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FLIGHT Howard 2

Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004.  He is now chairman of Flight & Partners Recovery Fund.

For nearly 50 years, I have believed that the primary role of a director of a company – both executive and non-executive (NED) – is to help the business prosper and succeed.

At “first take”, I see this as helping to get customers and orders:  more subtly, there is also the task of helping to steer the company away from trouble.  In today’s language, this is about ensuring there is good corporate governance and compliance with the relevant regulatory authority requirements.  But it seems to me that this is an important secondary role and duty, since customers and orders are the prerequisite to the company staying in business.

In the wake of the financial crisis and the unacceptable behaviour exposed in the oligopolistic, banking sector, the financial services industry is being “flooded” by both additional EU and international regulatory requirements.  Following Gordon Brown’s disastrous surrender of sovereignty in financial regulation to the EU, there is little the UK can do about this until or unless there are either successful renegotiations of our arrangements with the EU, or we withdraw from it.  In the meantime, the role of the NED is becoming increasingly that of the agent of regulators, with the primary duty of overseeing compliance with regulatory requirements and merely ratifying key decisions.

I think this is unfortunate both as a matter of principle and because of the resulting impact on how key business decisions are taken.  Increasingly, amongst large established businesses, it is an executive committee outside the Board which takes the key business decisions – leaving the Board, largely, with the roles of overseeing due corporate governance and regulatory requirements.

What is also bad about this is that the other crucially important role of NEDs – looking after the interests of shareholders – is today a duty often ignored.  There is, moreover, the inevitable tendency, when regulators look at board minutes, for these and the related board discussions to be tailored to what the regulators want to see.

We have thus moved a long way from Board Meetings being concerned, primarily, with the discussion and resolution of major business issues and the monitoring of shareholder interests – albeit that good corporate governance and regulatory compliance are important aspects of this.

I would like to see the BIS initiate a policy review of the role of Boards and NEDs, in both the corporate and national interest, involving some of the “giants” of today’s British business and also focussing, in particular, on the Financial Services sector.  To those who would add that the interests of the customer and consumer must also be addressed by the Board, I would comment that a successful business values its customers and has satisfied customers – and a failing business has dis-satisfied customers.  Only where there is a cartel or oligopoly can a business get away with treating its customers badly.

5 comments for: Lord Flight: What is the role of the non-executive director in today’s world?

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