Written by Simon Laffin, chairman of Flybe. Simon Laffin’s views are his own and not those of the company
“I WANT to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders.
“In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough. So if I’m Prime Minister, we’re going to change that system and we’re going to have not just consumers represented on company boards, but employees as well.”
This speech was by Theresa May, not Jeremy Corbyn. It’s a topsy-turvy world. This is our new Conservative prime minister who is stooping to kick the corporate world – the dreaded ‘big business’ – as she strides into No 10. Even madder, it was the Institute of Directors, not the Trades Union Congress, that welcomed her ideas. Let’s have a look at her charge sheet and her remedy.
“Non-executive directors… are drawn from the same, narrow social and professional circles, as the executive team”
It’s certainly true that non-executives are often serving, or more commonly former, executives. Normally that’s because running a company is a difficult, acquired skill, and so if non-executives are going to supply oversight, they too need to understand how companies are run. Pretty much all boards will have to have a chair of audit committee, who has to have a senior finance background. Similarly most will have a chair of remuneration committee who has experience of HR or corporate remuneration. Frankly, when it’s my money they are using, I want experienced non-execs looking after my interests.
“…time and time again – the scrutiny they (non-execs) provide is just not good enough.”
There are 3.5m active companies in the UK, of which 2,500 are listed on the stock exchange. How many companies have shown inadequate non-exec scrutiny? The banks perhaps in the financial crisis eight years ago? BHS? This was a private company through the recent scandal. Volkswagen in Germany perhaps?
We’ve seen many more scandals at the Home Office alone, let alone Parliament, in that time. Perhaps Mrs May could define ‘time and time again’?
“…we’re going to have not just consumers represented on company boards, but employees as well.”
When the Treasury Select Committee investigated Northern Rock’s failings, it highlighted a lack of banking qualifications on the board. It didn’t suggest that a consumer or worker on the board would have helped. Volkswagen does of course have worker representation, in line with the standard German model, of which presumably Mrs May is an admirer, although the Germans haven’t gone as far as a consumer director.
By the way, did she mean customer director, rather than consumer?
Where do we start?
Perhaps we can just ask Mrs May some simple questions;
- Do you believe that if I invest my money in a company, then I should decide who manages it, or do you think that government needs to decide it for me?
- Do you believe that boards should be more diverse in composition than the cabinet?
- How many corporate scandals have been due to poor non-exec supervision?
- What evidence have you got that worker and consumer directors would improve non-exec supervision?
Corporate governance is by no means perfect, and I, for one, would be delighted to hear new ideas to improve it. But this is the same old business bashing – ill thought-out and populist policy, backed by neither evidence nor analysis.
Le Roi est mort, vive la Reine.