'The Trouble with Executives': Cambridge Private Law Centre Allen & Overy Lecture 2014

CAMBRIDGE ALLEN & OVERY LAW LECTURE 2014
4 November, 2104

“THE TROUBLE WITH EXECUTIVES”
by Graham Vinter

As befits a legal lecture, I need to start with a disclaimer. The views expressed in this lecture are solely mine and not those of either BG Group (where I am currently General Counsel) or GC100 (where I am currently chair).

The title to this lecture clearly invites the listener to put a question to the lecturer: what is the trouble with executives? It is a good question and one which I will obviously set out to answer. But first, I have to ensure that we are speaking the same language. When I refer to a director, I mean either a non-executive or an executive director of a company. Non-executive directors are not meant to be involved in the business of their company in an executive or managerial way. It used to be thought that a non-executive director needed to devote 20 – 25 days per annum to each company of which he or she was a director but this number is creeping up, especially for non-executive directors of the UK’s larger listed companies. An executive director is a director who is involved in the business of their company in an executive or managerial way. In the UK, the Chief Executive Officer (or CEO) and the Chief Financial Officer (or CFO) will invariably be executive directors. What other executive directors there are may depend on the industrial sector involved; in larger companies, other people may also be executive directors. It used to be the case, for example, that heads of substantial business divisions would also be on the board. I will come back to this issue later.

The balance of and interaction between executive and non-executive directors is a matter of some debate. The guidance offered by the Financial Reporting Council’s Corporate Governance Code states that “the board should include an appropriate combination of executive and non-executive directors … such that no individual or small group of individuals can dominate the board’s decision making” . I will say more on this provision later as well. Interestingly, the Code also provides that “the chairman should hold meetings with the non-executive members without the executives present” .

When I refer to an executive, I mean any executive director and any senior employee of a company who is not a director but who reports to an executive director and who heads one of the business’ divisions or functions. The executive directors and these senior employees – the other executives – will invariably meet as some form of formal or informal executive board or committee (more on this later). In true legal fashion, I need to declare an interest at this stage in my lecture because I am, on this definition, an “other executive”. I head my company’s legal function and I report to my Chief Executive. I have to leave it to you to work out whether or not this represents a conflict of interest with what I have to say and, if so, whether or not I have been able to rise above it.

So, at the top of our larger UK companies, the landscape is dominated by three classes of people:

1. The non-executive directors;
2. The executive directors; and
3. The “other executives”.

The executive directors clearly have a foot in both camps: they are executives and they are directors. This is a rather peculiar feature of the single or “unitary” board structure: executive directors are to some extent both the governors and the governed.

In terms of remuneration, there is an extremely large disparity between what executive and non-executive directors can earn. Just to illustrate the point, I’ve taken a couple of figures from Vodafone plc’s 2014 Annual Report. In the Remuneration Report contained in that Annual Report, you will see that the total remuneration for the 2014 financial year for Vodfone’s CEO is given as just under £9 million. Ignoring the Chairman, the highest paid non-executive director in that financial year was the Senior Independent Director who was paid a fee of £160,000. I’ve done the maths for you – the CEO was paid 56 1/4 times what the Senior Independent Director was paid.

There is a very real risk/reward issue for non-executive directors. As directors, they are prima facie subject to the same legal duties and liabilities as the executive directors. The Corporate Governance Code, however, draws a distinction between non-executive and executive directors. It provides helpful guidance on what is actually expected of non-executive directors: “as part of their role as members of a unitary board,” it states, “non-executive directors should constructively challenge and help develop proposals on strategy”. The Code further states, “non-executive directors should scrutinise the performance of management [i.e. the executives] in meeting agreed goals and objectives and monitor the reporting of performance” . As far as the Code is concerned, the non-executive directors’ role is a supporting and supervisory one; their hands are not on the levers or the buttons.

It’s now time to send you all to sleep and to bring management consultants onto the stage.

While all of us in this room may now be speaking the same language, it’s not a language that management consultants use. The lawyer’s stock-in-trade consists of rights and obligations but the management consultant’s stock-in trade consists of figures and organisational charts.

Some of you may know of an excellent book on the history of the company written from an economic standpoint by two journalists from The Economist, John Micklethwaite and Adrian Wooldridge . One of the themes they develop in their book is that one of the main reasons for America’s industrial dominance after the First World War was better organisation on the part of its corporations: “a new culture of management”. They identify as the pioneer of this new culture a man called Alfred Sloan who became the President of an ailing General Motors in 1923. Sloan and GM’s then largest shareholder, Pierre du Pont, decided that GM’s activities were too disparate to be run centrally and they created autonomous business divisions. Micklethwaite and Wooldridge describe the resulting organisation as follows:

“Each division was defined by the market that it served, which … was determined by a ‘price pyramid’: Cadillac for the rich, Oldsmobile for the comfortable but discreet, Buick for the striving, Pontiac for the poor but proud, and Chevrolet for the plebs.”

