Good news, slightly tainted

If we don’t change the UK’s business culture, talented women will not thrive and we shall be poorer for it

By Michelle Perry | Published 15:31, 11 October 11

Good newsThe UK’s governance watchdog today announced that it would force public companies to report annually on the make-up of their boards, including the male-female ratio.

Baroness Hogg, chairman of the Financial Reporting Council, made it clear that she hoped the amendment to UK governance code, which will take effect from next year, would stave off the threat of a legal requirement in the form of a quota.

Hogg said: “We believe this gives a further opportunity to show that Britain’s ‘comply or explain’, Code-based approach can deliver a flexible and rapid response and is therefore preferable to detailed legal regulation, and we urge companies to demonstrate this as quickly as possible.”

Hogg is of course not the only woman against quotas. One of the few former female finance chiefs of the FTSE100, who had held several board positions when she was a FTSE CFO, recently told me in private that she would not have liked to have thought that her appointments came because of a quota, rather than being based on her reputation, achievements, skills and business acumen.

Another woman against quotas is Maxine Benson, co-founder of everywoman, who tells me: “While mandatory quotas have their heart in the right place, they will not solve the root of the problem as to why more women are not advancing into senior roles and onto boards.”

The FRC’s announcement comes on the eve of a House of Commons event tomorrow, when Lord Davies is expected to announce that nearly a third of all FTSE 100 appointments have gone to women since the “Women on Boards” report was published in February.

I’m pleased about the speed with which FTSE 100 boards have moved to recruit women- it’s worth noting though that the majority of FTSE250 boards remain male dominated. But this some pleasure is ironically tinged with disappointment.

It has taken just over half a year to secure nearly a third of all FTSE 100 appointments for women and yet many reputable women have for years been trying to gain a board position within the FTSE index to no avail.

The appointments further disprove previous claims that there simply weren’t enough women with the necessary qualifications to sit on the UK’s top corporate boards, but also it once again shows how little initiative boards show in their ability to mature organically without being forced or threatened.

Everywoman’s Benson adds: “The real issue is the health of UK plc’s female talent pipeline. While many young and ambitious women start off on the right track, the pervading macho, inflexible culture in business today makes it very difficult for women to progress beyond a certain point. If qualifications or abilities are not the problem for women succeeding, we must change mindsets. If we don’t change the culture of business in this country, talented women will not thrive and we shall be poorer for it.”

The issue here is, after all, not just about the gender balance of a board, but it is also about experience, background, history and culture of the people that sit on the board to avoid so called group think. The world has changed but corporate boards rarely seem to reflect these changes nor appear to want to move with developments.

Few in the UK want quotas and the recent appointments prove that we don’t need them, but we do need corporates to become more open to change without first being threatened with regulation.

A time for open debate

Companies do not like to feel like they are unpaid tax collectors for the government

By Michelle Perry | Published 14:48, 20 October 11

OpenDebateThere were numerous responses to ActionAid’s report earlier this month that 98 of the FTSE 100 companies use tax havens located as far as the Cayman’s to islands closer to home like Jersey. What wasn’t surprising were the polarised views. Tax issues rarely produce indifference.

No public defence was made by the influential, but media-shy, group of 100 finance directors. But the group did respond to me by email (not in person) to say that the Hundred Group are “absolutely committed to acting with integrity and transparency in all tax matters”.

The statement went on to say that the UK’s top companies continue “to make a substantial contribution to the UK public finances”. It quoted the annual study of total tax contribution – a survey set up six years ago to counter criticism of corporate tax avoidance. The survey shows that the Hundred Group member companies contributed £56.8 billion (or 11.9 percent of all government tax receipts) in the year to 31 March 2010.

It’s true, of course, business does contribute significant sums in taxes to government. However the taxes cited in this report tend to be a combination of those borne and those collected.

It’s important not to blur the lines here. It’s this very point that many companies dislike. They do not like to feel that they are working as an unpaid, unglorified tax collectors for a government whatever its colour.

But in reaction to ActionAid’s research I do not feel this is a valid response. In fact it does not respond to the research, but redirects attention and shirks the issue.

