|  | | 2005 News and Press Releases | | |
HEADLINE NEWS:
Ethical Improvement But Little Effect Upon Performance
Staff Writer – Financial Times
Securities Mosaic. December 5, 2005
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EXCERPT: The combined code on corporate governance has raised ethical standards but done little to improve performance, according to a majority of chairmen of leading companies. Nearly two-thirds of the chairmen of more than 60 large listed companies reported little or no impact on performance from the revised code, published in 2003, which incorporated the recommendations of the Higgs review. Less than 15 per cent thought that governance changes had had a "significant" or "great" impact on company performance, according to the survey by Russell Reynolds Associates, the executive search firm. "It is the right thing to do, but it's not making money for shareholders as a result," said one chairman. Another commented: "It has improved corporate ethical standards and behaviour, but not corporate performance." Luke Meynell, head of Russell Reynolds' board practice, said the code was designed to improve board effectiveness by preventing poor process and behaviour and, ultimately, a WorldCom or Enron scandal in the UK. "De facto this should drive enhanced performance," he said. Instead, many of the chairmen, who included about 40 from FTSE 100 companies, complained of the cost of complying with governance rules and warned of the danger that boards could be distracted from creating shareholder value. "One thing that does concern me is time taken on governance rather than strategy," said one. Opposition to the demands of the Sarbanes-Oxley legislation in the US remains strong. Of about 30 respondents whose companies are listed in the US, more than two-thirds said they would consider delisting because of the compliance burden. Only 10 per cent of those not already listed would consider doing so, for the same reason. The chairmen were divided on the value of senior independent directors. One said expanding the role of the SID was ludicrous because "it weakens the chairman's role and confuses people". But another commented: "The creation of SID is a fantastic success as a soul mate for me as chairman." |
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