George Pitcher: Non-execs’ saving grace is that you can fire them

Everybody has something to say about non-executive directors – much of it less than complimentary. Not all the critics are disinterested, though. By George Pitcher

Lonrho’s Tiny Rowland once memorably called them “the decorations on the Christmas tree”. Garry Weston, chairman of Associated British Foods and Fortnum & Mason, who died earlier this year, was once much ruder about them to me at a dinner at the Savoy – he suggested they should be hung from something other than Christmas trees.

Non-executive directors have never enjoyed much of a press, despite – or perhaps because of – the degree of concern and reverence with which they have been treated by corporate-governance committees with such illustrious names as Cadbury and Greenbury.

The most appropriate gag to have done the rounds, in my view, is the one that asks the difference between a non-exec and an airport trolley. The punchline? The trolley has a mind of its own – and you can fit more duty-free booze in the non-exec.

Last week, a former merchant banker called Derek Higgs was asked by Secretary of State for Trade and Industry Patricia Hewitt to advise the Government on how to improve the quality of non-execs. The appointment throws up a number of very interesting questions.

The first of these questions relates to Higgs’ credentials. His old stamping ground was SG Warburg, a bank not unfamiliar with the privatisation bandwagon of the Eighties.

It would be an interesting study indeed – and one that I have already conducted in part – to establish the degree to which privatised utilities, from energy to telecoms, have furnished lucrative non-executive deals to those politicians that assisted in the legislative process that privatised them.

I don’t suggest that Higgs ever played a role as signalman to that gravy train. I once drew attention to the fact that a senior director of a privatised concern also sat on the board of the merchant bank that was floating it and was sued for my observation.

So one should be careful. It’s as well to point out, for instance, that Higgs’ career has not been confined to merchant banking. He has also distinguished himself at the helms of British Land and the Prudential Corporation. The man is no slouch, and should know a thing or two about what makes a good non-exec.

By implication, therefore, he should also know more than a little about the characteristics of a poor non-exec. Anyone who has ever run a company will know the most obvious warning signals.

There is the “industry expert”, flogging his network of contacts. Or there is the allegedly wise old owl, who has just “decided” to leave politics and is looking for a limited number of non-exec directorships to which to bring his insight and – of course – his contacts.

They will talk long and hard about how the company to whose board they aspire cannot prosper without them – and how a five-figure salary is a mere bagatelle compared with the value they will deliver. They should be shown the boardroom door – by way of exit, I hasten to add.

That’s one piece of qualitative advice I can offer Hewitt and it may come a bit cheaper, not to mention more simply phrased, than anything Higgs produces. This view of non-execs is shared not only with the likes of the now-departed Rowland and Weston, but also with one of Hewitt’s predecessors, the inestimable Lord Young.

Young is outgoing president of the Institute of Directors, a rather self-important organisation based in Pall Mall. Among other things, it offers conference facilities to non-execs with day jobs in the House of Commons.

In a speech last week, Young condemned the role of non-execs, stating that they could never know a business sufficiently well to be of valuable service to it. In part, he said: “Let us go back to where we once were. Let all the directors of a listed company work in the business.”

This is, in its way, sound advice and Young – favoured by Margaret Thatcher because he brought her “solutions, not problems” – immodestly claims that, if it is adopted, Higgs’ work could be done “by Whitsun”.

But Yung overlooks one important factor. Non-execs are accountable to shareholders, who can vote them into or out of office. Young is not used to being so accountable. At least, not to voters.

Young was appointed to the House of Lords during the Thatcher years, so that he could serve as trade and industry secretary in her Government. The consequence was a democratic absurdity – trade and industry questions were answered at the Despatch Box by a person unelected to the House of Commons.

Young told us in the same speech that he has only been a non-exec once, and that he didn’t like it. Perhaps it’s precisely the accountability that he doesn’t like. There may be some third-rate non-execs around but, unlike members of Government who owe their positions to patronage rather than plebiscite, they are directly accountable to stakeholders.

In an imperfect commercial world, that accountability is probably a more effective form of regulation and quality control than anything that might be offered by the unelected – and possibly unelectable – Young.

George Pitcher is a partner at communications management consultancy Luther Pendragon


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