We can not have a debate about tax or tax havens – their validity or not – until these companies and more to the point these finance chief acknowledge freely and publicly that they use them and why they use them. It may turn out that these reasons are wholly valid but until they state them, we cannot have a grown up debate about this burning issue.

We need to have this debate so that the companies can regain a value in the eyes of society and until we do large corporates will continue to be seen, wrongly, by a large majority of the British public, as a parasite of the taxpayer.

This is the perfect opportunity to speak openly and freely on these matters.

Time for a ratings shake-up

Agencies consider their ratings just opinions but they are undoubtedly powerful opinions

By Michelle Perry | Published 09:46, 21 October 11

RatingsI was heartened to see the news today that Brussels is considering sweeping changes to the regulation of credit ratings. It a move that’s long overdue and an issue I raised in 2005 as associate editor of a weekly magazine I used to work on.

Of course it seems a shame that the main and most contentious proposal by European regulators would be to suspend credit ratings of countries undergoing bail-outs, according to a draft of the proposals seen by the Financial Times.

This is slightly disingenuous of the EU to overhaul the system when the eurozone is currently in the throes of a stalemate over country bail-outs and how to rescue major banks.

Nonetheless an overhaul or at the very least a thorough investigation of how these agencies function, who they’re accountable to and if their methodology is transparent is timely.

My point back in 2005 was however founded on the credibility and independence of ratings agencies.

Six years ago the credibility of their research was attacked when they have failed to spot companies on the verge of an implosion. Enron, Worldcom, Parmalat and Refco were all issued with investment grade ratings weeks before the accounting scandals embroiling them broke.

In 2003 Standard & Poor’s credit analyst Hugues de La Presle put Parmalat’s bonds on a watch list for a downgrade. It was weeks before the revelation that there was a $10 billion (£5.7 million) black hole in its accounts.

When de La Presle was asked why he had kept Parmalat’s investment-grade rating, he said: “When the [chief financial officer] of a major company says the cash is there and it’s freely available, it’s a very strong statement.”

It is this very fact that ratings agencies base their valuations on data supplied by company insiders, which by its nature cannot be independent or objective, that is troubling.

Agencies consider their ratings as just opinions but they are undoubtedly powerful opinions; that in these times can make or break a country or institution. With this power should come adequate responsibility and transparent accountability.

I look forward to hearing more details about the proposals.

Top pay for top performers, only

The best performers will continue to be well paid, and deservedly so

By Michelle Perry | Published 15:25, 06 January 12

TopPayAs the year began, our political leaders have been scrambling to outdo each other on a daily basis to denounce “unjustified” executive pay and “crony capitalism” at every opportunity across the UK.

The topic, of course, is a justifiable concern for all, but policymakers’ overenthusiastic criticisms are in danger of turning the matter into a cynical political gameplay, while they simultaneously turn the screw on cash-strapped Britons.

Buzzwords like “crony capitalism” as spouted this week by deputy prime minister Nick Clegg jeopardise the seriousness of the weakening link between executive pay and company performance by creating a kind of white noise that deflects from the matter.

Recent studies have shown a growing disparity between top pay, the average pay of employees and corporate performance. The pay gap between executives and employees has widened so that in the past year FTSE 100 directors’ total earnings rose on average by 49 percent compared with just 2.7 percent for the average employee, according to a report by the High Pay commission published in November.

In the coming weeks ministers are to outline plans of how they propose to tackle escalating director pay. Proposals are said to include greater transparency of remuneration committees and more diverse pay committees including an employee representative – as in many German companies.

In anticipation of the proposals and the public’s growing anger at unwarranted payouts, especially for poor corporate performance, business lobby groups and the UK’s largest shareholder have also been quick to criticise excessive pay.

But it all feels like too little, too late. We’ve been here before. Why haven’t shareholders and business groups heeded the signs before now? In fact, every downturn attention turns to so-called fat cat pay, so why haven’t we learned the lessons of the past?

And will anything the government does now achieve the goal of ensuring that pay is only commensurate with performance?

The best idea I’ve heard so far that business secretary Vince Cable is considering stopping executive directors from chairing remuneration committees at other listed companies in an attempt to curb what many consider are “closed shops” of vested interests in British boardrooms.

There’s a lot of tough talk from ministers at the moment but little action, I’m looking forward to seeing the result of Cable’s consultation on remuneration at the end of this month.

