Corporate governance issues ranging from directors’ pay, board effectiveness and new regulation in response to the financial crisis have been prominent in the first half of 2012. These issues have received media coverage provoking public debate and detailed dialogue between companies and their owners.
Directors’ remuneration was a significant issue during the shareholder spring. Many companies, including Barclays, had their remuneration reports approved by lower majorities than in previous years. Engagement with shareholders on remuneration was very important ahead of the AGM and will continue to be essential. A key message from investors was that pay should be linked to performance. Shareholders had no objections to high levels of pay in principle provided it was linked to performance. They wanted to see a rebalancing of the distribution of reward between employees and investors in the banking sector.
In the UK, where the media and government have kept the remuneration issue in the public eye, shareholders’ voices have been louder than in other countries. This can cause difficulties for companies operating in a global market place for talent.
The volume of regulation and consultation since the financial crisis has been overwhelming. It is important that regulation is tightened although it is also vital the response is proportionate. It’s hard to argue against the aims of each individual regulatory change or consultation in its own right but when taken together from both a UK and EU level there is a danger of over-reaction. If we are swamped by new rules and regulations growth in the UK will be stifled. It will be harder for businesses to deliver growth and guide the country out of recession.
There has been some scepticism in Brussels around ‘comply or explain’. In the UK, we have an obligation to demonstrate that ‘comply or explain’ does work. Open discussion and engagement with shareholders is vital to make principle based governance effective. There needs to be a genuine engagement where shareholders, if presented with compelling arguments, are willing to support companies and likewise companies must be prepared to adapt their behaviours and policies when explanations are not accepted. To a greater or lesser extent this approach has worked through the AGM season and corporate behaviour has changed.
Diversity has been another key focus area and we see this as broader than gender diversity. Barclays adopted a Board Diversity Policy recognising that increasing diversity at Board level is an essential element in maintaining a competitive advantage. The Board is aiming to ensure that at least 20% of the Board is made up of women by the end of 2013 and for that position to have exceeded 25% by the end of 2015. All candidates will be judged on merit against objective criteria with due regard to the benefits of diversity.
A key aspect of the company secretary’s role is to support the chairman in ensuring that the Board is effective. In particular, the company secretary should ensure the Board is effectively addressing the most pertinent issues. A critical element of a properly functioning Board lies in a culture of openness and debate, facilitated by the chairman.
Although an ethos that encourages debate is firmly in place at Barclays, we do an external Board evaluation every year. As you would expect, it allows us to monitor what’s going well at the board, whilst highlighting emerging issues. A key issue is ensuring timely information flows to the Board. It is also essential to ensure that the right information flows to the Board. There is always a difficult balance between ensuring directors are properly briefed whilst ensuring they are not swamped by too much data.
Non-executive directors can provide a wealth of experience from different areas of industry to aid the debate around the Board table. Non-executive directors are not only there to challenge, but also to advise the chief executive. As a company secretary, it is essential you form a close relationship with non-executive directors as you support them in understanding the organisation. This does require a time commitment on their part to invest in an induction programme and ongoing training.
In conclusion, open, robust debate around the Board table and genuine engagement with shareholders in a principle based ‘comply or explain’ regime are vital components of successful corporate governance.