The Prudential - Governance in 2010
The world of corporate governance and shareholder expectation is changing fast. Pressure is building in all sorts of areas such as executive remuneration, the number of Board roles held by Directors, their skills, experience and the lack of diversity which has been blamed in some quarters for causing the banks to fail so spectacularly.
In the midst of all this, the Chief Executive of the Financial Reporting Council in the UK has called on the European Commission to focus on behaviours rather than rules in a recent speech. Stephen Hadrill argued that the current regime of "comply or explain" should remain a fundamental cornerstone of the EU framework. The context of modern governance following the financial crisis was to consider what impact Directors personal values and principles may have on governance and sustainable corporate performance. Executive remuneration links in to this debate and says a lot about Boards, their Non Executives and Chief Executive Officers.
He goes on to say "above all, those responsible for change must recognize that rules are not an end in themselves. The goal is to encourage the right behaviour in the boardroom - openness, probity, clear strategic thinking, selfless stewardship - in the interests of the company and its owners. Law provides minimum safeguards. But in our ever-changing global economy which throws up an endless stream of complex challenges, governance needs to be rooted in the directors personal commitment to strong principles and values, supported by engaged investors. Those are the aims of the UK Corporate Governance and Stewardship Codes. And in view of the record of progress in UK corporate governance, they are aims that I am confident they can and will deliver.”
Mr Haddrill highlighted the importance of international analyses of what went wrong, the role that governance had to play, and the likelihood of EU actions in this area. He warned of the need to build on rather than abandon the strengths of the existing system in that mere compliance with regulation may provide false comfort for companies and investors.
Calling on a sense of realism about how quickly the consultation on a Stewardship Code for institutional shareholders might deliver any results he noted that increased transparency and accountability throughout the complex investment chain would, of itself, be a benefit to pensioners, policy holders and other asset owners.
As if to illustrate the wider point, the Chief Executive Officer of the Prudential, Tidjane Thiam has turned down Société Générale’s offer to join the French bank’s board. The UK insurer is in the middle of bidding for AIA, the Asian operations of AIG. Mr Thiam said in a statement that he was flattered to have been selected for the position, which would have been put to a vote of Soc Gen shareholders in May but stated his absolute priority was to continue to focus on delivering strong results for the Pru’s shareholders. The Pru’s top executives have seen its 30 biggest shareholders since the announcement of the proposed takeover and a number are said to be sceptical on the value of the deal and clearly concerned about management stretch following reports of the Soc Gen offer.
For some time Harvey Nash and the CBI (Confederation of British Industry) have been calling on company Boards to exercise restraint and caution in the face of public (and investor) opinion which has turned remarkably hostile post the failure of Lehman Bros.
Whatever the merits of the Soc Gen offer, Tidjane Thiam was well advised to respond to the mood of investors and demonstrate those values espoused by the FRC. "Openness, probity, clear strategic thinking, selfless stewardship, all in the interests of the Prudential and its owners.
Tidjane, we congratulate you.
March 18, 2010 06:12 PM | Permalink
