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The one and a half tier board?

The shape of the boardroom is changing. It used to be rectangular, but with most of the executive weight at one end and a small handful of great-and-the-good at the other. Some of the highest-profile, customer-sensitive businesses - typically, banks and utilities - increased the length of the boardroom table at the non-exec end by loading up representatives from special-interest groups (former chairpeople of consumer organisations and the like). Some of the lower-profile, more industrial businesses probably made do with a minor lord and a superannuated banker.

Derek Higgs, of course, has changed all that. This much you already know, of course. But it seems to us that, while Higgs is vehemently looking in the direction of the unitary board, he is walking – backwards, perhaps – in the direction of the two-tier board model.

This is not necessarily a bad thing: we’ve argued elsewhere (see The Times, 17 October 2002) that there is no need to regard this as a continental socialist model, laden with “stakeholders” and indecision. Rather, we argued that a legal recognition of different board tiers would strengthen the moral backbone of non-execs. Higgs has achieved a similar thing by sheer weight of numbers.

We were first struck by what seemed to be “two-tier boards via the back door” when reviewing the Sarbanes-Oxley Act and the DTI/HM Treasury Co-ordinating Group on Audit and Accounting Issues report. Ian Plaistowe, the now-retiring head of the Auditing Practices Board, agreed with us that the responsibilities suggested for audit committees were starting to take the boardroom down the two-tier route. Looking today at what Sir Robert Smith has proposed in his report – published simultaneously with, but overshadowed by Higgs’ – it is clear that the balance of power in the boardroom is changing very dramatically. Financial directors ought, however, to feel challenged by these developments, not threatened by them.

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