The Debate: Making Higgs work in practice.

Making Higgs work in practice

Digby Jones

Derek Higgs’ proposals for an enhanced role for the senior independent director would undermine the role of company chairmen and their ability to run an effective unified board, according to a CBI poll of FTSE100 chairmen.

Our findings agree with anecdotal member comment and other evidence from across the business community.

Business backs the broad approach proposed by the Higgs report, but chairmen have to be allowed to run an effective, unified board. My greatest fear is that the law of unintended consequences might stifle the creativity and drive that characterises much of what is good about UK business.

The senior independent director should not open up a separate, and potentially divisive, channel of communication with shareholders or be responsible for exclusively reporting back to the other non-executives.

Primary board responsibility for communication with shareholders must rest with the chairman. Attempts by chairmen to recruit other than on the basis of merit, ability and independence should be resisted. Business has to prove that the days of back-scratching have ended.

The main danger is that the whole code is too prescriptive. The wording needs to be more flexible to guard against regulatory creep in the area of ‘comply or explain’. Higgs’ good intentions could become institutionalised over a period of time, so the only imprint left is comply.

The vital explain option is equally important. There should be an obligation on the part of shareholders to listen and enter into dialogue. The investment community must put in the necessary leg work to make the ‘explain’ option – critically important to a code about to increase from 45 to 87 provisions – a realistic alternative.

The ‘one-size-fits-all’ approach will not be good for British business or wealth creation. This is the challenge for the DTI and the Financial Reporting Council, but one to which they must rise if Higgs is to work.

  • Digby Jones is director general of the Confederation of British Industry

Director quality will improve
By Neil Chisman

What nonsense is written about Derek Higgs’ report on non-executive directors. At least 25% of the comment is po-faced support from various dignitaries, such as: ‘We welcome this comprehensive review blah, blah.’ The other 75% is from outraged of Tunbridge Wells fuming at yet more bureaucracy and demanding Higgs be carted off to the Tower.

The only issue of substance raised is the requirement to nominate a senior independent director. The idea is that this provides a further channel of communication between shareholders and non-executives when there are issues surrounding the chairman.

But it’s a lot of fuss and I agree that it’s unnecessary. On the rare occasions when shareholders feel the need to bypass the chairman, they can contact any non-executive to convey a message to his colleagues.

This is the only point in the whole of the Higgs report that the outraged hordes have been able to seize on. One difference in point of view does not add up to a balanced condemnation of the whole document. In fact, it adds up to a resounding endorsement.

The outraged hordes’ typical comment is that red tape makes the director’s job more difficult. There is a point here – if you’re finding the job too difficult you should resign and let someone more capable do it.

This is what the report is all about. The UK is let down by the quality of its directors, in particular by the many autocratic and egocentric chief executives. Those who bellow that they cannot be constrained, that their work is too important, are usually just not wanting to be found out.

We have the best corporate governance in the world. The combined code is a model for other jurisdictions. Higgs will greatly improve the effectiveness of implementation since it addresses the key issues of quality of directors and converting the folklore of best non-executive practice into documented procedure.

Following his proposals, we will train better directors, we will focus on performance, the country will be richer and my pension fund will increase in value. I’m all for that.

So in summary, a balanced judgement of the Higgs report is – bloody good job mate.

  • Neil Chisman is a non-executive director of a number of companies.

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