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Raising Standards In Board Evaluation (Someone Has To Do It)

Posted on January 19, 2014 at 2:15 AM

Hallelujah. Someone has decided to do something about standards in UK boardroom evaluation, and unsurprisingly (to me anyway) that someone is a woman. 

The financial crisis was five years ago now, and it is still with us like a very bad smell that just will not go away. In the UK, bank boardrooms have been accused of...well, just about everything.

It's a blame game everywhere, and while we have slow adjustments to the corporate governance code by the powers that be to encourage listed businesses to behave in a certain way and keep them in touch with the times, strangely we ignore those active on the lucrative fringes of boardroom business - I mean headhunters and board advisory consultants. 

Helen Pitcher (whom I know well as I have interviewed her extensively over the years for the FT around various roles) has been in boardroom consultancy for a long time. She has just launched a new business, called AB Excellence, of which she is chairman. Today she launches a 'proposed code of practice for independent external board evaluations' which has already had some powerful endorsements from the likes of Sir David Walker, responsible for the Walker Review into bank boards in 2009, and now chairman of Barclays. 

If you look at the proposed code you could be forgiven for wondering why its proposals are not already in place. It suggests board evaluators don't do more than two consecutive assignments with the same company in order to remain independent, that they not 'subcontract' their business, that they act in a professional manner on disclosure, and being privy to sensitive information, and warns about action to prevent the possibility of insider trading....(my emphasis)

It's about time someone took it into their own hands to come up with a code. The Financial Reporting Council (FRC) made clear in its review at the end of last year that board evaluation is an esssential tool of corporate governance and the setting of strategy. Powerful institutional investors - most recently LGIM's director of corporate governance Sacha Sadan - have spoken out on the need for regular board effectiveness reviews to refresh boards and allow for proper succession planning.

In 2011, when Lord Davies of Abersoch did his review  for the government into the under-representation of women on the boards of UK plc, he tried to introduce a 'voluntary code' for headhunters as well. (I could have told him that would be a farce, and it largely was, as I know from close contact with various people in the discussions).

Then, in September last year the UK business secretary Vince Cable, frustrated by attitudes and a seeming lack of progress, announced that Charlotte Sweeney was going to investigate what was going on with headhunters and report by December.

Is my brainpower suffering from waterlogged Kent or is it now late January 2014 ? There is not a peep from the UK's Business, Innovation and Skills Department. But the numbers of women on FTSE 100 boards has risen, according to Boardwatch. So I guess the sense is - that's all right then.

Except my view is it really, really is not good enough. Boardroom headhunters in the UK make a fortune from schmoozing (oops I meant to say networking) within certain circles. That is why so few of them pick up ideal female candidates who may not be part of that existing circle.

Many years ago, I was hired, as a freelance journalist  to write up candidate interviews and reports for top positions in boardrooms in the FTSE 100. I am not even going to tell you what I was paid. And yes, I wrote them up from their notes, and never met the candidate.

Horrifed? You should be. I am with Helen Pitcher - her code makes it clear there is to be no 'subcontracting' and it's high time to evaluate those who do the evaluating in the boardroom. It's a crying shame we have never done the same thing for those who place the men and women in the boardroom in the first place. 

We could see a real basis for progress by shining an important light into board evaluation - how is it done, who does it, what do they charge, what are their relationships with the people who hire them - ie chairmen of FTSE350 companies? While agreements on confidentiality are important, a cry for 'discretion' can too easily become abusive to a productive boardroom process.

ICSA, which was early to flag concerns about standards in board evaluation as far back as 2010, will be taking the public consultation forward. At LGIM, Mr Sadan describes the proposed code as “a significant development in addressing the issue of standardising the calibre of board evaluation." 

It would be good news indeed if Ms Pitcher's initiative - in more ways than one - brings all the interested players in better corporate governance together, opening some of those traditionally closed doors.

Categories: Scrutiny, Accountability, Investors