The Debate: Should Higgs be revised?

Template for good governance

By Derek Higgs

I’d better start by declaring my interest. As the author of the review, I stand by its recommendations. They were the result of extensive consultation and thorough research.

Underpinning the review’s conclusions was a MORI telephone survey of the views of over 600 directors, in-depth, face-to-face interviews by an eminent team of academics with 40 directors and innumerable meetings with trade associations, institutional investors, head hunters, as well as individual directors and company boards.

But the review could only, and did only, produce recommendations. It is true these were, in Annex A to the review, included in a ‘suggested revised code’ but this was illustrative and not in any way authoritative.

And this is undoubtedly where some of the concerns about the review have arisen. The drafting of the ‘suggested revised code’ did not capture sensitively – or in some cases accurately – all of the thinking and reasoning behind the review’s recommendations. I hold up my hand to that and fully accept the wording of the code can and should be improved.

But this is not the same thing at all as ‘watering down’ the conclusions. With the single exception of the proposal that the chairman of the board should not automatically chair the nomination committee, I believe they should stand.

The reaction from some quarters to proposals that are common-sense best practice already found in the best companies, simply confirms to me the value in updating a voluntary code that provides a template of good governance to which all listed companies can aspire.

Extensive revision to the proposals would signal to the government, and to investors and a public that needs badly to rebuild its confidence in the corporate sector, that resistance to change and complacency remain a worrying aspect of boardroom culture in the UK. We are acknowledged leaders in corporate governance, thanks to Sir Adrian Cadbury and others, but we can always improve. We shouldn’t flinch now.

• Derek Higgs is senior adviser in the UK to UBS and chairman of Partnerships UK plc.

One size doesn’t fit all
By John Pierce

Full marks to Derek Higgs for the timely way in which he has reviewed the practice and responsibilities of non-executive directors in UK boardrooms; investigating, and publishing his work in double quick time – certainly by the standards of most other ‘enquiries’.

But, oh what a pity that from thereon it all seemed to go rather pear-shaped. Readers and critics of his report were met with the rejoinder that only matters that pointed to a basic flaw in his recommendations would be considered prior to final publication. The Financial Reporting Council (FRC), which was charged with publishing the final recommendations, seemed to underestimate the strength of feeling that was building up around some of the suggestions.

Higgs seemed to be heading toward a serious case of ‘more haste, less speed’. But we must give the FRC due credit. It has now agreed to postpone publication of the new combined code of corporate governance by three months to allow further consultation. This, of course, should have been part of the original timetable – a period of consultation after Higgs had published his proposals. And herein, in my view, lies the key to the successful implementation of Higgs’ work.

It is likely that the original proposal that the chairman should not head the nominations committee will be amended, also the emphasis on the senior independent director meeting separately with major shareholders; and, hopefully, the final form will then emerge as a set of principles, rather than the bullet-list of ‘dos and don’ts’.

The QCA is especially pleased that, following discussions, the original formula of one non-exec for each executive on the board, plus an independent chairman, will not apply to companies outside the FTSE-350. This would have placed an intolerable burden on many smaller companies. It is reassuring that here is one regulator prepared to move away from the ‘one size fits all’ approach that the vast majority follow, and which results in so much inappropriate and costly regulation.

• John Pierce is the chief executive of the Quoted Companies Alliance.