Plugging the NED information gap

Oct 22 2004 by Nic Paton Print This Article

Non-executive directors should have in-house support to give them access to unbiased information when it comes to scrutinising the plans of executive board colleagues.

Head-hunter Odgers Ray & Berndtson is suggesting that more organisations need to follow the example of bodies such as the Bank of England and BP, which provide support for independent members, when looking at ways of improving the policing function of non-executives.

An article in yesterdayís Financial Times newspaper has illustrated the difficulty non-execs face in getting to the bottom of what their organisations are up to.

It points to the example of supermarket chain Sainsburyís where former chief executive Sir Peter Davis last spring received a large bonus, agreed by the non-exec remuneration committee, for meeting various goals, among them overhauling the supply chain.

Yet this week, the chain revealed the £3 billion supply chain initiative had been a failure and availability on the shelves was worse than before it started.

Will Dawkins, a partner in the board practice of Odgers Ray & Berndtson, argued what was needed was for non-execs to have access to a dedicated, independent secretariat or, in smaller firms, at least some sort of adviser.

The company has submitted the idea to the review of mutual life governance being conducted by Paul Myners, which is due to report at the end of the year.

Just this kind of secretariat has been in place for some time at BP and the Bank of Englandís Monetary Policy Committee has access to a team of researchers devoted to its activities.

"The dilemma for non-executives is that they will probably only be spending 18 to 20 days a year working on the organisation and they are required to come from a non-conflicting business," he told Management Issues.

"The information they will be getting will be coming from the executive. It is not that the executive is being dishonest, it is just that it naturally wants to show itself in the best possible light.

"The non-executives will not necessarily have the nose or the instinct to spot if things are not going the way they should be. Yet everyone thinks they should be able to pick up these nuances," he argued.

The difficulty, of course, will be in setting up a structure that is not seen as threatening by the executive and ensuring any secretariat can get full access to the information it needs.

"The aim should not be to challenge the executives all the time, but non-executives should be challenging them some of the time. It is about enabling the non-executive directors to put better informed and more perceptive questions to board members," said Dawkins.