Chairmen give governance reforms the thumbs-down


UK company chairmen are the most negative in Europe about stricter corporate governance, slamming tougher regulation for doing little to improve company performance and – as far as the U.S. is concerned - proving a massive disincentive to seeking a U.S. listing.

While UK chairmen are the most vehement in their condemnation of the regulatory climate, almost two thirds of chairmen from 145 large European companies interviewed by Russell Reynolds Associates, the executive search firm, agreed that tougher governance was doing nothing for business performance.

Moreover, to add to concerns about the regulatory impact of the possible acquisition of European stock exchanges by NYSE and NASDAQ, almost six out of 10 chairmen of companies listed on a US stock exchange said they would consider de-listing because of the regulation, and seven out of 10 without a US listing say Sarbanes-Oxley would dissuade them from seeking a US listing.

Nine out of 10 UK chairman and all those from the Netherlands said they would be opposed to listing in the U.S.

Nine out of 10 UK chairman said they would be opposed to listing in the US
In contrast, attitudes elsewhere in Europe are more phlegmatic. Sarbanes-Oxley would be a deal-breaker for only one in five Germany companies, one in three of those in Spain and a third of those in France.

As one French chairman put it: "If the business would benefit [from a US listing], then we would simply have to meet the regulations."

The research, "Governance for good or ill - Europe's chairmen report", also shows that UK chairmen have markedly different views to the rest of Europe on many other issues.

"Europe's chairmen generally agree that tighter corporate governance is a good safety measure to protect shareholders' interests, but they are clear that it has not led to an improvement in company performance," said Luke Meynell, a Managing Director at Russell Reynolds Associates in London,

"Obviously, there are differences of opinion between countries, but it's worth noting that, despite the UK's Combined Code being almost universally adopted, UK chairmen are more negative about some of its provisions than any other country is about its revised governance measures."

Possibly this reflects the long tradition in the UK of light regulation compared with a more centralised approach in Continental Europe," he added.

One particular criticism heard by chairmen in the UK is that the UK's Combined Code is diverting their attention from strategy.

As one chairman said: "[What] does concern me is time taken on governance, rather than on strategy."

UK chairmen are also more strongly opposed to limiting the number of chairmanships held, and the least enthusiastic for increasing the number of independent board members.

Furthermore, almost three-quarters of UK chairmen believe that equity/share-based remuneration is appropriate and they are the most in favour of equity-based remuneration for independent directors.

Overall, nearly half of the chairmen interviewed think that limiting the number of chairmanships held is a good idea. A similar proportion also see value in restricting CEOs becoming chairmen of the same company, although fewer than three out of 10 French chairmen agree with this view.

In contrast, a much greater consensus emerges amongst European chairmen that greater levels of board evaluation are important, with nearly two thirds of those spoken to supporting it. Few, however, see the value of this being done with external involvement.

Chairmen also agree that their key role is board member selection, although there are different opinions about management priorities. UK chairmen say leadership is crucial, whereas those in the Netherlands and Germany believe their position should be more about facilitating debate and consensus.

"European chairmen remain cautious about the burdens of increased corporate governance" said Harm van Esch, a Managing Director at Russell Reynolds Associates in Amsterdam.

"But while our research shows that they are attracted by the potentially better financial rewards of unquoted companies, there will not be an exodus of chairmen to unlisted organisations.

Nearly all chairmen we spoke to said they enjoy their job, and nearly 90 per cent said they would like to chair a public company again," he pointed out.