The Debate: Is Higgs good for business


By Richard Raeburn

The Association of Corporate Treasurers made a detailed submission to the Higgs consultation process and called for major reforms. We were delighted that the conclusions closely followed the core areas where we had called on Higgs to act decisively.

We see the proposals on the role and effectiveness of non-executive directors as forthright and implementation will advance the cause of high standards in corporate governance.

The proposals will sustain Britain’s reputation for being at the forefront of defining standards. Any British complacency in setting governance standards would be at our peril. Higgs will ensure that our reputation continues to stand in contrast with the US, where the attempt at closing the stable door post-Enron, through Sarbanes-Oxley, was crude and insensitive to the reality of global best practice.

The emphasis Higgs places on independence on the part of NEDs is particularly welcome. We felt that insisting that the majority of the board are independent was an essential step in creating a culture of objectivity; but it is also key to establishing accountability for NEDs’ performance.

Compliance with this and other key recommendations, such as real barriers to NEDs having their remuneration geared by company performance, means the post-Higgs corporate landscape will look very different. NEDs will have to be more committed and conscientious. The days of the serial NED (and chairman) are over and this has profound implications for the much talked-about gene pool of non-execs.

There is one further challenge. If NEDs are to earn their keep it should be through their ability to review and challenge risk management within the business. This is where treasurers – and finance professionals with treasury experience – have a key role to play in helping independent directors understand risk management.

In the future, the ranks of NEDs will be reinforced as the best of those treasurers and finance professionals take on NED roles.

  • Richard Raeburn is chief executive, Association of Corporate Treasurers


‘Claptrap’ originally meant a construct for enticing applause, but having little intrinsic merit. The Higgs report is the latest example, not least because Cadbury said most of it ten years ago.

Higgs would have non-executive directors forming at least half the members of a plc board, excluding the chairman, making them the bulwark against wrongdoing and mismanagement. What little objective evidence exists for the effectiveness of NEDs in this role points to the contrary. Higgs was triggered by the likes of Enron and WorldCom where, under NYSE rules, NEDs already form at least 50% of the board. No help there then.

Objectively, is it rational to entrust our largest enterprises to boards consisting largely of part-timers? More bizarrely is that some should come from outside a business setting.

Following the usual Orwellian terminology this is called ‘widening the pool of talent’. Yet Higgs recommends no formal training, leaving it to a non-exec’s own self-assessment, evening classes and seminars. This really does not meet the case.

Add to this the restriction on the most senior and experienced member of the executive subsequently becoming chairman in the same company and I genuinely despair for the bleak and forbidding future of British enterprise.

Cadbury warned against impairing drive and efficiency by failing to get the right balance between governance and the essential spirit of enterprise.

Higgs crosses this line. Mae West once said too much of a good thing was wonderful. Not in this case. Anything likely to sabotage the conduct of business will quickly lead to fewer companies coming to the market and more quoted companies going private.

A board is supposed to direct a company; it is not a focus group. In business, given a choice between passionate involvement and detached independence, I’ll take passion every time. So, how should we combat the twin evils of dishonesty and bungling? I would suggest:

  • Extending audit to cover corporate governance but remove all other services;
  • Requiring all directors to be qualified chartered directors; and
  • If they are willing, making the two largest individual shareholders NEDs.

Simple, elegant, easy.

  • Paul Hayward is finance director of Day-Timers Europe Ltd.

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