And don’t for a minute think this is bad for business; the best performers will continue to be well paid, and deservedly so. Increased transparency and more accountability will sift out the poor performers, making room for those executives who look at businesses through sustainable eyes, and not just for short-term gains.

Is legislation the answer to curbing pay?

I worry that any new regulation is just pandering to perceptions

By Michelle Perry | Published 11:43, 24 January 12

Legislate“It is encouraging that some of the heat has been taken out of this issue,” the CBI director general said following Vince Cable’s announcement on Monday of a package of proposals to curb excessive executive pay.

But I doubt it has. It may well have quenched the over-exuberance of politicians of all parties to be seen to jump on the bandwagon of fat cat pay.

These proposals are now subject to further consultation before secondary legislation is published later this year, and despite support from business groups and advisers, I suspect differing views will be voiced in the coming months.

Some of Cable’s proposals are indeed practical and practicable but it remains uncertain if they will tackle instances of exorbitant pay. For instance, the suggestion for companies to report a single figure appears fairly straightforward but there are already concerns that this could be misleading.

“Depending on the way this number is determined, it has the potential to be misleading and unhelpful,” says Carol Arrowsmith, partner in the remuneration team at Deloitte.

Some of the measures have already been adopted by some public companies, such as claw-backs and deferred pay to avoid incompetent chief executives such as Sir Fred Goodwin departing with their very generous pension in tact.

Shareholders have already suggested that a binding vote on executive pay may have little effect at all. Dr. Roger Barker, head of corporate governance at the Institute of Directors who said that “A binding shareholder vote … will remind institutional investors of their key governance responsibilities” sums it up perfectly. “Remind” is the critical word here. It will remind them but will it encourage them to act?

Investor bases have become increasingly diverse, with more and more foreign shareholders, so it’ll prove difficult to build any broad agreement and easier for companies to ignore shareholder complaints.

I was recently interviewing a chief financial officer of a large public company who cautioned against new legislation. You might argue well ‘yes he would’ as it’s like turkeys voting for Christmas. But this is a CFO who also recently took a larger than 10 percent pay cut, along with the management team, when they were forced to cut staff salaries by 10 percent.

“It’s very important that we take the same medicine, otherwise we just don’t have the moral authority,” the CFO told me.

More importantly, the finance chief said that shareholders already have at their disposal all the tools they need to hold boards to account. The problem is about ensuring that shareholders are more active, the CFO said. So what will new legislation achieve?

Ministers have offered little independent research to back up its beliefs that the issues they are aiming to tackle are in fact problems. Do they know how many shareholders opposed pay deals at public companies last year? Or how many FTSE directors sit on other board’s remuneration committees?

Soaring pay for poor performance serves no one but the lucky exec that walks away with a huge payout. But I worry that any new regulation is just pandering to perceptions with no hard evidence to back it up. The government wants the public to know that they’re spreading the pain of austerity.

All the tools investors need to veto executive pay are widely available to them. Investors just haven’t been taking advantage of them.

The only one concrete change that might achieve the goal of more inclusiveness – that of including an employee on remuneration committees of public companies, as many German companies do – was not included in the package of measures.

The CBI chief said it “makes sense” not to include an employee on the board as “every good company involves its staff in how the business is doing, but boards must be the representatives of business owners”. Again, notice the qualifying adjective “good”. It’s true all good companies work to benefit all its stakeholders, but what about the bad or simply mismanaged companies?

A push for more diverse boards to avoid ‘group think’ is also one of Cable’s measures. The business secretary said no executive of a FTSE company should sit on the remuneration committee of another company. But where’s the evidence to suggest that this is a problem. Privately board members have told me that this is not the case.

Still, Cable’s proposal that all remcos should disclose how they have appointed, used and paid consultants to advise them on executive pay would be an effective measure. But does this need legislation?

Independent research needs to be conducted on every aspect of the proposed measures before any legislation is enacted or else we run the risk of unintended consequences that effect no positive change in curbing excessive pay.

Does Davos have the answers?

Is the World Economic Forum reacting to events rather than acting proactively again?

