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UK must return to better business

If the referendum was a protest vote against the politicians it also demonstrated a disenchantment with the leaders of business. By Gerry Brown, author of The Independent Director: The Non-Executive Director’s Guide to Effective Board Presence.

The vast majority of companies including their trade associations IOD and CBI urged a Remain vote, yet many employees and consumers rejected this advice. Some of this discontent is a reflection of the many company financial scandals (take your pick of recent home grown examples: BHS, Tesco, Sports Direct, BP or Rolls Royce). Secondly, there is much concern about the attitudes and behaviours of the banks – the resultant fines against them already total over £100m, yet they only serve to keep the score rather than modify behaviour. Thirdly the rise, abuse and extent of excessive boardroom pay has deservedly received a great deal of criticism but continues apace to fuel and drive social inequality. 

The gap between what those at the top award themselves and average salaries has grown to be far too large for comfort and threatens the political engagement of those it disenfranchises. Then too we have a litany of other well-rehearsed but correctable woes that have destroyed trust and thrown boardroom integrity into question. The consequences of the ineffectiveness of company boards demonstrated below^ are enormous and have a significant cost to the economy as well as common weal of society and politics. They significantly impact ordinary people’s lives in so many ways not least because of reductions in companies values, reduction in the value of our pension funds and, of course, consequent losses of jobs. 

Early statements about inequality and the need for workers representatives suggests Prime Minister Theresa May will seek to rebuild public trust and reduce inequality. Sadly, Britain has a long history of being unable to legislate its way to co-operation, so what are the levers of change that that she can pull for immediate impact? Gerry Brown – Independent Directorship expert and advocate of the potential transformative power of non-executives leadership and governance – identifies some of the important immediate steps that can start to restore greater equality, public confidence and trust (for employees and public alike) while getting Britain back to better business. Brown comments, “We don’t need anymore public enquiries (we have already had five ultimately ineffective ones including Cadbury and the latest Walker). We need a real campaign of action supported by Prime Minister Theresa May and her government to improve the effectiveness of Company Boards, which needs to be led by the Independent Directors (especially including Chairmen). They have to stand up and be counted! The costs of inaction are great but the costs of action is low compared to the benefits and results while the impacts are almost immediate.” 

Brown’s suggested half dozen actions and steps to get Britain back to better business include:
1. Greater board diversity (for example, the appointment of more women, workers and ethnic minorities to Boards)
2. Requirement for Company Directors to be properly qualified
3. The selection of Board Directors to be the subject of a proper selection and search process (not just friends of the CEO or Chairman)
4. Business Schools in their management training to place greater emphasis and importance upon education about boards and directors responsibilities
5. Independent Directors to really discharge their role as the custodians of companies
6. Board directors to be much more publically held to account (and underperformers sacked with the speed and lack of ceremony of the recent cabinet reshuffle)
7. Shareholders to be much more active in supervising the Boards of Companies in which they invest.

Amongst other unforced errors these trust destroying behaviours and attitudes include: Tax avoidance by international firms (for example, Amazon, Facebook, Google and Apple) skilfully aided and abetted by firms who also work helping at the heart of government (the big accounting firms, for example). Services are mis-sold (think banks payment protection) while oligopolistic firms (think energy, telecoms or water) apparently/allegedly collude in anti-competitive behaviour such as price setting. 

Some unethical behaviour prompts a brief stir or enquiry (think phone hacking) while blind eyes are turned to corruption and the payment of bribes where the rule of law is weak. Businesses frequently behave in an irresponsible way towards the environment while legal cases mount against Pharma companies for failure to disclose the side effects of drugs undergoing clinical trials. Sometimes the government is forced to step in to rescue the company (think Royal Bank of Scotland) and then the taxpayer foots the bill (£50 billion). Other times there is a failure of supervision that results in a slow motion car crash, like we’re currently seeing with the BHS pension fund.

The Independent Director: The Non-Executive Director’s Guide to Effective Board Presence
Gerry Brown
Palgrave Macmillan
328 pages
£29.99
Hardback
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