Pension Governance

With the advent of compulsory pensions for employees it is somewhat ironic that the FSA yesterday confirmed that the projection rates used by pension companies to give investors an idea of what their pension will be worth when they retire must be significantly reduced. So, we are forcing people to invest in products that are dwindling in performance in the vague hope that this will somehow all work out all right by the time we actually retire. In the meantime, the burden on small businesses of the employer’s contribution makes it yet harder for the entrepreneur to create the new employment that the country so badly needs.

The burden on tax payers of an ageing population is undoubtedly an issue that needs to be addressed. However, we seem to be looking at it in isolation and not considering the wider implications today of a policy for tomorrow.

Tax Governance

The recession has taken away the concept of job security for most people. The risk therefore of starting up on your own, by comparison, is substantially reduced. With household names like Comet going under and others cutting staff costs dramatically, we are relying heavily on new small businesses to play a major part in pulling us back into growth.

So what are we doing to encourage this? The government has recently been promoting employee ownership. John Lewis is a shining example of the success of this concept. The proposal is to create an off-the-shelf model for setting up an employee owned business, to publicise it through the Institute for Employee Ownership and to create an implementation group to oversee it and provided feedback to government.

This is all very positive. However, we seem to have ignored the main reason why businesses have not generally embraced employee ownership in the past – the tax system is too complex and time-consuming and therefore acts as a deterrent. It is difficult to see how this initiative can be a success without simplifying the process.

Further confusion has been created by the simultaneous promotion by the Department for Business, Innovation and Skills of the new employee owner contract. Under this different initiative, the employee gives up some of their employment rights in return for shares. There is therefore the risk that employees will perceive that share ownership always comes at the cost of employment rights.

Raising awareness of employee ownership is undoubtedly a positive step. For it to have any real impact, the tax and procedural barriers need to be removed.

UK Cabinet Reshuffle

5 September 2012

So the government has been re-shuffled and the net result, contrary to election promises, is fewer women in the top posts. This seemed somewhat ironic in the week that the headlines report the EU draft proposal for a 40% quota for women on boards.

This proposal is expected to be formally introduced next month by Viviane Reding, the EU’s justice commissioner. It would require companies larger than 250 employees or with turnover of more than 50 million Euros to report annually on the gender make-up of their boards. Those that miss the mandatory quota would be subject to administrative fines or be barred from state aid and contracts.

Ms Reding has not taken this step lightly - voluntary schemes have been in place for some ten years, but progress has been incredibly slow. EU data shows that in January, women represented only 13.7 per cent of board positions in large listed companies. The draft directive quotes “an average annual increase of just 0.6 percentage points over the past years”.

Although several EU countries – including France, Italy, Spain and the Netherlands – have already adopted their own national quotas, it was Norway that led the way. Interestingly, the anticipated backlash there did not materialise. It soon became apparent that the women appointed were highly qualified and eminently capable of fulfilling their board roles. No-one could quite understand why they had previously been overlooked.

I confess to this being an issue close to my own heart as a woman who has fought her way up the corporate ladder in a highly male dominated environment. However, it is too simplistic to consider this a purely misogynistic issue.  Inviting women into the boardroom inevitably disrupts the well worn terms of engagement established over centuries of male camaraderie, but there are various stakeholders in the recruitment process, all of whom have a part to play in re-dressing the balance. Search executives can ensure that a balanced slate of candidates is put forward for interview. Appointments committees can move away from the old boy network for selection. But equally, women themselves can start to plan their careers more strategically, hone their skills, network their contacts and promote themselves with more confidence.

Norway’s experience has demonstrated that the real effect of quotas was to short-cut some of these obstacles in order that the full benefit of a gender-balanced board could be recognised and appreciated. It is therefore disappointing to learn from the FT’s report earlier this week that an official in the UK’s business department said: “Our position will still stand – we are opposed to legislation for quotas.” However, given the government’s approach to its own cabinet, this is sadly perhaps not surprising.

Vanessa Williams

Board Assessment - Challenges for Year to Year Continuity

Together with Vanessa Williams and Josephine Crabb we have developed a bespoke approach to Board Assessment that has been applied at a major UK member organisation over the past two years.  An important tenet of Board Assessment is to ensure that the process is conducted over several years in order to understand how performance is changing. 

Our work for this organisation was prompted by a collective recognition that Board Assessment made good business sense.  Shortly before the second year of the process was initiated there were substantial changes to the organisation's management.  This posed an interesting challenge for all participants - was this the time to express their frustrations and ask for change, or should they sit tight and wait for the new management to settle in?

The interim team decided to forge ahead with the assessment so that the new board would have a better view of what they would face.  The resulting assessment has achieved its objective - the new management have been appointed and the report is serving as guidance for new strategic board direction.

Ernst & Young have recently published commentary of Board Effectiveness.  Richard Wilson, partner in charge of the Independent Director programme, suggests some due diligence questions for those considering a new board directorship:

1  How well do I understand the company's business and the business model it is following?
2  How do my skill sets and experience add value to the business?
3  How does what I bring to the board complement the experience that already sits around the board table?
4  What do I think of the chairman and am I convinced the board wil be led effectively?
5  What is my impression of the chief executive and the management team and is there enough initial engagement for me to make an assessment of their capabilities?
6  Do I have enough time to take on the appointment?

Ernst & Young publish quarterly BoardMatters.  To download a copy visit www.ey.com/publications.