From the FT:
Non-executive directors contributed to the financial crisis by failing to challenge the management of many top banks, said Paul Myners, the UK's City minister, as he urged institutional investors to take a bigger role in training and empowering corporate board members.
"We believe those boards need to be strengthened. Those boards were part of the problem," said Lord Myners, who has served on the board of nine FTSE 100 companies. He urged investor groups such as the Association of British Insurers and the National Association of Pension Funds to improve director training and provide guidance on how to best represent shareholder interests.
"I put out a challenge to the ABI and the NAPF: get serious about this. Endow a professorship. Run serious programmes with serious speakers," Lord Myners said.
Well that may be part of it. But the real need is for people who will ask awkward questions. There's no point having someone of like mind to you on your board. You will simply have acquiescent nodding heads around the table. That does not create constructive debate. It does not fulfil the main task of a non-executive director, which is to ask the awkward, penetrating questions which expose the potential risks inside the policies of the executive management.
Of course, you can to some degree train people to undertake this task. But you can only train them to a very limited extent. They must already have strength of character, perception and a willingness to stand apart from the crowd, even at risk of being ostracised, if they are to undertake this role in an effective manner.
Right now this requires the recruitment of the awkward squad to the boards of major UK companies - those who have proven their ability to stand apart, ask the awkward questions, and on occasion be proved right. These people are not to be found in the current cohort of non-executive directors. That is the problem, and so training the existing cohort will not change anything. Something more radical is required.
I look forward to the appointment of Prem Sikka to the board of Royal Bank of Scotland plc. Then I will know that there is real change in prospect.
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Richard
Three comments:
1. I made the point at the seminar that the challenge of being a NED was not one to be taken on lightly or by people who were not from time to time willing to be unpopular. I made this pretty clear in a piece I wrote for the FT and published on 24th April 9 (http://www.ft.com/cms/s/0/82d60c06-1212-11dd-9b49-0000779fd2ac.html ). I said in the article “My rule of thumb is swiped from Voltaire: judge a person by his or her questions. Are board members asking the right questions and with enough persistence”.
2. My comments on “training” focussed on case study methods which would expose directors to real-time challenges and would importantly provide an opportunity for institutional investors to be part of the process (most institutional investors have not sat on a public company or any other form of company board). Wharton runs a great programme. Institutional investors look to NEDs to perform an important role for shareholders. They could do even more to support good governance and board process by promoting good skills development opportunities for existing and prospective NEDs, events that would be greatly enhanced by institutional investor participation.
3. We have debated the case for diversity in board membership for a long time (and I fully support efforts and progress in this matter). But a good board also has a diversity of views, experience and perspective. Too many boards are comprised almost entirely of people with similar education, background, reading habits, views etc. Good challenge is facilitated by the availability of a broader set of perspectives
regards paul myners
Paul
It looks like you and I are in accord, and most especially on your point 3
What I hope is that people listen
I’m willing to be on the speaker programme
I’d offer my services as a NED if I wasn’t already so busy
And I wish you well in creating the real change that is needed
Regards
Richard
Richard,
I agree entirely with you and assuming UBS shareholders as well when appointing “Rescue Board Member” Jean-Marc Fey, the most famous Hedge Fund Manager in Switzerland.
He had sold his company for approx CHF 500 Mio some years ago to Man Investment, Pf?§ffikon Schwyz, a tax haven within Switzerland. Then he build up a new Hedge Fund Company, better Alternative Investments called Horizion 21, and employed now 150 employees as of yesterday. A real success story you would think. It is only understanable that UBS appointed such a succesful man as a Member of the Board of Directors some weeks ago in order to rescue UBS.
As the story goes his first public action as a Board Member of UBS was to sell 1 million UBS shares of a value of CHF 18 Mio all his holdings due to personal reasons because he had to realise a loss of CHF 4 Mio! His second public action was to get rid of 50 % of his partners in the Horizion21, Pf?§ffikon Schwyz (the same tax haven within Switzerland) because the company is in serious trouble. The third unknown action might have been to shorten UBS shares. We do not know at this stage.
What does this mean people ask?
It means that he is committed to UBS, I do not think so; he has a big interest in rescueing UBS, I do not think so; He has lots of time to rescue UBS, I do not think so; He get public attention as a Board Member of UBS: I think so, he gets a large compensation package as as a Board Member of UBS, I do think so. He will rescue UBS ???? … I do not think so!
The game will go on but maybe without UBS rather sooner than later and then the problem of getting the right Board Member asking the critical question will be solved at least in the UBS case! It is not a big deal but 30 % of the employees of Switzerland Ltd. will wait for their pay check if UBS fails.
Regards,
Rudolf