Delivering on Higgs needs a careful plan

Derek Higgs’ recent report on the role and effectiveness of non-executive
directors looks set to shake up many UK boardrooms, particularly given the
emphasis placed on the recruitment, development and rotation of board
directors.

HR issues have not always featured highly enough in the day-to-day working
of the country’s boardrooms. However, they soon will, with chairs and chief
executives of FTSE 350 companies having to respond to the Government’s attempts
to enhance corporate governance, boost transparency and improve directors’
accountability to shareholders.

Not only will business leaders be expected to take actions to comply with
the report, but they will also experience a new type of boardroom – new in
size, composition and nature.

One of the key changes will be a presumption that 50 per cent of board
members will have to be non-executive directors. Deloitte’s analysis suggests
that 19 per cent of FTSE 100 companies and 38 per cent of FTSE 250 companies
have less than 50 per cent non-executive representation at boardroom level.

Other proposed changes include restricting non-executives to serving only
two three-year terms. As a consequence, the FTSE will witness something of a
reshuffle, and with it, no doubt, a boom time for recruitment consultants.

Non-executives will need to be more involved in boardroom debate about
strategy, the scrutiny of corporate activities and monitoring performance. They
should also have a role in discussing and presenting financial information, and
in ensuring that controls are robust and defensible.

With demand for non-executives increasing, identifying individuals who have
the necessary skills will be a key priority. The skills will need to complement
the status and culture of the company in question, but before this happens, due
diligence assessments should be undertaken to ensure aspiring non-executives
are certain that being on a particular board is right for them.

There are benefits attached to a mixed composition of directors on the
board, with a range of skills, knowledge and experience. However, while the
report is well intended, will the changes really deliver the desired aim of
sustainable performance, stronger corporate governance and increased
transparency?

Implementing the proposals should go beyond the needs of box-tickers who
expect instant action, and concern measures that deliver meaningful and
sustainable improvements. The real test is not the application of quick fixes,
but the need to return companies to a position where they can deliver growth
for the economy as well as high shareholder returns.

By John Connolly, Chief executive and senior partner, Deloitte Touche

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