Nobody’s going to sign up to a high-risk company if they think they could lose their house

Nobody’s going to sign up to a high-risk company if they think they could lose their house in the event of a corporate meltdown.There are obvious practical problems with some of the proposals, not least with the idea that at least half of all boards are made up of independent non-executives. It seems to me that the Higgs report provides an excellent blueprint for rebuilding trust in the effectiveness and accountability of the British boardroom. It’s right that companies such as Morrison exist, but it is also right that shareholders understand the risks and are content with the explanations.The crucial thing is that shareholders are able to trust the chairman and chief executive, as well as the mechanisms that hold them in check and make them accountable. Sir Ken Morrison has had to bow to convention with his bid for Safeway by promising to bring in some non-executives, but he’d still sooner have check out girls on his board than non-execs. The same is true of Enron, where outright fraud was involved.

You can have as many codes, checks and balances as you like, but it isn’t going to stop companies occasionally going off the rails, nor should it, for if you removed all risk from corporate life, there would be no innovation, growth or renewal at all.On the other hand, Wm Morrison has the most politically incorrect board in the FTSE 100, but it’s a hugely successful company. Furthermore, corporate governance has been a big issue at British Land.Mr Higgs neatly sidesteps the suggestion that his review puts him in breach of his own guidelines by making his recommendations “a counsel for best practice”, and not an absolute obligation. As a consequence he’s been criticised as a bit of a poacher turned gamekeeper, a perception to some extent supported by the fact that his own position as a non-executive director of British Land is compromised by his role as a former adviser to the company and a consultant to the company’s existing investment bank adviser, UBS Warburg. All he got for his trouble was criticism and mockery.Mr Higgs is a different kettle of fish altogether. The fact that his business, Marks & Spencer, was going to hell in a handcart while he was off undertaking the review is almost by the by.

In the US, they already have one, in the shape of Sarbanes Oxley Act, and jolly poor, divisive, badly thought out, prescriptive legislation it is too.Previous standard bearers for the corporate governance reviews occasionally foisted on the City by hostile public opinion have generally come bitterly to regret ever taking the job, most notably Sir Richard Greenbury, who by the end thought it a poisoned chalice. Post the scandals of Enron and WorldCom, the chances of what Mr Higgs refers to as the corporate equivalent of a Dangerous Dogs Act were high. Those hoping for more will be disappointed.
Business and the City, on the other hand, will be counting their blessings, for what Mr Higgs has done is perform the vital public service of defusing the debate and heading off at the pass the army of do-gooders hell bent on root and branch reform or something worse. On one level, his report is no more than a reworking of previous codes and ideas, updated and strengthened to take account of recent scandals.