NEDs threaten extra regulation burden

Link: Death of NEDs exaggerated

Responses to the government sponsored inquiry, into the roles and responsibilities of non-executive directors and known as the Higgs review, suggest reform is necessary but must avoid the pitfall of clumsy, ill-conceived legislation.

With the deadline for submissions passing last Friday the DTI has promised publication of its report by the end of the year. The UK’s leading business organisations have agreed that knee-jerk reaction on the part of a nervous government would undoubtedly harm UK plc. Instead each body produced a range of suggested measures, mostly calling for greater clarity of roles, responsibilities and duties to shareholders.

The Institute of Directors believes there is room to improve the position of NEDs. IoD director general George Cox said: ‘The main concern should be for better run boards and better managed companies. It is not the occasional catastrophic failure that affects pensions, savings and jobs, it’s the vast number of organisations that fail to fulfil their potential.’

The results of an institute survey revealed the main obstacle to effectiveness was a lack of sufficient time to do the job properly. Too many NEDs take on their roles without recognising just how much time, energy and attention is required.

But Cox does not believe in further regulation. ‘This is not because of our general antipathy towards red tape, but because we believe regulation fails to get to grips with the real issue. The issue is one of spreading best practice and improving the recruitment, selection, preparation, support and performance of non-executives,’ he said.

In April, Lord Young, former trade secretary under Margaret Thatcher and outgoing president of the IoD, questioned the work of NEDs and proposed Higgs recommend making all board members full directors – a move, he said, that would leave the business world ‘in a healthier state’.

Meanwhile, ACCA warned of boardroom splits if the government were to go ahead with ‘knee-jerk’ legislation. David Bishop, chairman of ACCA’s working group on corporate governance, said: ‘There is a danger business could be stifled by over-regulation of the roles of NEDs.’

But there were some suggestions for improving the current situation.

The CBI suggested widening the ‘gene pool’ of non-executive directors by encouraging senior managers to accept boardroom appointments in smaller companies.

Investors group PIRC suggests non-executives’ influence could be strengthened by providing them with a new legal definition, reflecting their differing roles and responsibilities. They could also benefit from separate secretariats and training, together with disclosure of training undertaken.