Carillion and NEDs

 As the aftermath of Carillion begins to unwind, it is inevitable that concerns will be raised about the company’s corporate governance.  Among news reports on Monday, I heard the BBC’s attempt to talk to Baroness Sally Morgan: she said that as she had only been on the board since last July she wasn’t the person to talk to.

Now, I wouldn’t want to be put on the spot by a reporter in those circumstances but she is the senior independent director, a significant role. And she’s had six months to get used to it. Six very turbulent months, if reports are to be believed. I’m a little surprised that she hadn’t got her ducks in a row for the possibility of this outcome for the company.

The other female NED is Alison Horner who is also head of HR at Tesco. I’d have thought that job would be quite enough for anyone without the added workload of a NED post on a huge complex company in a completely different sector.

I think this raises an important question which, as far as I know, has never been researched: why do people seek NED appointments? The expectations placed on NEDs in the UK corporate governance regime are very high and, I have always thought, impossible to achieve.

When I interviewed audit committee chairs in FTSE 100 companies for my PhD research back in the 1990s, two of my interviewees were also FTSE 100 finance directors (when  did we start calling them Chief Finance Officers? And why?).

One explained that the chairman of his company had encouraged him to seek a NED appointment: he found it quite challenging in terms of time but saw a major advantage for his company in the information he was able to gather about how other companies grappled with similar problems to those he faced in his FD role.

The other FD held several NED appointments: he told me that he did this for intellectual stimulation and so that other companies could benefit from his extensive experience and it wasn’t that much of a challenge as he had his FD role running very smoothly and well under control (as it happens, that company disappeared not long after I talked to him…).

I once asked Adrian Cadbury why his committee set such store by NEDs, when there was already evidence from the US that they had difficulty in performing the oversight role assigned to them. With a twinkle in his eye, he first told me that that was the one thing that the committee could agree on … but then he explained his firm conviction, based on his own experience, that boosting the NED role would improve corporate governance.

That may well have been the case in the business environment of the late 1990s when boards included more executive directors than now and when there was a good supply of potential NEDs like Adrian: of sharp intellect, with many years of experience on boards and a strong belief in the public interest role of the public company. That generation is no longer with us: such men are few and far between these days.

Yes, they were men. It would be even more interesting to know why women accept NED appointments. Today they are greatly sought after, since appointing female NEDs is a quick way to satisfy demands for board gender diversity. But we’re told that the pool of available candidates is still small because the pipeline through to senior executive appointments is still slow, so I wonder about the pressure this then places on the women in that pool. And are they the first choice of headhunters? An inability to recruit NEDs would be a powerful signal of corporate problems…

A better way to increase board gender diversity could be to enlarge boards and to bring back the members of the executive group to main board membership. This would also ensure that NEDs sit around the same table as senior executives. At the moment, it is unclear how such interaction takes place. If contact between the board and the executive group is mediated through the CEO, this surely undermines an important purpose of UK corporate governance arrangements. which were originally intended to boost the oversight function of NEDs and curb management power.

Once upon a time in accountancy….

On Twitter this week, much to my delight I was followed by the excellent Sacha Romanovitch, the CEO of Grant Thornton. This prompted me to reflect on other excellent women who I follow there who are also making their mark in the profession and to wonder about their experience. Then I realised that, amazingly, this year it will be fifty years since I started my accountancy training. I hope things have changed... 

In 1968, graduating from the University of Manchester the proud bearer of a third class degree in economics and accounting (that’s another story…) I was articled to John Margetts at Peat Marwick Mitchell & Co in London. (My mum took a photo of me on the morning I started work: I look about 12 years old,  not 21. If I’d known then…)

Induction on that first day consisted of a lecture delivered by the head of what passed for HR in those days, one Commander Nightingale. The City at that time seemed to be full of men who had retired from the military but insisted on being addressed using their former rank. (Yes,  I’ve retired but I am still a professor because I have emeritus status, and please don’t ask why I’m not emerita…)

I don’t remember noticing any other women at that meeting although there were a few in that year’s intake. We were spread among departments and the only other woman I met on the internal training course which ran each month was Wendy from Singapore (who became a dear friend).