Micklethwaite and Aldridge continue:

“By providing a car ‘for every purpose’, the pyramid allowed GM to retain customers for their whole lives. It also ameliorated the economic cycle. In boom times, … GM could boost profits with high-end products; in busts … it could rely on Chevvys.”

Sloan marshalled his business divisions under an overarching and powerful general office full of “numbers men” which ensured, for example, that GM capitalised on the immense purchasing power it could achieve by pooling the demands of each of its divisions. Quoting again from Micklethwaite and Wooldridge:

“Divisional managers looked after market share; the general executives monitored their performance … At the top end, a ten-man executive committee, headed by Du Pont and Sloan, set a centralized corporate strategy.”

Henry Ford did not embrace Sloan’s managerial reforms. By 1929, Ford – which was then still run by Henry Ford himself – saw its market share fall to 31% while GM’s share had gone from 17% a few years earlier to 32.3%. Despite this and the pre-eminent economic position of the great US companies throughout the 1950s and 1960s, Micklethwaite and Wooldridge believe that UK companies did not really realise the importance of organisation - and most importantly – of devolved organisation until the 1970s … by which time “more than half of Britain’s hundred biggest industrial companies had turned to consultants from McKinsey”, the management consultancy.

If General Motors in the 1920s and 1930s was a complex organisation, today’s large modern listed company is a hyper-complex organisation. No one man can possibly understand everything relevant to each and every business decision a large modern company needs to take. The complexity of modern tax statutes alone proves the point. So do the myriad of detailed compliance rules in the financial sector. The reality of modern corporate life is that, as you go further up the corporate hierarchy, decisions are taken at ever higher levels of abstraction. (Alfred Sloan would be proud!) Briefing papers and proposals are worked on by subject-matter experts and passed up the line for endorsement and refinement until the individual or body endowed with the requisite authority is reached. And what that individual or decision-making body will most need in the paper he or it is presented with is a recommendation.

And now finally, after this long introduction, it’s time to bring the subject of this talk – the executive (and more precisely the executive who is just an executive and not an executive director) – out of the shadows. And in order to make things comprehensible from this point on, I will refer to these executives as “ordinary executives”.

To assist a CEO in taking decisions, most large public companies in the UK will – like the General Motors of the 1920s - have some form of executive committee. Whether or not this is the case and what form any executive committee might take should be disclosed in a company’s annual report. I will readily confess to not having gone through the annual report of each and every FTSE 100 company. However, I do have at my disposal the results of a poll of FTSE 100 companies on the topic undertaken in April this year. 48 companies responded and 44 said that they did have an executive committee, although – as you would expect – not all companies called it an executive committee (although, frankly, most did).

The legal status of the executive committees varied. 20% of the respondents to the poll said that their executive committees did have formal legal status in that they were committees of the board, even though only executive directors and not non-executive directors sat on them (along with their colleagues who were ordinary executives). Where an executive committee was not a formal board committee, it was usually an ad hoc committee set up by the CEO. In this type of case, the correct analysis must be that the executive committee merely advises the CEO in the exercise of the powers delegated to him by the board. By contrast, where the executive committee is a formal board committee (and subject always to its constitution), the CEO can presumably be outvoted by the other members of the committee – even though a majority of those members might not be directors. The poll also revealed that 70% of the executive committees had formal rules of governance or terms of reference but in two-thirds of the cases where those rules or terms of reference existed, they were not public.

So here we seem to have a rather curious possibility. Some of our companies might have a formal committee in which ordinary executives could, in the first instance at least, outvote executive directors. It’s time to look in a little more detail at what these ordinary executives actually do in a large modern UK listed company.

Where one of these ordinary executives is in charge of a division of their company, if that company is one of the companies at the top end of the FTSE, these divisions might be larger – in some cases many times larger – than entire companies at the lower end of the FTSE. At market close on 10th October this year, each of the top 25 companies in the FTSE 100 had a market capitalisation above £20 billion; by contrast, each of the bottom 33 companies had a market capitalisation of below £5 billion. A “divisional manager” (to use Alfred Sloan’s nomenclature) or an ordinary executive in charge of a division of a FTSE 25 company could therefore be running an enormous and complex business in his or her own right. Let me take you back to what I said about hunting for recommendations in briefing papers. Any recommendation made by an ordinary executive in relation to his or her division in a paper presented to the executive committee or board will carry enormous weight. A CEO will be able to challenge such a recommendation and (through prior briefing sessions) a CEO is likely to have a more informed view on the proposal than most, but he will not be privy to all of the detailed work that has gone into bringing the proposal to the executive committee or board in the first place. Where ordinary executives are heads of a function (for example, the General Counsel or an executive in charge of marketing or public relations or even HR), their recommendations are again going to carry significant weight.

