Head-in-the-sand boardrooms 'face oblivion in five years' time'

Jan 20 2006 by Nic Paton Print This Article

British companies that fail to deal aggressively with growth and globalisation will not exist in five years' time, according to a stark warning from some of their future leaders.

The report from Ernst & Young sounded out young (all under the age of 50) FTSE 350 non-executive directors.

It found potential chairs of tomorrow were pessimistic about the UK's readiness to engage with an increasingly global economy and investor base that had different sets of demands.

As one respondent put it: "In five years the centre of gravity where wealth is created will be shifting towards China, India and Russia. My board has its head in the sand on this subject."

As the investor community and growth opportunities become more international there is an increasing need for boards to become less UK-centric in culture and outlook.

The ownership of UK plc is likely to change substantially in the next five years as emerging markets look outward for cash-rich, well run companies, Ernst & Young suggested.

Gerald Russell, the company London senior partner, said: "Future chairs will need to become more adept at dealing with shareholders from new markets and different cultures.

"This role will require a greater understanding of where investors are coming from and their expectations.

"Current takeover activity is clear evidence that investors, particularly in Europe, are increasingly looking to the UK drawn by the relative attractiveness of the economy," he added.

The composition of boards was a serious concern for the FTSE 350 NEDs polled, particularly the need for a proportion of non-British people required to guide companies through an increasingly international corporate landscape.

"As the pool of relevant, up-to-date NEDs is being refreshed, the drive to find a more diverse pool of candidates for NED roles will inevitably go beyond the UK," said Russell.

However, the problem doesn't just lie in widening the net for prospective NEDs. Boards also have a responsibility to nurture their best talent, warned Ernst & Young.

"Our interviewees have told us that companies are all too quick to go externally to fill vacancies, particularly in a crisis," said Russell.

"The reality is that it is the responsibility of the chair to build sustainable succession structures that identify the top performers at all levels, develop mechanisms to retain and motivate them, and ensure that the internal process is better than competitors.

"This, coupled with an innovative and inspiring remuneration policy, will help Chairs to ensure they develop the leaders of the future," he added.

A recurrent theme from the poll was that boards needed to work on their priorities.

Chairs of the future needed to be willing to shift the board agenda to being forward looking and resisting the push from the City to focus on the short-term.

Russell concluded: "The difficult balance of managing performance and risk, with investor demanding returns today, can tie a chair's hands.

"It is clear that those interviewed will only choose to be chairs of the future if allowed to encourage a balance and add value."