Behind the doors of the nations’ boardrooms there is plenty of old-fashioned conservatism to get in the way of change.
John Collier, the former general secretary of ICAEW and now a consultant in executive financial recruitment, says: ‘The typical non-executive director of a listed company tends to be middle class, male and probably older rather than on the younger side. There is still a reluctance to bring in people who are not the most obvious of candidates. People are chosen who have already worked as a non-executive on the boards of listed companies.’
The ICAEW has launched an online database to match chartered accountants to the requirements of board positions. But the task of matching accountants to potential board appointments isn’t straightforward.
‘Its not just a question of being a good chartered accountant. It’s also about having relevant experience to fit the requirements of a particular industry,’ says Collier.
The ICAEW believes those who have sat on ‘senior management committees’ within large companies can be successful non-executive directors. This is the so-called ‘marzipan’ layer that has been overlooked in the past.
Brian Bannister, communications director at ICAEW, says: ‘We don’t subscribe to the view that you need to have sat on a board to sit on a board.’
It raises the prospect that more divisional directors of large plcs could be taking up non-executive director roles on the boards of smaller companies.
While the ICAEW believes the combined code will see thousands more non-executive directors recruited, Collier is less bullish. ‘A lot of people willing to serve haven’t already worked as a board director of a listed company and that is usually a requirement,’ he says.
He argues that the effectiveness of the ICAEW register will ultimately depend on the quality and the quantity of the people signed up.
For Collier, the requirements that potential non-executive directors have both sat on a board and have relevant experience are not negotiable.
‘Having experience of working on the board of a listed company remains important. The other qualities required are experience developing business strategy, and that they have worked in the relevant sector.’
A Big Question survey conducted by Accountancy Age last week found that 60% of those FDs polled believed the combined code on corporate governance lacked regulatory teeth. Currently, if companies are not compliant with the code – which includes tough requirements for NEDS – they have to explain why in the accounts.
Larger companies will almost certainly not want to risk public scrutiny because of non-compliance, but it’s not yet certain how companies lower down the scale will react.
Collier says: ‘There is public pressure to explain for high-profile companies. If they are not compliant, they will have to explain why not, but with mid-cap companies, the vast majority of those don’t have the same profile, and it could take them some time to decide how they are going to respond to the code.’
The government is keen to see the emergence of a much wider pool of highly-qualified and competent industry leaders. The DTI co-launched the new ICAEW register with Jacqui Smith MP, minister of state for industry and the regions, pointing to figures showing half of current non-executive directors have been appointed through personal contacts and friendships.
What’s not certain is whether the combined code has enough teeth to force real change. The government is hoping market forces will take some of the strain.
The recent Carlton/Granada affair has shown that shareholder power can be the ultimate decider for corporate governance. Fidelity’s successful challenge of the merged Granada and Carlton board structure prevented Michael Green from becoming chairman of the merged group.
‘No one wants to see cronies or mates of the chairman appointed,’ adds Collier.
The ICAEW’s new database is meant to cater for the estimated 49,000 members, which it refers to as the ‘marzipan’ layer of senior managers.
The new combined code on corporate governance, which became effective on 1 November, has raised expectations of a rise in the number of non-executive directors appointed to the boards of FTSE350 companies. In theory, thousands more may be appointed to comply with the codes’ requirement that at least half of board members are independent non-executive directors.
While John Collier, the former ICAEW general secretary, accepts there will be some increase in demand for non-executive directors, he points out that unlisted companies are required to appoint just two non-executive directors to the board.
‘If you are a FTSE100 or 200-listed company there is a need to have a fair number of independent non-executive directors, but some of the calculations have come up with exaggerated figures,’ says Collier.
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