Meet Your British Cousins
from
March/April 2006
by Don Morrison
They look like us, only whiter (and more male). They talk
like us, only better. They share our Anglo-Saxon corporate culture,
although they think they invented it. They are British directors, and
they’re not a happy breed. After years of snoring through meetings and
applauding management’s every whim, the members of British boards find
themselves working harder than ever. They’re facing unprecedented
shareholder revolts, struggling with corporate governance rules that,
as Corporate Board Member has reported, are in some ways more exacting
than Sarbanes-Oxley, and still earning less than their U.S.
counterparts. Colonel Blimp wouldn’t recognize the place, though an
American director very well might.
That, at least, is
the gist of several recent governance studies from the land that gave
us the limited liability company. The London-based executive search
firm Whitehead Mann, for instance, surveyed 124 inside and outside
board members at some of Britain’s largest companies. The directors
said they’re putting in more time than ever on board duties—an average
of 24 days a year, and some as many as 40—which makes life difficult
for those outsiders who also have day jobs. Many U.S. board members
work the same kind of hours, but for a lot more pay. This is
particularly true at the 200 biggest companies, where total director
compensation approaches $200,000 a year, according to Pearl Meyer &
Partners. The latest biennial survey of 300 major European companies by
the search firm Heidrick & Struggles International found that
British directors collected about half that. Perhaps as a result, many
British board members feel they’re overworked and under-rewarded. “It
does seem to be a pittance,” says one unnamed U.K. director in the
Whitehead Mann survey, “given the time commitment one has to put in to
do the job properly.”
Ah, there’s the rub. Doing the
job properly is something new for British directors, long known for
their genteel ways. These days they are laboring under the lash of the
Combined Code of Corporate Governance, which took effect in 2003. It
requires, among many, many other things, that the jobs of chairman and
chief executive be separated. So boards have been scrambling to untie
those functions, with some success. While the majority of American CEOs
still serve as chairmen too, most British ones don’t. The code also
stipulates that half of a company’s board must consist of non-executive
directors (outsiders), a serious setback for Britain’s famed old-boy
network. Yet U.K. boards remain both old (pushing 60 on average) and
boy (90% male).
Directors on both sides of the pond
will find much that is familiar in the Whitehead Mann survey responses.
The researchers asked U.K. board members what qualities make for a
good—and a bad—director. Atop the “good” list is a breadth of
experience, followed closely by a lack of egotism and the ability to
provide independent and challenging advice. The bad director,
respondents agreed, is what Whitehead Mann calls a “nodding dog,” who
presumably takes up space at the table and wags his tail at appropriate
moments without barking (or scratching). Also widely despised is the
frustrated former CEO who constantly second-guesses management. “We had
one non-exec who sat in board meetings with his calculator and
challenged the calculations of the finance director,” recalled a
disapproving respondent in the Whitehead Mann study. Another listed the
most irritating boardroom sins: “Asking stupid questions, posturing,
being rude, being late.”
Horrors! No wonder British board members are grumbling. “A lot of potential non-executive directors are deciding to move into private equity businesses because they don’t want the exposure or any potential hassles,” says Philip Hampton, chairman of the British supermarket group J Sainsbury. He should know. Hampton’s predecessor, Peter Davis, was forced out in 2004 by angry shareholders for accepting a $4.1 million bonus at a time when profits and market share were falling. This is clearly no country for nodding dogs.
