PizzaExpress, the rapidly expanding restaurant chain and darling ofritish directors doing their jobs creating shareholder value. The future is set to be one of principles rather than hard and fast rules. the stockmarket, has been having a little local difficulty over the past few months. The company has been targeted by shareholder consultancy PIRC for its failure to comply with every last detail of the code – or should that be codes? – on corporate governance.
As befits a company which, for the last six months or so, has been part of the FTSE-250 index, PizzaExpress has been reviewing its corporate governance policy. PIRC has stressing its concern to chairman Luke Johnson about the company’s lack of non-executive directors. However, according to chief executive David Page, an independent non-executive is soon likely to be gracing the PizzaExpress board room.
The presence of independent non-execs is one of the cornerstones of corporate governance. The idea is that if there had been strong-minded non-execs in, say, the Maxwell boardroom then the company would not have gone so far off course. But while Page and his fellow executive directors may have appeared to have bowed to this particular bit of lobbying, his response to the idea of corporate governance was both revealing and significant.
Instead of being apologetic, or making lavish promises to do better, or muttering excuses about growing companies not having big enough boardrooms, he said: “My two priorities are to increase shareholder value and profits and to comply with corporate governance. We accept we have to play by those rules, even if we are dragged in it kicking and screaming.”
Such a robust attitude to the niceties of codes and guidelines appears to go down a storm on the stockmarket. The week after Page made his comment, out of the 36 stocks in the breweries, pubs and restaurants sector, PizzaExpress put in the second-best performance. The fact directors can be so out spoken underlines the reality that corporate governance as we have known it has had its day.
While the form of corporate governance will be knocking around for a long time, the substance has gone. The idea is becoming increasingly viewed by British directors as, at best, irrelevant, and, at worst, a positive hindrance to the number-one task of directors: raising the share price for the benefit of investors.
The endorsement of Page’s comments by City dealers does not come as a great shock. However, it is perhaps more surprising to understand that most directors in most quoted companies would endorse his view on Cadbury, Greenbury and Hampel – though they maybe would not have phrased their feelings quite so succinctly, at least not in public. Over the past year or so, directors have been horrified at the extent to which the corporate governance bandwagon – pushed along with some effectiveness by people such as PIRC as well as the press – has picked up speed.
In particular, British bosses reacted with dismay to the way that corporate governance had turned into a denouncement of fat cats and their salaries.
It was decided by the great and the good of the British business establishment that enough was enough. Over the last 12 months there has been a subtle, carefully-crafted campaign to reassert the philosophy that directors were there to manage and direct, and, implicitly, to be paid what they saw as the rate for the job.
No one is going to suggest anything as silly as scrapping Cadbury, Greenbury and Hampel. After all, they are useful to use should anyone suggest companies aren’t accountable. Instead of abolishing corporate governance, the idea is to shove it into generalities – not hard and fast rules – and at the same time continuing to knock it about between working parties, committees and reviews so as to create the overwhelming impression that a lot of important people are spending a lot of time and trouble over the latest version of the code.
So for the moment we can all be exercised by the awful confusion between Hampel’s proposed statement of principles and the Cadbury and Greenbury codes. However, never mistake activity for productivity. This view of corporate governance – that it should be deradicalised by being taken to the heart of business – is best summed up by Sir Brian Jenkins, chairman of the Corporate Governance Group at the ICAEW and chairman, inter alia, of the Woolwich. Commenting on the release of Hampel’s draft report, this Knight of the Realm and former Lord Mayor of London, said: “Hampel has taken up two of our most important proposals – governance through the sensible application of principles rather than box-ticking and those principles recognising the needs of business competitiveness alongside accountability.
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This is a vote of confidence in relying on board responsibility coupled with disclosure.”
This is the future face of corporate governance – principles in preference to hard and fast rules which could tie the hands of the directors, and the overarching theme that profit comes before anything else. Which is fine as long as PizzaExpress and the rest of them keep on producing the dough.