Boardroom Clean-Up Needs to be More Than Box-Ticking

With Marks & Spencer at odds with its shareholders over pay and combining the chairman and chief-executive roles -- and with the chairman apparently at odds with his senior non-exec -- the retailer again offers evidence that the corporate governance code is not working perfectly.

But revising it for the sake of revision is not sensible: rules encourage box-ticking unless the first rule â€" maybe the only rule â€" is that the rules must be flexible.

Amazingly M&S touches on the cause of its own problems in its submission to the Financial Reporting Council on how the current combined code should be changed. It seeks more guidance on succession planning and on chief executives becoming chairman.

There again, Royal Bank of Scotland tells the FRC that the quality of non-executive directors needs improving with a code specifically for them. The balance between supporting the executives and challenging them needs spelling out, says the rescued bank.

The code has come along way since Sir Adrian Cadbury wondered, after Robert Maxwell's collapse, where boardrooms had gone wrong. The last revision, from Sir Derek Higgs in 2003, was a reaction to Enron. Now the post-banks rewrite is underway, the resulting regulations might shackle companies rather than allow them to flourish.

Higgs stuffed boardrooms with non-execs. Now, when the part-timers meet as a remuneration committee there are virtually no board-level executives left to determine pay for. The current review looks set to increase the power and scope of those non-execs even further.

Yet if nine years in the boardroom is too long for a non-exec to remain independent, what if they have to spend so much time doing their duty -- that they are dependent on one company for their living? Executives at one company increasingly find it hard to devote time to be non-exec at another company because of the report reading, board and committee meetings and calls to meet staff and shareholders.

But lose that talent and the quality of the independent directors diminishes when chairmen should be getting rid of time-serving part-timers and seeking active outsiders.

Raising the quality of boardroom debate would be more useful than becoming bogged down in rewording the Comply or Explain rule. Some boards think it means Comply or Else, but it has not stopped companies like M&S deviating from the code when it suits, often applying boilerplate statements that confirm they are not conforming without saying why.

A rigid code may be useful for investors to beat boards with but it is not conducive to good business. Good governance may eventually translate into good investment results but the old codes treat it as an end rather than a means.

If FRC wants to be radical, it should tackle corporate performance rather than rearrange the boardroom seating plan again.

(Pic: Matt From London cc2.0)