By Michelle Perry | Published 16:43, 24 January 12

DavosThis time last year as the world’s elite of politics, business and finance wended their way up into the Swiss mountains to the hill-top village of Davos, CFOWorld ran an article about what chief financial officers were expecting to find out from delegates of the World Economic Forum annual meeting.

The potential for a double dip recession was top of the list for many CFOs. After three years of economic turmoil CFOs wanted to know if there was to be a period of welcome stability ahead.

Davos didn’t really have an answer to that question, and neither in fact do we still know the answer. We’re still waiting to find out if the UK and/or the industrialised world will hit another downturn.

The dangers of growing inflation was another hot topic on the snowy streets of Davos last year. Again, it will be a topic of interest at the summit this year despite some indication that inflation is finally falling in the UK. And the Bank of England forecasts that inflation will fall sharply from its current level of 4.2 percent over the coming months. But as we’ve learnt we can’t always count on predictions.

Still, just days ago John Bason, finance director of Associated British Foods – which owns discount clothing chain Primark as well as being one of the world’s largest sugar producers – said that inflation pressures were easing. So there’s some good news for finance chiefs.

Last year the WEF used Davos to launch a “global situation space” – which it described as a “unique mechanism to understand and respond to a range of global risks in a more collaborative, integrated and proactive way”. That felt a little like ‘horse, stable, door and close’ given that the world was already grappling with the financial risks of the credit crunch.

Two weeks ago the WEF published its 60-page analysis of 50 risks over the next decade that endangers the progress of globalisation. Severe income disparity and precarious government finances rank as the biggest economic threats facing the world, the WEF found.

Both topics – the widening pay divide and government finances – are currently burning issues for the British government and the corporate world. It’ll be interesting to see if the visiting Brits from both government and business return with any wisdom to resolve these issues at home. Or is the WEF reacting to events rather than acting proactively again?

Anti-business! Britain? Surely not

To have Britain dubbed anti-business under a Conservative government is surprising some

By Michelle Perry | Published 16:37, 01 February 12

Anti-bizWho’d have thought a Conservative-led government would stir up such anti-business sentiment?

Last week business secretary Vince Cable – or as he might be known in corporate circle anti-business secretary – published a package of far-reaching proposals to shake up the rules governing executive remuneration with proposals for a binding shareholder vote.

Just days later as public pressure was mounting, ministers clearly spent the weekend pressuring current CEO of the part-nationalised Royal Bank of Scotland – Stephen Hester – to forgo his near £1 million bonus fearing the growing chorus of public indignation.

And yesterday came the news that (Sir) Fred Goodwin, former CEO of RBS, was to be stripped of his knighthood. I don’t disagree with the outcome, but I am concerned about the random nature of singling out a lone businessman – albeit it a high-profile one who mismanaged a British bank – so that politicians can cleanse themselves of any role they may have played in the financial collapse, painful recession and stagnating economy.

Rather than go into the seemingly arbitrary nature with which ministers have influenced the honours committee to strip Goodwin of his title, I’d rather focus on the mounting concerns among business leaders that the UK is becoming anti-business; swinging from a perceived bias towards corporates to one that is fervently against them – at least on the surface. Neither stance, of course, correct.

A leading chief financial officer recently told me of his concerns over a sense of a growing anti-business sentiment that was damaging Britain because investors were being put off injecting money in the UK.

“If you are an overseas company looking to invest in the UK and you just read the headlines in the British press it’s hard to say that Britain isn’t anti-business,” Andrew MacFarlane, CFO of Irish flag carrier Aer Lingus told me recently.

With competition heating up from all corners of the global – Brazil and wider Latin America, Russia, India and China – Britain cannot afford to be viewed – whether it is correct or not – as anti-business.

When CFOs are voicing their worries and it is the finance chiefs who most regularly talk directly to investors – it’s time for politicians to temper their language. Prime minister David Cameron needs to stop reacting to events and begin to show he has a robust strategy to haul Britain out of this limp economic recovery without easy shots at already disgraced businessmen like Goodwin.

The rise of the clawback

Will the potentially useful clawback be foiled before it has been allowed to work?

By Michelle Perry | Published 15:45, 22 February 12

ClawBackThis week Lloyds Banking Group became one of the first leading UK companies to apply the increasingly popular tool – and a central part of government plans to tackle excessive pay – the clawback.

