Top talent can wear two hats in era of many rules
WHEN it comes to corporate governance, there can easily be too much of a good thing.
Public companies are complex beasts: their management is separated from their ownership, and unlike privately held firms they have large numbers of shareholders — and in many cases they are scattered around the world.
This gives rise to what business school professors call principalagent problems: shareholders (the principals) cannot always control their senior staff, including executive directors (the agents).
Hence the need for good corporate-governance rules to minimise the risks of a problem and help ensure companies are managed for the benefit of their investors.
The problem starts when these rules are applied mindlessly and when a bureaucratic mindset kicks in, with large institutional investors believing their duty is limited to ensuring the correct application of the rule book. The truth, of course, is that good, long-term investors must always stand ready to be involved or at least to voice any concerns.
In some cases, corporate governance has become an excuse for absentee landlords.
A good governance system is one that allows for exceptions. It makes sense for individuals not to take on too much and spread themselves too thinly. But there should not be a strict rule against one talented individual taking on more than one chairmanship of a large listed company, for example.
The technological revolution enables people to work remotely and part-time directors to do far more than they used to manage 20 years ago.
These days, there are performance reviews for all directors at well-managed public companies.
Independent consultants are brought in, hired by the senior nonexecutive director. They interview board members and give them questionnaires to fill in. Scrutiny has improved.
Ability and delivery should count for more than box-ticking.
In many cases, shareholders agree. The UK’s Royal Mail investors easily (and rightly) reelected Donald Brydon as their chairman recently even though he is also chairman of Sage.
Pirc, the campaign group, protested earlier this week when Jan du Plessis, already the chairman of Rio Tinto, was also appointed chairmandesignate of SABMiller. Yet the row seems silly: he seems eminently capable of pulling off both jobs, and is a good catch for the brewer.
It is time for a bit of flexibility and common sense. In many cases, a chairman should indeed have only one big job. But there is room for a fair number of exceptions.
It makes sense for public listed corporate giants to follow a lot more procedures than their smaller counterparts, but let us make sure that an overzealous obsession with corporate governance does not destroy what is left of their entrepreneurial spirit. — © The Daily Telegraph, London