Wednesday, 20 April 2011

Appointment of Non-Executive Directors - how little has changed

Non-executive directors are in the front-line of corporate governance. A critical part of their role is to probe and challenge the executive directors - to hold them to account and to apply common sense and specialist expertise to test the appropriateness of their strategies.

The Higgs Report into the role and effectiveness of non-executive directors and the Tyson Report on their recruitment and development, both published in 2003, addressed issues of board composition. The latter, in particular, talked about the importance of board diversity to better decision making. In this it echoed the views of others, such as Tomorrow's Company. It talked about things such as defining skills or perspectives that are lacking in the board and going out and recruiting against that brief, It talked about being prepared to recruit from people who possess the right skills and qualities but who may have worked below board-level in their careers or have worked as consultants or advisers to businesses.

So have things changed with the passage of eight years and in light of the increased focus on corporate governance? Not a bit of it. British boards still have very few women but they also have very few of anything other than British, white, middle class, heterosexual men who share a very limited background and have all pursued very similar career paths. I know someone who is exploring the possibility of taking on one or more NED positions and she has been told by headhunters that, in reality, very few appointments result from search assignments. Companies don't want to pay. Just as Tyson reported in 2003, over half of appointments result from a tap on the shoulder by someone you know. Another person I know, who is looking for an NED role finds that his lack of previous main board experience is a huge impediment; this despite having served as a divisional MD for a large quoted company.

If non-executive directors really are important - and I believe they are - then this lack of diversity and lack of change is a real problem. I don't have a solution. I don't think legislation or regulation is appropriate but cannot think how we combat this damaging rigidity in our economic and social fabric. Tyson suggested measuring and reporting board background and composition on the basis that people manage what is measured. I am not sure that would work either but it is surely worth a go - however nothing has happened in this respect in eight years. Any ideas?

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