COMMENT – The corporate governance saint

Seven years ago, in May 1991, Robert Maxwell floated Mirror GroupRobert Maxwell’s empire would have passed all their tests with flying colours, writes Andrew Sawers. Newspapers on the London stockmarket. That same month, the first committee on corporate governance was established, under the chairmanship of Sir Adrian Cadbury.

But imagine if UK corporate history had been a little different. Imagine, for example, if the Cadbury, Greenbury and Hampel reports had all been published before the flotation of MGN or the collapse of Maxwell Communication Corporation. Imagine, if you will, that Maxwell had to comply with the proposed new stock exchange ‘super-code’.

It seems very likely that Maxwell would have passed the new ‘Hampelbury’ check-list without great difficulty. This may come as a surprise to people who remember the bullying, egotistical publishing magnate.

But looking at the checklists, Maxwell would have passed. For example:

The code expects the roles of chairman and chief executive to be split. In fact, the MGN prospectus and the 1991 MCC annual report make clear that Robert Maxwell intended to step down from both companies.

Peter Walker, the former government minister, was intended to be the new chairman of MCC, with Kevin Maxwell as chief executive. Of course, for a variety of reasons that we now know all too well, Maxwell decided to stick around.

Both Maxwell companies had non-executive directors (three at MCC, four at MGN). Maxwell’s intended departure would have brought the boards’ non-executive proportion in line with Hampel’s guidelines. Ironically, the 1990 annual report for Marks & Spencer (the chief executive being Richard Greenbury) boasts about how all but a few of the company’s directors are M&S people.

Most MCC and MGN directors had one-year service contracts. A few directors had two-year notice periods, but only one had a three-year notice period.

ICI’s 1990 annual report reveals that four directors, including Ronnie Hampel, had three-year notice periods.

And so it goes on. Tick, tick, tick. Certainly, we now expect companies to do things that were not even thought of seven years ago – reporting on internal controls, for instance. But it is likely that a man who could get a clean audit certificate from a Big Six firm would have had little problem screwing a boilerplate internal controls statement to his annual reports.

Yet Department of Trade and Industry inspectors said in 1973 Maxwell could not be trusted to exercise ‘proper stewardship’ of a publicly quoted company. They added: ‘The concept of a board being responsible for policy was alien to him.’

So Maxwell would have been able to tick all the right boxes. But that just goes to show what happens when you allow corporate governance checklists to override sound reason and considered judgement.

Andrew Sawers is editor of Financial Director.

An article on this subject appears in the May issue.

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