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The Sunday Telegraph: Negotiate the boardroom maze

By Richard Northedge 

(Filed: 20/08/2006)

Shell and BP are deadly rivals. But when the board of the Unilever food and household products group meets, Shell chief executive Jeroen van der Veer finds himself in the same room as Antony Burgmans, BP director and chairman of Unilever. The practice of plucking directors from one company to become non-executives of another produces many strange pairings such as this.

When the GUS board meets, it brings together Britain’s top banks. The retailer plays host to the chairman of Lloyds TSB, Sir Victor Blank, HSBC director John Coombe, Standard Chartered director and former Barclays finance director Oliver Stocken, plus Andy Hornby, chief executive of HBOS. Rio Tinto and Xstrata are rival FTSE100 mining companies, yet when the brokers and bankers of JP Morgan Cazenove meet, Rio director David Mayhew rubs shoulders with Xstrata director Sir Steve Robson.

The graphic on this page shows how a Chinese whisper could be conveyed round Britain’s boardrooms simply by a director repeating at one company what he learned at another. If we showed all the connections, it would look like a drunken spider’s web: John Buchanan, for instance, appears on the left-hand side linking Smith & Nephew to BHP Billiton, but he is also a director of Vodafone and AstraZeneca and previously sat on the boards of Boots and BP.

The nexus illustrated starts and ends with BP, Britain’s biggest company, and passes through a host of major corporations, but smaller loops exist within this circuit. If Sir Ian Prosser passed on the BP gossip to Sir Deryck Maughan in the GlaxoSmithKline boardroom and Maughan told it to co-director Rosemary Martin when they meet at Reuters, she could mention it at an HSBC bank meeting to finance director Douglas Flint – who just happens to sit on the BP board.

The path from Reuters in the top right-hand corner continues to Barclays via HSBC, ICI, Sainsbury, Standard Chartered and Rio Tinto, but the same journey could have been made by a shorter route: Reuters’ director Richard Olver sits on the BAE Systems board along with Sir Nigel Rudd – Barclays’ deputy chairman.

A look at Britain’s boardrooms shows the same names recurring. Even when directors move to another company, it looks like a game of musical chairs. When former Tesco chief Lord MacLauren ended his stint chairing Vodafone, HSBC’s retiring chairman, Sir John Bond, slid into the mobile phone group’s chair while its former chief executive, Sir Christopher Gent, took over as chairman of GlaxoSmithKline.

Are there really so few top-quality businessmen that the same ones must occupy so many boardrooms? The report on the effectiveness of non-executive directors commissioned by the Government and produced three years ago by Sir Derek Higgs called for greater diversity in choosing directors – but it also called for more non-executives, and that has increased the demand.

Higgs’s rules mean a chief executive should no longer double up as chairman. Nor should one person chair two FTSE companies. Non-executives must also outnumber the full-timers. And companies must have remuneration, audit and nomination committees – but the same non-execs should not sit on all of them. The audit committee chairman should be financially qualified. Former executives cannot count as independent part-timers either. Nor should non-execs spend more than nine years on a board.

So, even without the expansion in the number of quoted companies, there is a requirement for more non-execs – at a time when many business people are reluctant to join boards because of the legal consequences. Last week, the whole BP board was sued for closing the group’s corroded Alaskan oil pipeline. There is also competition from non-corporate bodies for non-executives: the NHS is currently seeking 1,100 for its primary care trusts, for example.

Even so, Britain’s boardrooms do look like an old boys’ network – or old girls’ network. Companies are eager to demonstrate diversity but seem unable to find a sizeable pool of women; a small number of female directors thus find themselves asked to sit on a large number of boards.

Rosemary Thorne sits on the Bradford & Bingley board with Lady Patten – and on the Cadbury board with Lord Patten, her former cabinet minister husband. Lady Patten has just swapped her directorship of GUS for a seat in the boardroom of rival retailer Marks & Spencer. She has been a director of the Somerfield supermarkets group, too, and Brixton Estate. She used to be a director of Ladbrokes when it was called Hilton and its former chief executive, Sir David Michels, is on the board of M&S too. Thorne also sits on the Ladbrokes board, as does former Bradford & Bingley chief executive Christopher Rodrigues. Sometimes business can be a very small world.

Sir Victor Blank chairs both Lloyds TSB and GUS. Two GUS directors sit on the Burberry board along with Philip Bowman, a director of Scottish & Newcastle, whose director Sir Angus Grossart also sits on the board of Trinity Mirror – which Blank chaired until May. Trinity’s new new chairman is Sir Ian Gibson, who sits on the GKN board with Kevin Smith, who is a director of Scottish & Southern alongside Susan Rice – a director of Lloyds TSB Scotland. Another ring that takes in Trinity sees chief executive Sly Bailey sitting on the board of EMI with Kathleen O’Donovan, who sat on the O2 mobile phone group’s board with David Arculus, who sat in the Barclays boardroom with Gary Hoffman – a director of Trinity.

Conspiracy or coincidence? Perhaps if different companies use the same headhunters they chose directors from the same limited lists. Whatever the reason, it gives credence to critics who regard the City as a cosy club.

Sometimes, directors hunt in pairs. When Christine Morin-Postel attended Pilkington board meetings she sat at the table with Oliver Stocken; when she attends 3i meetings, Stocken is there too. Sir Nigel Rudd, Pilkington chairman until this year’s takeover, also used to bump into Stocken in a second boardroom, at Barclays.

Peter Cawdron and Martina King both sit on the Capita board and both are directors of Johnston Press. Val Gooding, the Bupa chief executive meets her chairman, Bryan Sanderson, in her own boardroom – then finds that he is still her chairman when they meet at Standard Chartered. Sir Peter Sutherland and Sir Tom McKillop are much more democratic; at BP, Sutherland is McKillop’s chairman, but when they are both in the Royal Bank of Scotland boardroom, McKillop becomes Sutherland’s chairman.

That so many full-time directors have a part-time job in another company’s boardroom may be a good way of sharing skills, but one effect of Higgs is to limit the number of non-executive roles they hold. Sitting on half a dozen boards was once common; Cawdron is now unusual in being a director of seven public companies. Many executives now have just one non-executive directorship. But headhunters and nominations committees still seem to find it hard to think beyond other boardrooms when they need new directors; they turn to proven winners rather than seek new talent.

Executives of one company sit on the remuneration committees of other firms, pushing up executive pay with the knowledge that their own salaries will rise in line with the market. It is a magic circle by which those on the inside obtain lucrative part-time jobs, and those on the outside remain excluded.

Click on link below to view graphic
 
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/08/20/ccboard20.xml

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