| I am delighted to have been invited today to the
Institute's launch of their `Register' for Non Executive Directors - a
practical response to the challenges of improving corporate governance
by bringing together businesses looking for board members with talented
Chartered Accountants. I wholeheartedly welcome the initiative that is
being made available to the Institute's 49,000 members employed in the
management layer just below the board level - the level described as the
`marzipan' layer.
This is a significant number - and one that will certainly improve
the prospects of recruiting suitably qualified independent Non-Executive
Directors onto company boards.
Of these 49,000 members, I understand that almost 14,000 are women.
An encouraging demonstration of women reaching the higher echelons of UK
companies.
The ICAEW register will allow companies to identify a range of
candidates with professional qualifications and background - an
important contribution to good corporate governance.
Because, at its heart, this initiative is about how we maintain and
build good businesses and ensure and sustain market confidence in them.
Britain is fortunate in having so many good businesses, but we all know
that market confidence has been badly shaken by recent examples of
corporate malpractice.
We needed to act after Enron, but we did not panic. We reviewed
corporate governance and company law in a measured and inclusive way. We
consulted and listened to experts and asked Derek Higgs and Sir Robert
Smith to lead some of the work. We identified a package of measures that
would strengthen governance, accounting and audit. And we expect these
measures to lead to better-governed companies and better engaged
shareholders, producing successful UK companies.
This gathering today demonstrates that the Institute have embraced
the Higgs, Smith and Tyson recommendations from earlier this year.
The Higgs Report made a number of proposals, relevant to the board
structure. These recommendations were carried forward to the new
Combined Code.
- At least half the board (other than the chairman) will need to be
independent non-executive directors.
- All members of the audit and remuneration committees, and a
majority of the nomination committee, should be independent
non-executive director.
The Smith Report called for the strengthening of the role of the
audit committee. In addition to recommending all members of the audit
committee to be independent, Smith also recommended that:
- At least one member of the audit committee should have
significant, recent and relevant financial experience.
This underlines the importance of being able to recruit people with
the desired skills and this is where the Institute's register comes into
its own, as a provider of skilled personnel for this important work. But
I wouldn't want to suggest that register members should be restricted to
this type of work. There are clearly other non-executive roles where the
expertise of those on the register would be invaluable.
The Higgs Report also found that the appointments process was too
informal: over half of non-executive directors were appointed through
personal contacts and friendships. The Higgs Report made proposals to
promote meritocracy in the boardroom through a rigorous, fair, and open
appointments process and a wider pool of candidates.
It shouldn't be through ad-hoc personal contacts and friends that we
fill some of the most important jobs in the country. This Register
provides another important route to talented people. And to a wider pool
- an issue particularly highlighted by Laura Tyson, Dean of London
Business School when the group that she led reported in June this year
on the recruitment and development of Non-Executive Directors.
The Tyson report focused on a number of issues including: achieving
more diversity in the boardroom through a rigorous and transparent
recruitment process, the provision of better training and evaluation for
Non Executive Directors and, encouraged more research and measurement to
promote greater board diversity. This work is all being taken forward.
The report underlined that there was a clear business case for diversity
on boards.
It:
- Brings a wider range of perspectives and higher quality
decision-making;
- Gives a positive signal to customers, shareholders and employees
about the values of the company
- Provides for a better understanding by the board of its diverse
constituencies.
- And ensures female role models for younger high potential women
As you are aware, corporate governance is of international importance
and we are continuing to work with the EU and the OECD to enhance
corporate governance globally. Within the EU, we are seeking to ensure
that the Commission's proposals on company law and corporate governance,
and the statutory audit, genuinely contribute to the improvement of
corporate culture, across the EU.
Looking to the future, the move to International Accounting Standards
(IAS) in 2005 will be a major change for listed companies. Non Executive
Directors will have a vital role to play in monitoring companies' change
programmes, and the ICAEW members are ideally placed to help business
rise to this challenge.
I congratulate the ICAEW for leading the way in the formulation of
this register. I am pleased to note the Institute's diverse membership
and I very much hope that these members, with the potential to serve as
Non- Executive Directors, will take this opportunity and sign up to the
register. This will be of great assistance to nomination committees in
the process of recruiting non-executive directors. I am also encouraged
that over time, such registers of skilled personnel, across a range of
sectors, should lead to significant changes in identifying the most
appropriate people for non executive director duties on boards. This
clearly conveys a positive signal to the Institute's members and others
outside.
I feel optimistic for the future, where I see more rigorous, fair and
open appointments processes prevailing where candidates with the right
skills, knowledge and experience are recruited to boards helping to
assure the companies' shareholders, consumers, employees and suppliers
of its commitment to good corporate governance and contributing to the
aim that I know we all share - good businesses building long term
prosperity for the UK.
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