Lloyds’ announced that outgoing CFO Tim Tookey, who is set to join insurance company Friends Life this month, and Helen Weir, who has taken over as finance director at John Lewis – are among the 13 current and former executives to have their 2010 bonuses clawed back.

Clawback provisions are on the rise. A significant 36 percent of FTSE100 companies (including 50 percent of the top 30 companies) had a clawback clause in place in 2011 compared to 21 percent in 2010, according to a Deloitte study. The number of companies including a clawback provision among the FTSE250 has jumped from 6 percent in 2010 to 25 percent last year, the Deloitte report found.

Given government plans to introduce legislation to tackle executive pay including forcing companies to include a clawback, it will be interesting to see how many more companies include clawback provisions before the government makes it law or in a bid to head off ministers before they get a chance to legislate.

Despite the rise in clawbacks, their application has been rare, which leaves me to reason that Lloyds’s decision to apply the provision is the board’s attempt to head off yet more political sabre-rattling that a part-nationalised bank is rewarding executives for poor performance.

Lloyds’ decision to claw back bonuses, which were due to be paid this month, is in response to the mis-selling of payment protection insurance, which cost the bank up to £3.2 billion in compensation. The bank has however stated that its decision was based on “accountability and in no way on culpability or wrong-doing by the individuals concerned”.

In this case Lloyds clawed back part of executives’ bonuses in deferred shares so the bank had to reduce the number of deferred shares offered. In 2009 the Financial Services Authority introduced new regulation stipulating that part of any bonuses offered by financial institutions should be made up of deferred shares as an option to claw back monies if and when the occasion arose.

But this week I discovered that companies are clawing back cash bonuses already paid to executives leaving them to foot the tax bill because boards are pursuing the gross not net amount.

Clawback provisions are typically used only in circumstances of misstatement of results or gross misconduct of an individual, Stephen Cahill, remuneration expert at Deloitte, said in the report.

Therefore the argument for businesses in this situation is, I suspect, that if they are ‘penalising’ individuals for whatever reason, the board must retrieve the full amount despite the employee having already paid the tax bill — which could arguably run into hundreds of thousands of pounds in some cases — leaving the executive not just out of pocket for the bonus, but further short changed for the tax bill.

Companies can skirt this potentially complicated situation by following the FSA’s rules and ensuring all bonuses are partly made up of deferred shares. Otherwise the existence of the clawback provision, which is a useful tool, may run into bigger problems in the future.

Women, boards and confidence

Any company that doesn’t have a woman on their board is surely failing the wider business

By Michelle Perry | Published 12:59, 27 February 12

WomenMuch has been said about the benefits of greater diversity in British boardrooms, but I’ve heard few concrete examples as to how diversity helps companies on an operational level.

David Tyler, chairman of Sainsbury’s, however put an end to my inquiry when he provided a clear example of those much touted but little explained benefits.

“Women tend to have a sense about business from a very experienced background which is different as a consumer from those of men. And that’s extremely important to have around your board especially if you’re a consumer-facing business,” Tyler, a former CFO of the UK’s leading companies, told me.

Traditionally women have held the household purse strings despite men being the main breadwinners and it is women who have developed top-notch budgeting skills to ensure the wage not only covered all of their needs but lasted for the duration until the next pay packet arrived.

Given the current climate of austerity – and despite a newfound surge of interest in shopping among men – women are undoubtedly applying those traditional budgeting skills and adjusting their shopping habits to tackle inflation, wage cuts or worse job cuts.

So it’s surprising that many boards – especially in retail companies – still haven’t realised that the majority of shoppers, and therefore their customers, are women. Any business, but particularly those in retail, which still doesn’t have a woman on their board is surely doing a disservice not only to the wider business but to its consumers.

Sainsbury’s is one of the retailers that learnt this lesson a while ago. Two of Sainsbury’s six non-executive directors are women who have been board members long before Lord Davies launched his challenge in February 2011 to FTSE companies to beef up the number of women sitting in boardrooms or face the threat of quotas. Anna Ford, former BBC newsreader, joined Sainsbury’s board in May 2006 and Mary Harris, a McKinsey partner, has sat on the board since August 2007.