Among the Commander’s instructions was a strict warning that we were not to discuss our salaries so it was some time before I discovered that the male articled clerks were paid £800 p.a. as opposed to my £500. By that point I had already been told off for carrying a copy of the Manchester Guardian in plain sight (apparently I was only allowed to be seen reading the Times and the Financial Times) and warned that I should never come to work wearing trousers. My status as a token woman was confirmed by a supervising senior who observed that, as a Jewish woman, if I’d also had what he described as a “gammy leg” I would have ticked all the boxes.

At that stage of my life I had already learned that fighting back could sometimes be counter-productive and it was wise to choose my battles carefully so I decided to keep quiet and appear submissive. I wasn’t any sort of pioneer, I’m afraid.

The most senior woman at Peat’s at the time was called Pat Triggs. I never met her. She was spoken of with great respect by some but the general view was that, however good she was at her job, she could never be a partner simply because of her gender. I often think of her when people send me, as they often do, the famous Miss Triggs cartoon.

My department head, having created a minor incident by sending me on my first day to join the audit team at an Arab bank (they insisted that the audit team should be all male), realised that I could only be sent to more accommodating clients and I spent most of my first year in film companies in Soho. Throughout my training at every new place I had to explain that I didn’t have a machine with me because I was not the comptometer operator. 

In my final year, working on the audit of a major UK retailer, I was alone at lunchtime when the finance director appeared. “Where are the lads?” he asked. I said that they were all at lunch but, as I was the most senior person there that day, perhaps I could help. The look of horror on his face was memorable: “They’ve left a woman in charge?” he spluttered.  He left in a hurry, apparently to phone the audit partner to check.  I was quite impressed when he returned later and apologised profusely: he said he had no idea that Peat’s employed women other than secretaries and comp operators.

Articled clerks were occasionally invited to formal dinners with partners. Wendy and I were quite excited when we both received such an invitation, shortly before the end of our training. The dinner may have been at the Caledonian Club: I remember predicting to her that the menu would consist of various things I wouldn’t be able to eat, starting with prawn cocktail and haggis that would be piped in and served with neeps, all of which was correct. We arrived dressed up to the nines and were escorted to the rear entrance (are you surprised? There must have been some special dispensation to allow us to attend at all.) We were seated alternately with partners and after every course they all moved round so that the clerks got to make polite conversation with all the partners. I’m not sure if Wendy and I were expected to leave when the port appeared but by that time I was determined to stay put. And then a box of cigars came round. My uncle Mark had taught me how to smoke a cigar so I took one. A horrified silence descended on the room. That may have been the point when I realised that no-one was going to invite me to stay on at the firm after I qualified.

The three years of my training were generally unpleasant because of the behaviour of the men around me but very character building. I left Peat’s with considerable relief as soon as my articles ended. But, towards the end, the finance director at one major client often went out of his way to chat to me and even took me out to lunch. He was very keen to know about my experience as a lone woman. I felt obliged to paint a rosier picture than the reality. Many years later I was told that this charming man was so impressed that he persuaded his daughter to train with Peat’s. She ended up as a partner and the first female president of ICAEW. If I really did have some small influence on that, I feel rather proud and very glad that much braver women followed me.

Evidence based?

A couple of weeks ago the apparent banning of certain words in the US caused considerable concern. The context of this news report is important, as this article makes clear. So it’s probably a lot of fuss about nothing, although as a signal of what is going on in within the US government it may point to a worrying trend.

I don’t agree with banning language in general but conversations about this report, with particular reference to the term “evidence based”, have prompted some reflection. I think it would be no great loss if “evidence based” fell out of use since its meaning is unhelpful. (I’m not planning to delve into philosophy, law or any relevant literature: these are just some fairly random reflections, based on my own experience, and occasionally informed by Google. Does this count as “evidence based”? )

“Evidence based” usually precedes the word “policy” or “practice”.

