At the very last minute the Insolvency Service, acting for the UK Government, has just abandoned disqualification proceedings against five former non-executive directors of Carillion, which collapsed in 2018. This is a massive relief, not just to those individuals, but to the whole non-exec community as it would have put full responsibility on all non-execs and audit committees to detect and stop hidden executive misconduct. Three ex-Carillion...
If there’s one topic that is almost guaranteed to quieten a board meeting, it’s when the CFO starts proposing that the company takes out a hedge. This is a very complex area of financial management and almost no-one understands them, and even fewer want to admit it1. Typically, the proposal is couched in obscure technical language, usually inspired by clever bankers, who outdo themselves to devise ever more complex devices and jargon. However,...
I travelled from Tashkent to Moscow on an Aeroflot Ilyushin 86 in the early 1980s. The seats were basic metal framed deckchairs, screwed to the floor1. Why don’t airlines nowadays use simple deckchairs on airplanes, instead of very heavy, crash-resistant ones? The fuel saving alone would be enormous and the temptation, especially to low cost carriers, must seem overwhelming. The answer is obvious, I hear you say; safety. But airlines spend...
The collapse of Carillion was a tragedy, especially for its 45,000 employees and 25,000 pensioners. In an earlier article, I looked at its last Annual Report to see if there had been clues that could have tipped readers off to the impending catastrophe. Since then, we have had Select Committee hearings and their January 2018 turnaround Business Plan has been released. This now gives quite a bit more colour to understand better what happened and...
Carillion has entered the pantheon of cursed companies following its recent failure. Politicians and the media have worked themselves in another fit of righteous indignation about greedy management and incompetent boards. The search is out for people to blame, shame and even prosecute. Regulators, sensing the flow of the political wind, are climbing on the bandwagon and looking for blood. Non-executive directors are reasonably enough feeling...
I gave a nervous laugh. The headhunter asked me if I would like my first non-executive director role, joining the board of Northern Rock. It was October 2007, a few weeks since the first run on a UK bank for 150 years. Struck by an uncharacteristic sense of adventure, I did indeed agree to serve on the Northern Rock board for the next year, becoming Chair of the Audit Committee, through the various bids, nationalisation and the rebuilding of...
A simple question, I’m sure you’ll reply. Everyone knows that a dividend is money paid to shareholders by a company to reward them for owning its shares. However, a non-executive director needs to know a little more than this, as dividends can prove surprisingly complex. A dividend is a form of shareholder distribution. However it is not the only form of distribution, the main alternative being a share buy-back. I’ll come back to that in...
Whether ‘tis nobler to buy back shares or pay a dividend? Introduction Maybe Hamlet was not so concerned with shareholder distribution, but most modern company directors certainly are. In an earlier article I reviewed why and how companies make shareholder distributions and in particular pay dividends. However there is another form of distribution, the share buy-back. Share buy-backs Companies can purchase their own shares, using cash...
It won’t be long into your first non-executive job when you start to feel as if the executives resent you. It’s okay. You haven’t become paranoid. They really do resent you. Why? Being an executive director is a tough job. You work all the hours that the Working Time directive allows, then you opt out and work some more. The market is very tough and competitive, and you end up making numerous difficult decisions. You do this for a couple of...
I’m going to take a wild guess here, that the least favourite part of a typical NED role is setting executive remuneration. To the media, and now even the government, it appears that NEDs love nothing more than awarding large pay increases, bonuses and pay-offs to executives. It often seems that investors share this perception, and believe that it is only institutional shareholder intervention that can restrain the irrational generosity...
People are only human. Occasionally they fall in love with other people. Ideally, the ‘other person’ works elsewhere, but sometimes the two work together. Many executives will have come across co-workers, who are in a relationship. This knowledge can vary from being a matter of mild interest to one of real discomfort. I had a boss once who was having an affair with their deputy in our small team. It was very uncomfortable most of the time, but...
