Government machine is stuck on the spin cycle

Is the Government being honest about why it appointed former Pru chief Derek Higgs to look into the role of non-executive directors? George Pitcher thinks not

There’s an old joke that goes what’s the difference between a non-executive director and a drinks trolley. Answer: The trolley has a mind of its own and the non-exec can hold more drink. In fairness, the roles of non-execs have been tightened in recent years, but the issue is still very much alive.

The Government let it be known at the weekend that it has no intention of limiting the number of non-executive directorships that an individual can hold. At first glance, this would seem to pull a thick-pile rug from under the feet of Derek Higgs, the investment banker whose committee was set up in the wake of the Enron collapse and its associated scandals and has yet to report its review on the role and responsibilities of non-execs.

You might have thought that limiting the number of directorships would serve to concentrate non-executive minds, rather than allowing them to book any number of first-class tickets on the gravy train. But the Government’s line looks sensible, compared with the almost hysterical calls for tighter regulation in the US. President George W Bush’s administration is after nothing short of a change of regime in America’s corporate culture and deploys similar language against its corporations as it does against Iraq.

A blanket rule on non-executive numbers in the UK (as in the US) would take no account of the relative size of companies, the special demands of some corporate responsibilities over others or whether directors had other full-time jobs.

But the main interest in the UK Government’s position is not whether it is taking the right decisions in relation to British business, but its relationship with its appointed review chairman, the distinguished and wise Higgs.

I don’t suppose Higgs is too concerned that the Government briefed early on its position on non-executive portfolios. I suspect he was consulted anyway. And Higgs is a sufficiently substantial City figure to have a great deal more to say on these issues when his report eventually appears.

Where I think Patricia Hewitt’s Department of Trade & Industry is pulling a fast one is in portraying Higgs as a City insider, as distinct from a judge, a politician or a regulator. The Financial Times characterised him as “happy with conventions that suit companies’ – rather than investors’ – convenience”, distinct from a “Great and Good individual uncontaminated by business experience”.

I’m not sure what this can mean. The Government, through the FT, can’t surely be suggesting that a former director of the Prudential Corporation is more concerned with the interests of incumbent managements than those of investors? One would have thought that the mighty Pru, Britain’s largest institutional shareholder when Higgs was a director, would have instilled in him an immutable instinct to place shareholders’ interests over those of incumbent managements.

Maybe it’s his investment banking background to which these remarks allude. As a director of Baring Brothers and SG Warburg, Higgs would have a keen banker’s interest in being a service supplier of choice to top managements. In this capacity, incidentally, he may well have advised on the appointment of the odd non-exec.

But Higgs is far too much his own man to have become an “insider” in this process. At the Pru, he would have known that the purpose of non-execs was to represent the best interest of shareholders. To present him now as some sort of daring appointment because he’s a company man is absurd.

So what is Hewitt’s DTI up to? I think the Government has indulged in a piece of good old-fashioned spin. It wants to regulate in the best interests of investors, but is terrified of an adverse reaction from its new friends in business that it has so assiduously cultivated in its transition from Old to New Labour.

Hewitt’s communications machine consequently portrays Higgs as a business insider, as though this is a new departure in corporate governance appointments. A moment’s examination shows that this suggestion is ridiculous. The Nineties were shot through with such appointments, all of which had a bearing on the status of non-execs.

In 1992, we had the Cadbury Report, led by Sir Adrian Cadbury, who in addition to his chairmanship of Cadbury-Schweppes has been a director of the NEC Group, the Bank of England, IBM and Metal Box. In 1995, Sir Richard Greenbury, then chairman and chief executive of Marks & Spencer, reported on directors’ remuneration – he was also variously a director of British Gas, Metal Box, ICI and Zeneca.

Then, in 1998, Sir Ronnie Hampel chaired a corporate governance committee – he had been chairman of ICI and a director of Powell Duffryn, Commercial Union and British Aerospace. (Funny, incidentally, how the same company names keep cropping up, isn’t it?).

These were company insiders to a man. There’s nothing wrong with that. Higgs is a shareholders’ man. There’s nothing wrong with that either. But it means that the Government wants to regulate in favour of investors and, if necessary, to the cost of those who run businesses. Again, there is nothing wrong with that. I just wish that, for once, it would have the nerve to say what it is really doing, rather than what it wants us to think it is doing.

George Pitcher is a partner at communications management consultancy Luther Pendragon


    Leave a comment