A history lesson from Greenbury

The overlap between the two is really quite extraordinary; the main difference is that Higgs took more than 100 pages to say what Cadbury managed in just three.

Cadbury, for example, wanted a “strong, independent element” on the board; Higgs spells out detailed rules about what that means. Cadbury wanted directors to be fully informed and recommended that new directors undertake an induction programme; Higgs spends pages detailing what sort of information they should have and what a proper induction programme would entail.

Regardless of how much the Higgs report may be watered down before being adopted, it has already done a great service. The value is in the very detail that almost perfectly overlays the Cadbury report. So it is helpful for non-execs to be made aware that they should attend meetings with institutional investors to hear their views. It is somewhat less helpful that Higgs wants a directors’ attendance register to be published in the annual report. Any director worthy of the title should be adding value throughout the year, regardless of whether he or she is able to attend every official board meeting.

Inspired by perusing Cadbury, readers should then give the 1995 Greenbury report on directors’ pay a quick look. We are undoubtedly getting a whole raft of new rules and regulations from the DTI on board remuneration, but in a simple paragraph or two the Greenbury report laid the foundations for companies to avoid the current ‘fat cat rewards for failure’ fracas.

Greenbury pointed out that it was difficult – but possibly helpful – to establish criteria against which a director’s performance can be assessed.

It would, for example, be more acceptable for a board to fulfil the terms of a departing director’s contract if that contract were to say there will be no payout whatsoever if the share price falls 90% during the director’s tenure. Shareholders won’t mind huge option deals for directors, provided the remuneration committee has a few call options of its own.