All those boardroom codes still can’t catch rogues and incompetents

Sir Adrian Cadbury, who has died aged 86, is remembered as the author in 1992 of a first stab at a corporate governance code for public companies — which thereafter were expected to show ‘Cadbuarial correctness’ in the separation of chief executive and chairman and the powers of non-executive directors. Cadbury’s work was taken forward by the 1995 Greenbury report, the 1998 Hampel report, the Higgs review in 2003 and a subsequent drawing-together into a ‘Combined Code’. Finally Vince Cable, as business secretary, left his own mark by setting a target of 25 per cent women on FTSE100 boards by this year.

So we now have a fat compendium of boardroom compliance — that has not obviously led to better decision-making, higher ethics or improved shareholder value. Sir Adrian himself, right at the beginning of this process, observed that ‘codes will not catch rogues’, but the weaknesses of the system have proved much broader than that.

A forceful chief executive is rarely reined in by non-executive colleagues, however wise: witness Fred Goodwin’s mad ego-trip at RBS. A distinguished chairman hired in from a different sector is unlikely to be the right front-man for a corporate crisis: witness the dismal debut at BP of Carl-Henric Svanberg, a telecoms man, at the time of the Gulf of Mexico oil spill; or the hapless performance of ex-Treasury mandarin Sir Richard Broadbent in the Tesco chair when the supermarket giant’s accounting scandal broke last year.

The suspicion must be that the Combined Code — and the preceding good intentions of Sir Adrian and others — has turned into an endless boon for headhunters but not for corporate performance. This is not to say we need a different code — but perhaps a more flexible application of the one we’ve got, to allow for variations of experience and circumstance, combined with more interference by institutional investors, who are too reluctant to exercise their power as owners.