Britain's boardrooms could face a major shake-up after a government report yesterday called for an injection of independent management talent in a bid to avoid further Enron-style governance scandals.
The report, commissioned by the British government and written by former SG Warburg banker and non-executive director of AIB Mr Derek Higgs, proposed a test to gauge the true independence of directors and repeated calls to split the roles of chairman and chief executive.
Mr Higgs said at least half of company directors should be non-executive, barring them from holding positions of management control. Full-time executive directors should also be banned from holding more than one such position in blue-chip companies, the report said.
And in a move to break up the boardroom dominance of what Mr Higgs called "white males nearing retirement age", companies were called on to recruit more women directors and more from diverse ethnic backgrounds.
Governments around the world are re-writing the business rule book after a wave of accounting scandals at companies including US energy firm Enron and bankrupt telecoms company WorldCom.
Such scandals threw an unflattering spotlight on the role of independent directors and auditors, who are meant to keep a watchful eye on a firm's executive team.
But Mr Higgs said there were no serious problems in Britain at present.
The report was welcomed by Britain's Department of Trade and Industry and by the Treasury or finance ministry. The government is due to give an official response later this year - although there is no guarantee the recommendations will become law.
Some investors said they were concerned that the 50 per cent rule on independent directors - which was widely expected - could create conflict.
"Won't the 50 per cent rule split boards between 'company guys' and 'shareholder guys'?" a senior fund manager asked.
Other critics said the new rule, if adopted, could lead to talented executives being bumped out of the boardroom, or to companies drafting in lower quality independent directors.
Mr Higgs said the review continued the "comply or explain" approach of previous reviews in the UK. "I do not presume that a one-size-fits-all approach to governance is appropriate. The review is not a blueprint for box-tickers but a counsel of best practice that can be intelligently applied." - (Reuters, Financial Times Service)
