Sir Howard Davies is Chairman of RBS and a Non-Executive Director at Prudential.
Sir Howard has been Chairman of the FSA and Deputy Governor of the Bank of England, and most recently was Chairman of Phoenix Group, the Airports Commission and a Non-Executive Director at Morgan Stanley.
I’ve been on boards for 27 years, so I have an unusually long perspective. During this time, the changes have been dramatic and not always for the better.
On the positive side, you’re now unlikely to find a Chairman who is also the Chief Executive or anyone who takes a board seat for the lunch pass. And with far more work done outside of the boardroom, board committees – in particular the Audit Committee – have become increasingly important. Looking back, I don't know if my first board even had an Audit Committee. And if we did, I suspect it did little more than approve the accounts, which is in contrast to the detailed control assessments and whistleblowing investigations they do now.
Whilst the professionalisation of boards was justified, it feels like we’re in a state of flux about what boards are actually responsible for. My fear is that in response to various failings regulators are imposing over-burdensome rules that the corporate governance system won’t be able to bear. For instance, my early board meetings used to focus primarily on performance, but the agenda is now so dominated by risk, governance and compliance that it’s a struggle to find time to talk about business performance at all. And with a workload that forces boards to spend around 100 days a year in the business, non-executives are at risk of becoming executives.
What we need is a more sensible approach to what matters are reserved for the board and more clarity on how these can be delivered effectively.
I’d stop the 9 year rule and implement more sophisticated guidelines for measuring a non-executive’s independence.
Of course, rotation on boards is important, but I struggle to believe that after 9 years a non-executive is suddenly no longer independent. I was at Morgan Stanley for 11 years and feel I was my most effective in the final two.
We’d be better off adopting the American approach of viewing the board holistically, weighing up corporate memory with fresh perspectives. What we’re seeing in the UK is non-executives’ tenures getting shorter, as no director wants to reach the 9 year mark and then be forced off. For Chairmen, this means you end up spending a disproportionate amount of time trying to refresh the board – whilst satisfying the various other criteria for expertise, gender and diversity. Our appointments system is overly constrained and it isn’t helpful for enhancing board effectiveness.
It’s all you have. And the challenge is presenting the board with information that is both comprehensive and comprehensible.
What you tend to see is reports written for one purpose then re-worked for the board, or even last month’s management reports stapled together and called the board pack. What report writers need to do is put themselves in the shoes of the non-executives and ask “if I were coming into this business 2-3 times a month, what would I want to know?”
My personal view is we should stay in. The twenty-first century is turning out to be a dangerous period and it’s not a time to be leaving clubs.
We can try and pull up the drawbridge, but that won’t get us far. Terrorism, climate change and migration are just some of the big challenges we’re facing and none of these can be tackled by any nation alone. If we’re to respond to these we will need to work collaboratively.
The Flight by Gaito Gazdanov. It’s a Russian love story set in the 1930s and it’s wonderfully atmospheric.
Not only does the book fit conveniently in my jacket pocket, but I like supporting little publishing houses like Pushkin Press.
Work hard. It’s an underrated philosophy.
I don’t assign anything I’ve done to instinct alone. I read a lot and work a lot. In my experience, there’s no such thing as shortcuts.
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