Evidence based practice seems intuitively like a Good Thing, especially in the field of medicine. You’d probably want your medical practitioner to be using treatments that are tried and tested, which is what the description implies.

Google Books Ngram Viewer shows that there was a very steep rise in the use of the term through the 1990s, levelling out since 2004. Medical practice is where the term “evidence based” first arose, which is slightly worrying, given that it is so recent.  What was medical practice based on before? According to Wikipedia evidence based practice is contrasted to “rules of thumb, tradition and folklore”. (Folklore must surely have its place: aspirin is derived from plants in the willow family which were used in folk remedies long before the 19^th century discovery of salicylic acid. )

I don’t know anything about the politics of medical research but some superficial investigation online suggests that the term was introduced by Cochrane who advocated randomised controlled trials to support medical practice. You can read about him here  and here.

You can also search the Cochrane database.

 This provides a clear summary of systematic reviews of all the available evidence collected from reports of clinical trials etc. Importantly, it notes the extent of the evidence summarised and draws conclusions on the strength of the evidence.  But a word of warning: if you spend much time in the Cochrane database you may start to wonder what we do actually know about medicine with any certainty… For example, if you have been encouraged to have a flu jab, you might want to read this and consider whether it was worth it.

But I’m more interested in the application of the term to policy because I think this is more problematic. Googling “evidence based policy” throws up a huge  number of links (and alerted me to this book which looks very interesting and apparently critiques the Cochrane approach.)

There is an extensive literature on “evidence based policy”. Ngram shows that the term developed at around the same time as “evidence based practice”. Possibly the widespread adoption of “evidence based practice” led to some questioning of the evidence base of health service policy.

As individuals, we have our own criteria for judging the quality of arguments put to us. These may vary widely because such criteria will not be based solely on scientific evidence that we know about but will also be moderated by our own beliefs.  (The balance may not always be in favour of scientific evidence: see, for example, climate change deniers. And there is still a Flat Earth Society.)

So the value of evidence in supporting arguments is likely to vary at an individual level depending on all sorts of contextual factors. What about at the broader level of society?  If evidence based policy is a Good Thing, what evidence will be used and how will it be used in developing policy? How will ideology and evidence be balanced? Does “evidence based” mean that evidence outweighs ideology?

Here are two examples of policy making relating to corporate governance.  As far as I’m aware, neither of these have been claimed specifically to be evidence based, although they clearly are - to a varying extent.

1. The establishment of the Cadbury Committee was driven by the agenda of professional accountancy bodies, seeking to deflect attention from criticism of auditing , following several financial scandals.  The process of preparing the draft report involved the chair talking to interested parties - the intention was to produce a code based on best practice so these were generally practitioners of corporate governance. He also read relevant material and with the help of the secretary produced papers for discussion by the committee. Comments were invited on the draft report and the Code and recommendations were prepared thereafter. The evidence used did not include academic research: notably, academic studies had already questioned the monitoring efficacy of NEDs, which was a key assumption of the Cadbury Code.

2. The original Davies report on board gender diversity cited supporting academic research but ignored empirical studies which raised questions about the possibly negative consequences of implementing requirements about board composition. 

Each of these policy developments involved a process. Consultations took place. How reliable is the consultation process in collecting evidence? That’s difficult to judge because the process is often opaque. What are the evidence boundaries? Will gaps be identified?  A year ago I was involved in analysing responses to a UK government committee consultation. At the behest of the committee secretary, these were summarised according to respondent categories. One obvious category of interested parties had not provided any responses: although I drew this to the attention of the secretary, I don’t know if it was noted in the papers provided for committee members.

And who decides which interested parties will be consulted? And how will they be consulted? And what weight will be given to their views? How will the information they provide be presented to the ultimate decision makers? 

All policy is evidence based. Did the policy arise out of the evidence? Or was the policy  developed and evidence collected to support its advancement? Who decides what the evidence shall be, how it shall be collected and how it shall be interpreted?  I think the term “evidence based” implies that this process is neutral and objective. I don’t think it is.  You can’t take the politics out of policy.