Chairmen oppose Higgs proposals


Derek Higgs' proposals for an enhanced role for the Senior Independent Director would undermine the role of company chairmen and their ability to run an effective unified Board, according to a CBI poll of FTSE 100 Chairmen published on 10 March.

Director-General Digby Jones said the findings backed anecdotal member comment and other evidence from across the business community.

The Higgs report calls for an increased role for non-executive directors and proposed that non-executives should regularly meet shareholders and report back to their colleagues.

Over sixty chairmen completed the formal survey while many others sent letters expressing their concerns. Eighty-two percent agreed or strongly agreed that their role as chairman would be undermined if the extra powers for a senior non-executive director proposed by Higgs were enforced.

Chairmen were also unconvinced that the recommendation for an independent non-executive to chair the Nominations Committee would strengthen corporate governance. Eighty-seven percent disagreed or strongly disagreed with this proposal.

Commenting on these findings Digby Jones said: "Business backs the broad approach proposed by the Higgs Report but chairmen have got to be allowed to run an effective unified Board. My greatest fear is that the law of unintended consequences might stifle the creativity and drive that characterises so much of what is good about UK business.

"The Senior Independent Director should not open up a separate and potentially divisive channel of communication with shareholders or have responsibility for reporting back to the other non-executives on an exclusive basis.

"Primary Board responsibility for communication with shareholders must rest with the Chairman. Only in exceptional circumstances, when normal channels of communication have broken down, should the Senior Independent be available privately for shareholders to voice concerns. This is how the governance of modern major companies already operates.

"Disallowing the chairman from Chairmanship of the Nominations Committee is also seen as running counter to the drive to maintain a strong and unified Board. This ban should not apply. Attempts by chairmen to recruit other than on the basis of merit, ability and independence should be resisted and seen to be resisted by the rest of the Board. Business clearly has to prove that the days of mutual back-scratching have ended."

Views were more evenly spread on the other two issues put to company chairmen: would the proposal for non-executive directors to meet once a year in the absence of the chairmen be useful for good corporate governance; and would disallowing a Chief Executive Officer to become chairman of the same company lead to better Board performance.

Fifty-six percent disagreed or strongly disagreed that the meeting proposal would be good for corporate governance while fifty percent disagreed or strongly disagreed that disallowing CEOs to become chairman would lead to better Board performance.

According to Digby Jones, "views in these areas are less polarised. However, the main danger is that the whole code is too prescriptive. The wording needs to be more flexible to guard against regulatory creep in the area of 'comply or explain'. Derek Higgs' good intentions could become institutionalised over a period of time so the only imprint left on the mind of the over zealous regulator or fund manager is 'comply'.

"My greatest fear", Digby Jones added "is that the law of unintended consequences might stifle the creativity and drive that characterises so much of what is good about UK business."