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corporate governance
Trouble at the top for UK plc,companies to reveal confidential data
Jonathan Moules, FT Syndication Service
5/18/2004
There is trouble at the top of the UK's biggest publicly traded companies. The recent announcement of Luc Vandevelde's departure from Marks and Spencer was the latest example of a business losing its head without there being a replacement waiting in the wings.
He follows the precipitous departures of Sir Philip Watts and Walter van de Vijver from the top of Royal Dutch/Shell. Sir Christopher Hogg is understood to want to quit as chairman of GlaxoSmithKline next year, while a successor is still being sought for Richard Handover at WH Smith.
There is no shortage of talent to fill these roles, it appears, but few candidates who are willing to suffer the slings and arrows of running a company in the glare of public scrutiny.
Allan Leighton, the chairman of Royal Mail, BHS, and Wilson Connolly, says he gets a couple of job offers a week. But he is not surprised that so many high-profile positions remain unfilled.
In part, he blames the fashionable management techniques for hampering the development of dynamic business leaders. "We have got a glut of sameness," Leighton says.
But he believes the, biggest reason for the shortage of strong candidates to run FTSE 100 companies is the availability of better options elsewhere. "Private equity has suddenly become the place where it is better to be. You get less hassle and you get less profile and you get more money."
Many would rather join a privately owned company to avoid the charge of fat cat on the London Stock Exchange, Leighton adds.
"We jump up and down if the head of a FTSE 100 company gets £450,000 ($790,000) a year. You can get £1.5m in private equity."
His views are echoed by Aine Hurley, a partner at Odgers Ray & Berndtson, the recruitment consultants. "The role of the FTSE 100 CEO will always be the jewel in a very large number of people's crowns, but there are a number of other compelling situations at the moment."
The increased burden of new corporate governance rules and the global downturn have combined to make a FTSE 100 post less attractive than the same position in a private company, according to Ms Hurley.
The difficulty filling senior posts is not just a negative reaction to economic storms and the demonising of business heads, Ms Hurley adds.
The dotcom bubble of the late 1990s has changed the aspirations of many top-class executives away from the security of a big company post to the thrill of starting new enterprises. "A lot of people unexpectedly had the chance to make a lot of money during the late 1990s," Ms Hurley says. "They went into entrepreneurial activities, they would never have gone into before and liked the experience."
There has also been a trend towards shorter tenure. According to researchers at the MIT Sloan School of Management in the US, chief executives appointed after 1985 were three times more likely to be fired than those appointed before.
Recent research by DBM, the human resource consultancy, found that the cycle is accelerating with 51 per cent of chief executives in 2002 having held their position for fewer than three years.
Pressure to produce results is driving a lot of top talent away, according to Andy Andrews, a director at DBM. "The period of time that the average CEO has to prove that he is making a difference is getting shorter and shorter because of greater pressure from the media and financial institutions," Andrews says.
He explains: "It was not long ago that a new CEO would have a year or so to prove himself. Now people say it is 100 days."
Many potential candidates have already earned their stripes at the top of a blue-chip company and are looking for a better quality of life, Andrews adds.
"The sacrifices that some of these people make are considerable. Having done it, some of them now feel they don't want to miss out on other areas of their life, such as family."
However, it is not just the old who are turning their back on senior appointments in publicly traded companies. The younger blood is also looking elsewhere.
Alan Priest, senior consultant at Jackson Taylor Executive Search, says: "We are talking about professional people, probably in their mid-40s, who are determined to do well. They are wondering whether they would prefer to work in a different business environment or maybe in the US where risk isn't frowned upon."
Another FT Syndication Service report by Bob Sherwood also from London adds: Previously confidential information about companies' commercial activities is likely to be revealed as a result of the Freedom of Information Act, the UK information commissioner warned last week.
Richard Thomas, the data protection and freedom of information watchdog, made it clear that private companies would be drawn into requests for information from public bodies when the act comes into force in January, despite an exemption that protects commercially sensitive data.
He told MPs: "[Companies] will often see [the Act] as a threat because public bodies will hold information about private bodies."
From January, anyone can submit formal requests for information held by more than 100,000 public bodies, from government departments and local authorities to police forces, schools and hospitals. Unless the organisations can prove the information requested should be exempt from disclosure, they must respond to the request within 20 working days.
Such information requests might concern details of private finance initiative contracts or facts about companies providing outsourced services for government departments, for example. As a result many businesses will see the Act as an indirect, and unexpected, new regulatory burden.
At a special hearing of the constitutional affairs committee to consider Thomas's role, he told the MPs that the increasing use of private sector organisations in the delivery of public services made it inevitable that the introduction of the freedom of information regime would not just affect government bodies.
Though public bodies will be able to refuse to disclose information that could prejudice commercial interests, that can be overridden if the information is considered of sufficient public interest.
Thomas accepted that making judgments about such information was likely to prove difficult and could lead to disputes.
Graham Smith, deputy information commissioner, added: "What previously might have been accepted to be confidential because it was contained in a contract ... that might not be protected under freedom of information."
Such common commercial devices as confidentiality clauses might also be considered invalid for freedom of information requests, he said.
Thomas also warned that thousands of bodies were ill-prepared to handle freedom of information requests. "I would be foolish to say they are all ready. Of course they are not."
While most government departments were making strides on freedom of information, local authorities offered more of a "mixed picture", with councils of all sizes failing to take the necessary steps to handle information requests, he said.
But he warned: "Given the long run-in time, I cannot accept any arguments that they are not ready [once the Act is in force]".
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