.

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