RegulationCorporate GovernanceOn the money

On the money

Back in the dark ages before the birth of the corporate governance industry the resignation of a director was a useful warning signal for investors that all was not well in the boardroom

It is odd how times change. When it was announced earlier this year that Jim
Pettigrew was leaving Michael Spencer’s ICAP after seven years no one paid much
attention. Similarly with Standard Life’s FD Alison Reed.

In a series of carefully orchestrated leaks it was revealed last week that
Reed was leaving despite serving under two years and playing a huge role in
getting the mutual office into shape for flotation as a PLC. Odd that she should
be leaving so soon, one might think. But not only did the market take it in its
stride, it allowed the chief executive Sandy Crombie to provide the blandest of
explanations for her departure.

One reason people take less notice of resignations is that there are now so
many of them – partly because the pressure for short term performance means
there is limited tolerance of failure , but also because the pay and the
pay-offs are now so generous that leaving can be financially pleasant. Reed may
not fall into such a category but nevertheless, the speculation is that she will
get her contract and that it will amount to around £750,000.

The investing institutions don’t feel the need to get as agitated about
resignations as they once did because they have non- executive directors keeping
an eye on things for them or think they have. But this is dangerous because the
law says directors are appointed by shareholders,and on that basis if directors
then leave for whatever reason, those who appointed them are entitled to a full
explanation. The fact that boards know they can get away with this is not a
sound basis for good communication.

Anthony Hilton is finance editor of the Evening Standard

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