Alan Kohler
Scrap the monthly bored meeting
Corporate collapse is in the air once again; loss and recrimination stalks the business world as bankers switch from being money marketers to capital conservers.
Just how much risk capital will be lost during this credit squeeze is unknowable, of course, but it’s unlikely that the squeeze on equity is over yet. Unless there is a sudden re-liquification of the banking system, of which there is no sign yet, more equity will be lost in the scramble to recover debt and some companies will go to the wall.
But it’s to be hoped that we don’t emerge from this crisis with a worse corporate governance system than we entered with. It’s already bad enough.
In fact, there is a good case for regulation to now go the other way: many of the extra burdens placed on boards of directors by previous crises are entirely useless, in my view. Counter-productive even.
Monthly board meetings have become swamped by the detail of management accounts and compliance. The result of this is worse governance, not better.
In fact, I think it is time to abolish the institution of the monthly board meeting altogether: nothing else will fix the lack of proper governance.
If you want to invite a professional company director to lunch, don’t do it in the second half of the month. That’s when all the board meetings are: it takes the CFO a couple of weeks to prepare the monthly management accounts, and that, ridiculously, is the focus and main topic of all board meetings.
Hours are whiled away listening to presentations from CFOs about the numbers. Directors pore over them and ask penetrating questions. Other detailed presentations are received and scrutinised. Compliance and remuneration matters are then dealt with in numbing detail.
After a couple of hours the unfortunate directors are stir-crazy, wishing they were on a Kurdish mountaintop in winter in their underpants – anywhere but there.
And at the end of the board meeting, as they spill into the street, blinking, in need of a stiff latte, the directors will have a nagging sense of something missing – of something not done.
And what’s often missing is the real business of the board: that is, strategy. The only way to fix this problem, in my view, is to have fewer board meetings, and to NOT have them when the management accounts are available.
Monthly accounts are a curse. The minutiae of a company’s financial performance are matters for the CFO and the chief executive. It’s what they get the big bucks for.
They are statutory officers with a legal responsibility for running the business and unless there are good reasons for doing otherwise, directors should leave them to it. The directors of Allco Finance Group, for example, need to meet at least once a month at the moment – if not a couple of times a week.
But when a business is going along okay and there are no impending crises, directors should stay out of the monthly management accounts. Obviously they need to properly examine the annual and half-yearly reports before signing them, but if they don’t trust the CEO not to spring six-monthly surprises on them, they should sack him or her.
The Sarbanes-Oxley legislation of 2002 is often said to be responsible for a shift in the centre of gravity of securities industries from New York to London.
Whatever the truth of that assertion, there is no doubt that the legislative response to the collapses of Enron in 2001 and Worldcom in 2002 imposed extra burdens on the governance of US companies.
Was it really needed? We’ll never know, but it is a misunderstanding of Sarbanes-Oxley to think that the burden is on the boards of directors. In fact the legislative yoke is around the necks of executives, not directors.
The most contentious part of that law is section 404, which requires management and the external auditor to report on the company’s internal control over financial reporting, and to take personal responsibility for it.
But the executives, not wishing to carry the whole burden themselves, have referred it upstairs to the board by swamping them in paper.
So when something goes wrong the CEO can say he told the board: his arse has been covered.
It’s a bit like that episode of Yes, Minister, when Sir Humphrey buries an important paper in the bottom of red box number 5, which Jim Hacker, having been tipped off, triumphantly finds.
In fact, there should be no more than four board meetings a year, perhaps three. They should go for at least a full day and focus on the strategic direction of the company and, if necessary, CEO succession.
Chief executives on $5 million a year should not be allowed to cover their backsides by shifting their responsibilities to directors who are paid less than one twentieth of that in the guise of “good corporate governance”.
What rubbish. Directors should go on strike and not read the monthly accounts at all. Tell the CEO you’ll see in him three months.
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