Higgs has distracted boards from real problems of mismanagement


The post-Higgs focus by boardrooms on governance and checks and controls to prevent scandals and abuses of power is diverting British executives from the bigger problem of strategic and people mismanagement, a new report has argued.

The study by the Corporate Research Forum and the Performance and Reward Centre has found, in the wake of scandals such as Enron and WorldCom, chairmen and other board members have come under greater pressure to devote time to investor relations and meeting regulatory requirements.

But far greater losses arise through strategic and people mismanagement, it has warned.

The diversion of the board from developing a strategic, involved role in the business actually heightens the risk of corporate failure, it added.

The study of 40 senior business people from some of Europe's most successful companies found a belief that successful boards and organisations needed to be multidimensional.

For board members, it was not just about understanding the business and the bottom line but about using "soft skills" and working as a team, the research argued.

Chairs and board members had to recognise the need for stronger inter-personal skills, better succession planning and more thorough selection processes.

Report co-author Dr John Roberts, reader in organisational analysis at the Judge Business School University of Cambridge, argued: "The policing version of the NED role, under some circumstances, can weaken rather than strengthen the board's capacity to create high performance.

"The danger here is that the board becomes distracted from focusing on strategy, divisions are created between executive and non-executive directors, and the board become divorced from the business," he added.

Boards will often split into one of two categories: "investor-driven" and "strategy-led".

The former was highly reactive to often conflicting shareholder pressures and cast non-executive directors in a policing role.

The latter operated as a unified team, was knowledgeable of the business and deployed all its talents to develop the business, it added.

Generating high performance was best done under a strategy-led board. Compliance, while necessary, was seldom sufficient to generate sustainable value, it concluded.

Part of the reason why boards struggled to create high performance was that they were caught up with responding to relentless demands from investors.

This forced boards into a narrow compliance role, whereas high performance tended to come from a broader, strategy-led approach.