Chairmen and Chief Executives now spend their time on Sarbanes-Oxley, Combined Code, grasping the implications of the various reports and dealing with some shrill shareholder representative group.  In the time that they have left, they try to run a business.  However, this, of course, must be done without taking any risks whatever or else there will be calls for their resignation. 

Surely, the pendulum has swung a little too far to the corporate governance side.  There is no doubt that something needed to be done.  Boards presided over wanton destruction in shareholder value for years and all that the shareholders did, was to take the soft option of selling out.  It is a good thing that they now engage with the Board; inform it of the issues that they are unhappy with; and allow it the opportunity to address them.  However, one must also bear in mind that most fund managers and analysts have never run a business.  Therefore, whilst one must take note of their concerns, one should not necessarily run around always trying to do what they ask for.  Chairmen and Chief Executives must show leadership and persuade them of the merits of their strategy. 

Furthermore, an entire industry of advisers, consultants, academics and shareholder representatives has mushroomed on the back of corporate governance concerns.  Not a day goes by without a new report or research being released, telling Chairmen and Chief Executives what to do.  Recently, there was widespread press coverage of research conducted by a pair of academics, which concluded that having more women on the Board meant that the company had superior corporate governance, which in turn meant that the company was better managed.  Therefore, according to them, the company which was best managed, over the last five years, was J.  Sainsbury Plc.  With friends like these female executives hardly need enemies. 

So how useful are all these regulations? They did not prevent the Board of Sainsbury from presiding over gross destruction in shareholder value or indeed, Sir Peter Davis from decamping with a multi-million pound booty.  To make matters worse, the Board appointed Sir Ian Prosser as Sir Peter’s successor.  Poor judgement on oversight of the business; poor judgement on remuneration; and poor judgement on nominations.  Marconi too had a Board which ticked all the boxes but that is no substitute for calibre and judgement. 

Yet, none of the corporate governance reports dwell on the issue of judgement.  Instead they place undue emphasis on the number of directors and the years that they may serve etc.  The most important attribute in a non-executive director is to know when they should act and how strongly they should act.  Most of the time, they should contribute by making available their experience of different companies in different sectors and their capacity to be objective and dispassionate.  This should be unobtrusive and entirely constructive.  On occasion, they will need to put their foot down but this should be rare.  Make no mistake, over-active non-executive directors, in a rush to make a name for themselves, are even more damaging than the lethargic ones. 

When a Chairman is recruiting for a non-executive director, judgement should be at the top of his list of criteria.  He is not helped by search firms which send a list of forty candidates to the Chairman and ask him to choose the twelve which he wants approached.  It is not the Chairman who is supposed to have the market knowledge, it is the search consultant.  The consultant should be recommending a shortlist of three or four candidates to the Chairman and be judged on the basis of that.  Simply spewing names out of a computer and then covering one’s backside by “involving” the client is not giving advice - it is running a clerical errand and adds little value. 

The writer is chairman of Buchanan Harvey & Co., an executive search firm.

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