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Firms should widen search for non-executives

By Jane Simms

AMONG the many admirable recommendations prominent businessman Derek Higgs made in his report to non-executive directors at its r

ecent meeting was that the pool of candidates should be extended.

This would break the magic circle of the usual suspects sitting on each other’s boards and inject a much-needed diversity into a role, which has become the preserve of the “pale, male and stale” stereotype.

The proposals will effectively shift the balance of power in the boardroom – half of the directors will be independent non-executives.

Pensions Investment Research Consultants (Pirc), which monitors corporate governance, estimated that unless they make changes, two-thirds of the Financial Times Stock Exchange (FTSE) 100 would be flouting the rules when they are adopted in July.

The most obvious immediate consequence of Higgs’ proposals is that we are going to need a lot more non-executives, particularly as the number of roles any individual can do will be limited under the new rules.

Higgs believes the net should be cast far wider to catch more women, ethnic minorities and others from outside the corporate world.

To that end, Professor Laura D’Andrea Tyson, dean of the London Business School, has been charged with drawing up a list of 100 potential board members from non-commercial fields.

They won’t stretch far among Britain’s 2 500 or so listed companies. So where are we going to get the rest?

People from other walks of life may prove highly-effective non-executives in certain situations.

But most non-executives need considerable commercial experience and acumen.

After all, Patricia Hewitt commissioned the investigation with a view to helping Britain avoid an Enron-style scandal.

Those steeped in corporate life are possibly less likely to have the wool pulled over their eyes.

Sir Adrian Cadbury, architect of the original corporate governance report in 1992, which set the mould for British boardroom behaviour in the midst of the Maxwell, Bank of Credit and Commerce International (BCCI) and Polly Peck scandals, points to the flaw in the argument that a company’s choice of non-executives is limited by lack of talent.

“It’s not possible to suggest that there is a shortage of potential outside directors when so few women are board members,” he said.

Companies, hidebound by convention, are looking in the wrong places.

There is abundant non-executive potential under their noses.

What about the growing body of experienced executives who have retired and whose energy, enthusiasm and drive – not to mention time – make them ideal candidates? Headhunters don’t give them a second glance. Then there’s the raft of executives on the management tier just below board level.

Some of these may be running FTSE subsidiaries that are bigger than many quoted companies.

But headhunters typically stipulate plc board experience for an Ned role, excluding a layer of talent and fresh ideas that could prove invaluable.

The sea change that Higgs’ proposals will trigger could benefit companies in unforeseen ways – provided they grasp the opportunity.

At a time when the quality of British management is under fire again – this time from Michael Porter, head of the Institute for Strategy and Competitiveness at Harvard Business School – and when the value of MBAs is increasingly called into question, what better development opportunity for a young high-flier than to sit on another company’s board?

Likewise, because there will be so many new non-executives, training will rise up the agenda.

Non-executives require different skills from executive directors. The transition requires some adjustment, which presents an opportunity for training organisations.

But arguably, those with the most to gain from the Higgs report are headhunters.

They have an opportunity to provide value for clients and justify their fees by stocking the non-executive pool with some plump fresh talent.

Jane Simms is a freelance journalist and former editor of Financial Director and Marketing Business. She wrote this article for the Institute of Directors’ UK magazine.

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