Boardrooms square up to Higgs

The Higgs report on corporate governance continues to stir up controversy in the City

IN FAVOUR

Christine Farnish, chief executive of National Association of Pension Funds

"It is a very good principle to make boards explain if they do not comply. There might be very good reasons for it, but it is right that they justify that to investors – we will have more transparency and we will be monitoring what goes on very closely. But it would be absolutely disastrous if companies just tick the boxes, what we need is an intelligent and pragmatic application of Higgs."

Colin Melvin, head of corporate governance at Hermes, the pension fund manager

"We think Higgs provides practical and pragmatic guidance on how boards might enhance their performance. We are very pleased that the review shares our view that non-executives can make a significant contribution on corporate governance."

Alastair Ross Goobey, chairman of the International Corporate Governance Network

"I think it's not revolutionary. Higgs mentions changing the architecture of corporate governance, but I'd say rather that it's changed the plumbing.

"I don't think we should be overly concerned about the diminution of power that some chairmen think is going to occur. Every board relies on the chemistry of the boardroom and on the people involved at the time.

"All individual observers believe that British corporate governance is the best in the world. But that's no reason for us to be complacent. There have been instances in the past when the interests of shareholders have been subsumed by the interests of management. This report strikes the right kind of balance to correct that."

David Howell, finance director of lastminute.com

"In general the Higgs review is positive because companies have the option to explain themselves if they are unable to adhere to the framework, unlike the much more prescriptive legislation in the States. One problem in that small-cap companies and smaller mid-cap companies will find it difficult to deal with some aspects of the report, specifically where they suddenly find additional or new non-executives from."

Christopher Rodrigues, chief executive of Bradford & Bingley

"Broadly speaking, the proposals are pretty good. They make corporate governance more visible, and they do allow you to act differently as long as you can fully explain why. Higgs is only looking at one part of corporate governance – the role of non-executives. Actually corporate governance is made up of three things. One is getting good non-execs, the second is creating a culture around the boardroom table that allows issues to be openly discussed and the third is finding a very good chairman."

Bob Dyrbus, finance director of Imperial Tobacco

"Overall it's not bad. What we're looking at is the evolution, not revolution, of corporate governance. The question mark is over the position of an independent director. Directionally it's fine – it's moving down the road to good governance. But we need to remember that Higgs himself said it was not a box ticking exercise. We've got to treat it in the spirit in which it was written, as a set of guidelines rather than rules."

John Sunderland, chief executive, Cadbury Schweppes

"Higgs requires companies to comply or explain. The code is not designed to be one size fits all but it allows companies to explain their situation."

Patricia Hewitt, Secretary of State for Trade and Industry

"The job of the company board has never been more important. The Government warmly welcomes the proposals in Derek Higgs' report and the important contribution it makes to boosting market and investor confidence. The recommendations reflect a high degree of consultation and consensus on what is needed to strengthen Britain's corporate governance regime."

Peter Montagnon, head of investment at the Association of British Insurers

"It does imply profound change but there are a lot of useful recommendations, which we welcome. When it happens, it will have to be handled with care, including by shareholders, to make sure it is productive."

Alan MacDougal, managing director of the corporate governance group, Pirc

"This needed doing. The section on professionalising the nominations process is particularly welcome as it will identify gaps on the board and allow posts to be advertised more widely than the old boys' network. It will breathe a breath of fresh air into the boardroom."

AGAINST

Sir Nigel Rudd

"A lot of what the Higgs report says is common sense or, you could say, stating the bloody obvious. One problem with the comply or explain idea is that compliance people will vote against anything that goes against Higgs, making the explain part disappear. An awful lot of senior directors will react by deciding that they prefer to go into private capital. Who could be bothered going to a public company?"

Lord Marshall, chairman of British Airways and Invensys

"There is a lot that I support in the report but you have got to look at people's individual situations. You could be chairman of two companies which are 100 and 105 in the index and that is alright according to the recommendations. But if you happen to be chairman of two in the 90s that is not alright yet the difference between the two is very small indeed. Having an absolute rule is not appropriate."

Sir Richard Giordano, chairman of the oil and gas exploration group BG

"There are a few proposals which I don't think will be useful and could lead to dysfunction. I do not think it is reasonable to prevent non-executives from serving more than two three-year terms. It can take five to six years for a non-exec to get to grips with a company so the idea that they should move out at that point is unreasonable. The limit on any one person chairing more than one major company also presents problems. If a company is in crisis and a guy comes in to save it the fact that he might then be chairing two FTSE 100 companies should be good news."

Tim Breedon, head of investment at Legal & General

"From an institutional investor point of view, Higgs looks great – more rules, and more protection. But if you take a step back and ask yourself, 'will it mean companies are going to be managed better?', I don't think it will. My main concerns are the lack of flexibility for companies and potential problems with the role of the senior non-executive director."

Sir John Craven, chairman of mining company Lonmin and non-executive of Reuters

"In certain respects I do not think it is constructive. Putting forward a senior independent director to confer with major shareholders could lead to confusion. My principle concern is that all of the codes try to put non-executives in a box of being supervisors rather than encouraging them to do what they really should do, which is to assist the management, define the appropriate strategy and create shareholder value."

Donald Gordon, chairman of shopping centres group Liberty International

"It gives no primacy to business judgement. I don't think it will work. We would have to replace half of our board under the proposals, and it takes five years for them to understand the business and then, when they understand its complexities, they would according to the review, no longer be independent. But people who have been on the board for 10 years are of great value, not when they start."

Gerry Robinson, chairman of Allied Domecq

"All this is going to make getting good non-executives even more difficult. The job is not well paid, there is a lot of responsibility and another set of recommendations which, in effect, become regulations simply adds to the burden."

Tim Martin, chairman of JD Wetherspoon

"Higgs to me – and perhaps I'm being too cynical – just appears to be an attempt by the powers that be to placate the public and to an extent the media who are upset by the ramifications of a bear market. People have had enough goes at this sort of area. I would say, 'You've had your crack, we're all fed up of regulation. Stuff it. Leave it for now. Have another crack in 10 years and consolidate everything into one set of advisory guidelines.'"

Digby Jones, director general of the Confederation of British Industry

"We are concerned some proposed measures have created confusion and may fall foul of the law of unintended consequences. The enhanced role of the senior independent director has the potential to be divisive and make the essential relationship between the chairman and the CEO less effective to the detriment of the whole business."

NEUTRAL

Niall FitzGerald, co-chairman of Unilever

"It's a very complicated area. We can't look at it from a UK perspective because we are an international company. We are assembling all the pieces of this jigsaw together, because unfortunately all the different regulatory bodies hadn't thought to consult with each other before issuing these guidelines. We will come to a view as to whether all or any of these give rise to the need for us to change our corporate governance. [But] we regard ourselves as pretty well governed."

Sir Adrian Cadbury

"Clearly a debate is going on and Derek is having a chance to put forward his arguments, but I would rather sit on the sidelines at the minute."

Additional reporting by Hugh MacLeod and Elizabeth Skerritt.