The company was in financial difficulties, as changing market conditions had seriously exposed the misplaced strategy. There was however no suggestion that anything improper had gone on. The external auditors were high quality, and there was a competent internal audit team with appropriate risk models. Yet something didn’t feel right. Whilst the strategy had failings, the execution must also have been wrong, yet none of the KPI’s showed...
In previous articles, I covered how a board should react to an unsolicited approach or offer for the company, how it would value it, valuing shares versus cash offers, whether it’s friendly, unfriendly or hostile, and irrevocable commitments. Here, I am going to look at the different sorts of offers that you might receive as a board and how you might respond. The ‘knock-out’ offer This is an offer that you think is so good, that you and your...
My earlier article talked about how a board should respond to an unsolicited approach for the company. This looked at a straight-forward offer that the board has to review and accept or reject. However it’s not always so easy, as much depends on the attitude and tactics of the offeror. The chairman of one of my competitors, calling out of the blue, explained that they were about to offer for my company. They had already spoken to my two biggest...
I was having a good day, sitting in my office sorting a few things out. Then, late afternoon, the phone rang. It was the Chairman of one of our competitors. I hadn’t spoken to him before, but this was no comfort, as he revealed that they were about to make an offer for my company. As a non-executive, the first you may hear of an approach like this is when an urgent board meeting is called. There will probably be bankers, possibly lawyers too,...
The board is contemplating an equity raise. The brokers and CFO talk in respectful terms about preserving pre-emption rights and what this means for how they raise the new capital. Maybe you, as a new non-exec, are sitting there wondering what is this all about and why is it so important? However all directors should understand these issues, particularly as shareholders take this very seriously, and may well hold the whole board to account on...
Companies differ very much in their attitude to the importance of cash. If a business is private equity owned, highly geared (ie has a lot of debt) or has not a lot of headroom against its overdraft or debt covenants, it is likely to be very focussed on cash. Others, especially subsidiary boards, may look almost exclusively at profit. All boards should take cash very seriously. This is because profit is a theoretical concept, whereas you can...
One mistake that non-financial people often make is to assume that financial people both know what they are talking about and understand all the financial issues. Once you realise that neither of these may be true, you will feel less cowed by financial jargon and able to participate more freely. I have twice in my career come across toxic derivatives held by companies that the financial team believed to be sensible and prudent. The other board...
You’ve done your due diligence, you’re happy with the company and you’ve received a Letter of Appointment to become an NED. After a modest (it is only a non- exec after all) celebration, sit down and look carefully at what’s in the detail of the Offer before you accept it. 1. Time commitment: The Letter will say to which committees you have been appointed and the fee payable. Most public companies will pay a fee for chairing a committee. You...
I gave a nervous laugh. The headhunter had just suggested that I could start my non-executive career by joining Northern Rock. Why would I want to join the board of a bank suffering a run, the first British bank for over a hundred years to experience one? NED appointments are not for life, but they are generally expected to last two terms of three years, and any less will leave you permanently having to explain why not. You can’t easily take...
I’ve sat through many NED interviews, on both sides of the table, learning a lot about how they work and how to conduct them. I have not yet discovered the secret to identifying the ideal NED director nor to getting selected myself every time. Here are a few notes, however, to help first time candidates get the feel of what to expect. An NED interview is not like an executive one. The focus is not whether you can do the job, but about whether...
Induction Programme You should have some form of induction programme. However, rather than leave it to the Company Secretary, it will be a better and more comprehensive one if you take control of it. Unless you’ve already met them in your induction programme, you should meet the following; The executive/operating board members. The chances are that they will all be very upbeat and positive to you (whatever their private views), but you should...
Famously, in 2008, the Queen asked economists why no-one saw the great financial crisis coming, not least as they were giving her a full retrospective inquest into why it happened1. She might well ask the same question again now about the COVID-19 pandemic. Of course, some commentators did predict the likelihood of a similar pandemic. Bill Gates, not a renowned epidemiologist, in 2015 said; “If anything kills over 10 million people in the next...
Corporate Governance
Economics
Notes From A NED