‘ONE SIZE FITS ALL’ GOVERNANCE FRAMEWORK A BAD IDEA SAYS KORN/FERRY

‘ONE SIZE FITS ALL’ GOVERNANCE FRAMEWORK A BAD IDEA SAYS KORN/FERRY

- World’s largest senior executive search and leadership consulting firm responds to the European Commission’s public consultation on EU corporate governance principles –

Europe-wide limitations on Board mandates could be counterproductive -

Boardroom recruitment policies should encourage diversity beyond gender -

The introduction of a ‘one size fits all’ corporate governance framework could cause significant disruption to boardrooms with no guarantee of improvement, according to the world’s largest senior executive search and leadership consulting firm.

Korn/Ferry International, which has been advising company boards for 40 years, highlights potential issues in its response to the European Commission’s public consultation on corporate governance.

Korn/Ferry says that corporate governance systems across the EU are varied and that at a time when individual member states are undergoing significant change in order to respond to governance issues of today, the introduction of a single EU code would cause unwarranted disruption with no guarantee of any gain.

European-wide limitations on NED mandates could be counterproductive

Korn/Ferry says that an EU limit on the number of mandates a non-executive or supervisory director may hold could cause significant upheaval as directors adjusted their portfolios in order to comply with the ruling. It could push business leaders in the direction of private equity board positions, reducing the amount of talent quoted company boards could draw upon, and potentially lead to upward pressure on boardroom compensation.

Richard Emerton, Head of Korn/Ferry’s Board & CEO Services Practice, EMEA, said: “We have concerns over any proposal to introduce mandatory caps on board mandates.  The issue is one of available capacity, rather than a rigid maximum number of board positions.  In the UK there is already an encouraging trend of self-regulation, as the increasing time demands required by most company boards have made directors much more reluctant to over-extend themselves while available capacity has also become a critical test for nomination committees as they consider short lists of candidates.”

He adds:  “In the UK for example, since July 2006, the percentage of FTSE 100 NEDs with more than three quoted board roles has reduced from 25 per cent to 20 per cent, those with more than four from 13 per cent to 8 per cent and the number of NEDs with more than 5 positions has reduced from 5 per cent to 2 per cent.”

Diversity beyond just gender is necessary to improve board effectiveness

Korn/Ferry argues that, while many boards are already taking significant steps to improve gender diversity, more focus is required on the broader topic of diversity. While supporting Lord Davies’ recommendations in the UK on helping the advance of women to the boardroom, Korn/Ferry believes that board recruitment policies should go further to ensure diversity beyond just gender.

Richard Emerton continued: “As well as the right experience, Boards need to have the right behaviours in order to provide an appropriate forum for constructive debate, to avoid ‘group think’, and to ensure that they are truly effective in both supporting and challenging management. One important way to address this issue is to broaden the diversity of thought and view point in the boardroom. Recruitment policies should encourage a greater range of diversity of behaviour and perspective.”

Consistency of board evaluations

The Green Paper asks whether boards should be encouraged to conduct an external evaluation on a regular basis, which Korn/Ferry contends can add significant value to a board’s effectiveness, if carried out in the right manner. However, the company says that a growing number of suppliers, ranging from sole practitioners to larger professional services firms, apply differing standards and approaches to board evaluation.

With this in mind, Korn/Ferry advocates the development of a small number of clear and simple principles of best practice to form the basis of a minimum requirement of any board evaluation. 

Richard Emerton explained: “A set of agreed minimum standards for external board evaluations, coupled with a requirement for companies to disclose the parameters of the review, key findings arising from it and the actions that will be taken as a result, would help to ensure consistency of approach and ‘raise the bar’ at a pan-European level.”