Few in business want quotas and opposition is particularly fervent from businesswomen. Standard Life CFO Jackie Hunt, one of only six female finance chiefs at a FTSE100, told me last week that she was dead against quotas.

What she’d rather see is more women highlighting their achievements instead of focusing on their failings. It’s a point that a growing body of research by behaviourists and psychologists finds – that women suffer more than men from a lack of confidence. Being aware of this is the first step, says Hunt, the next steps are up to women to fix themselves.

“I’m very conscious of focusing on what I can do and not what I can’t do,” she tells me.

“Whatever drives that behaviour … is in some ways is irrelevant, you can’t fix it overnight and I’m not even sure it needs to be fix. Overconfidence is as bad a trait. But when we verbalise it and put ourselves down I think that is damaging.

“So I would say if you feel a lack of confidence as an individual don’t take it into the interview with you. Don’t focus on the things you can’t do, verbalise the positives,” Hunt says.

From a woman who has ‘made it’, it’s sound advice. The push for more women on boards can only achieve so much, the rest is up to women themselves to believe, and then prove they are capable.

Is the EU right to legislate on quotas for women?

I’m particularly anti-quota now that I have seen the progress company chairmen have achieved

By Michelle Perry | Published 16:20, 05 March 12

QuotasThe news this morning of the European Union’s plans to impose mandatory quotas to ensure more places for women on boards was a bit of a shock. It’s not that policymakers in Europe hadn’t said they might legislate on the matter. They had. Some European countries have already successfully imposed quotas. But over the past year every businesswomen I’ve spoken to about quotas has unhesitatingly and stridently opposed the idea of quotas.

Maybe it’s because these women reached the pinnacle of their career without the help of positive discrimination and now resent the potentially easy ride they envisage for the younger generation of women now in business? I doubt it. I think it’s almost the opposite. They have forged a path illustrating that women are just as capable as women to succeed in business and now don’t want that hard work diluted by well-meaning, but foolhardy, policymakers.

I have changed my mind about quotas. When I first read Lord Davies of Abersoch’s report on women last February and saw how little the business environment had changed despite the number of women in the workforce my gut reaction was pro quotas. But having considered the opinions of lots of different men and women over the past year and had time to reflect I too am against quotas.

I’m particularly anti-quota now that I have seen the progress that company chairmen have achieved in one year in raising the number of women in British boardrooms. Part of me, of course, resents that such great strides were made in such a short time once the spotlight was shone on the offending issue. If it was that straight-forward why did chairmen wait to be pushed rather than took the initiative themselves?, I asked myself for months.

Admittedly, we are nowhere near Lord Davies’ target threshold of having FTSE 100 companies with 25 percent of women sitting on their boards. Nor do we have anywhere close to that figure for women in executive positions, which is another growing concern for many business women. But we have seen progress nonetheless.

By now many feminists may be wringing their hands in fury at my lax approach to encouraging change in the boardroom. But quotas could end up pushing women, not yet ready for the responsibility into board positions where they may fail, providing sceptics with the ammunition they’ve longed for to illustrate that women are not ready for the cut and thrust of the business world. When we all clearly know that’s not the case. But experience and training are vital prerequisites to making a board position work.

Imagine a world with quotas: Even if a woman has the adequate skills, experience and business nous to sit alongside her male colleagues in the boardroom, there will always be doubters who think she only got the job because of positive discrimination, therefore undermining not just her position but that of all female board members.

I believe progress must evolve – with a sharp nudge every now and again, of course. By raising the issue as Lord Davies did last year, he gave it a platform and a voice. That is half the battle. Since then there has been increased scrutiny on companies for this very reason.

Shareholders are now questioning the composition of boardrooms as more research shows that diverse boards perform better. These are all positive outcomes from simply airing a concern. If vocalising things and keeping an eye on and updating the public on them means that change occurs isn’t that better than forced change, which people rarely buy into or believe?

I’d be keen to hear your thoughts on the matter.

For now, Viviane Reding, the European Union justice commissioner who unveiled the quota plan today, will offer three months of consultation, before the EU takes the step towards European-level legislation.

The prospect of success for the proposal is looking slim however. An emphatic majority of national governments are against quotas and the EU needs the support of governments representing two-thirds of the EU’s population.