On the money

Some people working for companies listed on the Alternative Investment Market
have got hot under the collar in the past few days after Sir Derek Higgs, author
of the report on corporate governance, suggested in an interview that an
abbreviated version of his guidelines ­ a ‘Higgs lite’ ­ should be applied to
them as part of the drive to improve the way companies are managed.

His remarks brought scorn from AIM practitioners, the main thrust of which
was that they were far too entrepreneurial to waste their time sitting in
board-room committees.

By and large the entrepreneurs have a point. Boards and committees can get
very bureaucratic and there is always a danger that all the effort will go into
covering the committee’s back, not dealing with real problems.

But a recurring theme in companies that get into difficulties is that they
are run by a strong-minded entrepreneurial character who is too powerful and not
open to challenges. When he overreaches himself, the business tanks. With better
governance he might have been held back and everyone would have been better off.

It is customary to present the checks and balances in the boardroom as a path
to enhanced shareholder value.

Unfortunately there is not a shred of academic evidence anywhere which
establishes this link between governance and better corporate performance. The
point of governance is not to promote growth but to avoid complete corporate
disaster ­ to avoid fund managers having to explain why they failed to see what
was going to happen to Marconi or all the other high fliers that bit the dust.

If the entrepreneurs don’t like it, all the more reason to have it.

Anthony Hilton is finance editor of the Evening Standard

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