ITV shareholders did not wait for Sir Crispin Davis to be appointed chairman before saying publicly they didn’t like him. No wonder people are thinking twice before putting themselves forward to head our major companies. Even salaries of £500,000 plus share options have left supply well short of demand in the ‘C-suite’. A large number of companies have been searching for a chairman this summer but the pool of candidates seems noticeably small: the same names are touted for each job and the rejects join the next shortlist as soon as one vacancy is filled.
Davis, former chief executive of publishers Reed Elsevier, was mooted as chairman of J Sainsbury before the headhunters called him about ITV. The Sainsbury chair (won by Logica’s David Tyler) was available because Sir Philip Hampton became chairman of UKFI, the agency that holds taxpayers’ shareholdings in troubled banks — but such is the shortage of acceptable people that Hampton was almost immediately made chairman of Royal Bank of Scotland instead, forcing UKFI to search again.
Also on the Sainsbury shortlist was John Peace of Experian, but Standard Chartered nabbed him as chairman first. Sir Win Bischoff, the former Citibank chief, thus missed out on Standard — and UKFI — but got the Lloyds chair. Ron Sandler, brought in to run Northern Rock, missed out on Lloyds but added the Pearl chair to his portfolio. And poor Gerry Grimstone, vetoed from chairing the board of the Bank of England, didn’t get UKFI either — but joined its sister agency, the Shareholder Executive.
Chasing chairmanships is like a game of reverse musical chairs: seats are added rather than taken away. The financial crisis has added to demand by creating bodies such as UKFI, while restricting supply by removing from the pool the bosses whose banks required rescue — and pulling into government FTSE chairmen such as Mervyn Davies from Standard Chartered and Paul Myners from Land Securities.
Headhunters are criticised for looking at too tight a circle of would-be chairmen (yes, men), but the corporate governance code deserves much of the blame. It is no longer acceptable to be chairman and chief executive of the same company or to move from one position to the other within the same company. Nor can anyone now chair two big companies. Or spend too long in the big seat. The post-crash concept that bank chairmen should be bankers further limits the choice of candidates. And the requirement for a higher proportion of non-executive directors on boards, squeezing out executives, makes it harder for those executives to gain the experience they need to become chairmen later in their careers.
For the few who make it to the nomination committee’s shortlist, the demands of a chairmanship are heavy. Heading a public company is no longer a sinecure for a City grandee or Westminster veteran: board meetings are more frequent, interspersed with committees and discussions with investors, and preceded by bulky working papers and reports.
Directors are paid well for that hard work, of course. However, what the rewards may not compensate for is the opprobrium that can accompany the role. Chairmen have had to accept attacks by protest groups at annual meetings and criticism from private shareholders. Now they face public abuse from institutional investors as well — often, as Sir Crispin Davis has found — before the job is offered. It is bad enough that selection processes are played out in the press, humiliating rejected candidates like Grimstone, but shareholders now see it as fair game to call for heads to roll in the way baying footballs fans demand changes of manager. Sir Victor Blank was hounded out of the Lloyds chair and Bischoff was publicly panned even before replacing him. Glen Moreno from Pearson plugged UKFI’s vacancy until a permanent new chairman was found but was vilified for his past career. Former Bank of Ireland chairman Richard Burrows was blasted when he accepted the chair at tobacco group BAT.
Who wants that exposure, especially if a controversial part-time position damages their day job? Why ruin a reputation built up over decades by agreeing to end your career trying to rescue a battered business? Is it surprising so many directors move from the coconut-shy of the public company arena to the privacy of private equity?
But that merely depletes the pool of prospective directors yet further. BP, having spent 17 months eyeing the usual suspects, eventually went to Sweden to choose Ericsson executive Carl-Henric Svanberg as its chairman. Marks & Spencer, Legal & General, Channel 4, ITV and Experian are among those still searching far and wide.
Perhaps business will welcome back the likes of Myners and Davies when they become unemployed after the general election. But enlarging the supply of suitable chairman requires the governance code-setters to relax excessively restrictive rules — and institutional investors to be more discreet, in public at least, in criticising those willing to offer themselves. Who do these shareholders think they are? Simon Cowell?