The Hampel committee’s interim report should be welcomed by companies and shareholders alike as a further move in the right direction. The need for principles rather than prescription in corporate governance is common sense. No two companies – or shareholders – are identical, so why have rules set in stone with no room for maneuver on either side?
Sir Ronald’s disdain for a box-ticking approach goes even further. ‘It can be seized on as an easier option than the diligent pursuit of corporate governance objectives,’ says the report. ‘It would then not be difficult for lazy or unscrupulous directors – or shareholders – to arrange matters so that the letter of every governance rule was complied with but not the substance.’ Quite right. The danger is that the lazy and unscrupulous will take the greater flexibility implied as a signal that Sir Ronnie thinks corporate governance has gone too far.
For example, suggesting that in some cases the roles of chief executive and chairman do not have to be separated is a grand idea. For some companies a combined role may well be the best way and it would be wrong for governance do-gooders to enforce a split which could be damaging to those companies.
But nor should wayward executives be allowed to get away with quoting Hampel as a means of justifying a combination of the roles when it quite clearly leads to too high a concentration of power. Hampel must make sure the background to his principles is clearly defined when he releases his final report.
There are also a few specific definitions which he and his committee members would do well to struggle over prior to December. What, for instance, is really meant by an independent non-executive director? And what should be considered when assessing their independence? Is a non-executive over the age of 70 likely to be as independent as someone younger? Not, you understand, necessarily due to soundness of mind. Rather, due to a reluctance to stick their neck out for fear of bringing a quick end to a long corporate life.
Some more radical observers may still see Hampel as an opportunity missed. No mandatory voting. No real push to edge institutions towards taking a more active approach. Such moves would have been a mistake and would have likely caused a massive backlash from corporate UK and the City.
More work is definitely needed before the final report is released but Hampel should generally be viewed as positively moving the debate forward.
