Any other business

How Britain still gets boardrooms wrong

More than 20 years after the Cadbury report, the rules are a boon for headhunters but no one else. Plus: the Bourneville legacy, and the Queen’s stewardship of the family firm

12 September 2015

9:00 AM

12 September 2015

9:00 AM

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.

In particular, I believe the modern corporate fetish for hiring eye-catching senior executives from outside — supposedly because internal appointments look second-best — is misguided, as well as fuelling an unstoppable and socially offensive pay spiral. Likewise the prejudice against promoting a chief executive to be chairman of the same company. Of course fresh perspective is sometimes essential, but too often what’s lost is deep knowledge, continuity and collegiate trust. Discuss.

Idleness and tight trousers

When I visited Cadburys’ factory at Bourneville a decade ago, Sir Adrian welcomed me as proprietorially as his Victorian forebears might have done — even though the family shareholding had dipped below a majority long ago and latterly shrunk to a tiny slice. The workforce had also shrunk, from 16,000 to just 1,200, many replaced by robots, but strong traces of the Quaker founders’ paternalism survived. As chairman in the 1980s, Sir Adrian had been an earnest moderniser who grappled with the new-fangled science of brand management but strove to preserve the company’s distinctive ethos and keep potential takeover bidders at bay; he was saddened when Cadburys fell to the Kraft Foods conglomerate (now renamed Mondelez) in 2010.

But the tide of corporate change is irresistible. When Kraft ran into flak for closing Cadburys’ Keynsham factory near Bristol — home of Fry’s Turkish Delight — having promised during the bid to keep it open, the irony missed by many objectors was that Sir Adrian’s successors at Cadburys had earlier announced their own plan to close the plant and shift production to Poland. As a final mean twist to that tale, Mondelez has just refused permission for Cadburys’ brands to be used as street names in the housing estate now being built on the site.

A happier turn of events was the 2007 demerger of the Schweppes soft drinks division: it was marriage with the Schweppes company in 1969 that first diluted Cadbury family control, and Sir Adrian liked to quote his grandfather George, builder of Bourneville’s model village, who once penned a pamphlet against the evils of ‘idleness, tight trousers and carbonated beverages’.

The future of the firm

One person who has never shown much interest in corporate correctness is Her Majesty the Queen — but if you had been able to buy shares in 1952 in the royal ‘firm’ of which she has been executive chairman these past 63 and a half years, you would have made out like Warren Buffett. When she succeeded her father, the royal finances were not a matter for public discussion: the first estimate of her private wealth, at £60 million, did not appear in the press until 1969. More recently, a consultancy called Brand Finance came up with a figure of £44 billion as the value of the entire monarchical enterprise, made up of £18 billion of ‘tangible assets’ (a small portion of them privately owned, the rest attached to the job) and £26 billion of ‘intangibles’ representing ‘the value of the uplift to the economy attributable to the monarchy’.

Though any conventional company would have made her retire 20 years ago, there can be no doubt that the Queen has been a brilliant manager of her own brand (only Sir Richard Branson stands comparison) and a sharp-eyed steward of the royal asset portfolio. Comparisons with Sir Terry Leahy’s reign at Tesco, or Lord Browne of Madingley’s heyday as ‘the Sun King of the oil industry’ at BP, are not entirely far-fetched — because the clear problem now is what happens next.

The Prince of Wales’s eccentricities and extravagances have been cushioned all these years by the wealth of the Duchy of Cornwall. His brothers are even less businesslike, and if there were choice in the matter, royal financial advisers would surely be recommending the steely Princess Royal for promotion to the top job. Still, be thankful there‘s no headhunter involved, searching for an eye-catching appointee from outside.

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  • Frank

    Good examples of what happens when you promote from within can be seen in the upper tiers of both the NHS and the average Council. This is despite the trend to use head hunters to fill these positions, a wasted effort as the head hunters invariably demand that all candidates have deep experience of working in the NHS / or councils!
    The reality is that excellent staff are usually excellent wherever you put them, but less talented staff tend to show that they are out of their depth quite quickly – this is when shareholders should be taking action. An example might be the current situation at M&S, where there seems to be a strange shareholder reluctance to get rid of dead wood?

    • tjamesjones

      well, not really. MVW is saying the opposite, and the article is about non-executive corporate governance, not internal overpromotions. The point is precisely that excellent directors are not usually excellent wherever you put them, which is also why we also don’t go to our dentists for legal advice, or ask our accountant to design our new house.

      • Frank

        Not sure that you read my post, but there we go!

  • Dogsnob

    I’ve only once been in a boardroom – the ‘Blue Room’ it was called, and right enough, all the chair upholstery and the decoration was blue; weird carry-on. A thriving family firm, since then sold off to Hallmark and so many people now don’t work there anymore.
    Cadbury’s chocolate is now cheap as chips; you can get a bar of fruit and nut the size of a laptop for a quid, only there’s hardly any fruit and – so far – no fekn nuts. Won’t get taken like that again in the Co-op!
    So basically, what are boardrooms here for anymore? To shaft the buying public up the botty, that’s what.
    I will not drink rum so early in the day again. Honest.

  • Dogsnob

    Just look at em in the photo eh? Nondescript seventies numpties one and all. Guiding the nation towards what we are now living in.

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    • συκοφάντης

      Owned by foreigners?

      • Dogsnob

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  • John Carins

    Why didn’t Cadbury take over Kraft (Mondelez)? That is symptomatic of the lack of ambition within British Boardrooms

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  • συκοφάντης

    Where did these ‘leaders’ receive their education?

  • Fenman

    After 35 yrs in the multinational corporate world I think you miss the key point. The institutional investors and re not the owners, the fund mangers control the shares on behalf of the small investors. These people are all from the same city cadre and short term ownership is divorced from authority ,let alone control. The pool the non execs come from is very small and incestous.hence, you have people holding several directorships,a notorious example was Lord Marshall, chair of BA and Inchcape at the same time and numerous other directorships. There is inevitably an air of Masonic reciprocity. A highly paid non exec who is chair or a director of others is not likely to vote down the massive salary packages common this century.often these companies have become so large they cannot any longer create natural growth and resort to acquisitions, which are highly geared. Very few city execs will vote down such activities, which generate such fees and which their own companies do.
    The answer is to widen boards, by mandating representation of small share holders to hold Amin of 2 board positions ,plus reps of the work force