In today’s larger companies, ordinary executives are likely to be the people at the top of the organisation who really know the detail of what is going on. We shouldn’t be surprised by this: it is, after all, their job. Not for them (usually at least) the presentations to and meetings with investors and stock market analysts that can take up so much of the time of the CEO and CFO and which are repeated with metronomic regularity every quarter; ordinary executives must focus on the detail of the business.

Nothing illustrates this more starkly for me than the process that is often undertaken to reassure the directors in relation to their personal legal liability. There are – as I am sure you know – various instances when directors will be asked to put their reputations (if not their personal assets) on the line and certify or take responsibility for the accuracy of statements made on the company’s behalf. Here is an example in relation to a director’s liability for the strategic report included in a company’s annual report and accounts :

“(1) The strategic report must be approved by the board of directors…
(2) If a strategic report is approved that does not comply with the requirements of this Act , every director of the company who –
(a) knew that it did not comply, or was reckless as to whether it complied, and
(b) failed to take reasonable steps to secure compliance with those requirements…,
commits an offence.”

Quite rightly, the directors look for comfort from their executives in relation to their liability in these circumstances and will usually require back-to-back certificates from the responsible executives. After all, as we have already noted, it is the executives who understand the detail and it is the executives of a company and senior employees reporting to those executives who actually run the business. The executives also control the flow of information up the company and into the boardroom. It may be a bit controversial, but it is hard to deny that the non-executives mainly see what the executives want them to see.

We have for two decades and more – since the publication of the Cadbury Report in 1992 – sought to improve the quality of contribution made by the directors of our public companies and to instil in those directors high standards of conduct. The Corporate Governance Code published by the Financial Reporting Council or FRC is rightly regarded as one of the best codes of good corporate governance in the world. It is, however, in essence still a voluntary code and this type of flexible “City of London” approach was never going to satisfy the press and the politicians in relation to the ever increasing levels of executive pay. Shareholders appeared toothless in the face of pay awards granted by boards to their executive directors which appeared to be at best excessive and at worst egregious. Until recently, the most that any aggrieved shareholders could do was vote against a company’s remuneration report in an “advisory” vote. Even today, no amounts paid to executive directors need to be repaid if the shareholders vote down a company’s historic remuneration report.

The Enterprise and Regulatory Reform Act 2013 gave the shareholders more teeth . Investors can now vote on a three-year long remuneration policy and a company can only make payments to its directors in accordance with that policy. Any director who authorises a payment in breach of an approved policy is liable to personally indemnify the company (although, in any proceedings to enforce such an indemnity, the court has a discretion not to require this if (essentially) the director can show that he acted honestly and reasonably).

So far, so good. But what about the ordinary executives? In one recent case, investors expressed grave concern over the size of a remuneration package offered to a newly appointed executive director only to find out that the new appointee, when an ordinary executive, was already being paid more than the outgoing executive director he replaced. A few years ago, I met one of our Australian lawyers in BG Group’s reception and saw that he had been thumbing through our Annual Report. He was staggered that it did not contain any information on any executive’s pay other than the executive directors. The Australian rule is different and I have more than a suspicion that he was trying to find out what my remuneration package was!

Following the Global Financial Crisis, this was, of course, changed for bankers. The Remuneration Code (which is now jointly published by the Financial Conduct Authority or FCA and the Prudential Regulation Authority or PRA) came into force in 2011 to meet the requirements of the Capital Requirements Directive and it broadly applies to senior management, risk takers and staff in control functions. The Code does not seek to regulate individual levels of pay but seeks to ensure that pay packages do not encourage inappropriate risk taking and are at a level banks can afford. A cursory read of the PRA’s comments relating to the Remuneration Code reveals that, in their opinion, the pay incentives for executives – and really they mean ordinary executives and those below - were a major contributing factor to the PPI misselling and LIBOR scandals.

But this is only pay and rations. It does, however, prompt us to ask the central question of this talk: what does the law or the appropriate regulator – in this case the Financial Conduct Authority in its role as the UK Listing Authority – have to say about the role and conduct of ordinary executives in companies generally?

Take your copy of Butterworths Company Law Handbook and shake it upside down. Shake all of the 1300 and more sections of the Companies Act 2006. Not much falls out to do with ordinary executives. The most that seems to fall out will be references in the penal sections dealing with sanctions which may be applied to any “officer of a company who is in default” . An “officer” for these purposes is defined as “any director, manager or secretary”.

Now, of course, our corporate life has been Americanised. Instead of “managers”, we have executive vice-presidents, senior vice-presidents and senior executive vice-presidents – in fact, every possible type of vice-president, each with a title more baffling than the next. In addition, by the way, the very title “Director” has become completely adulterated, particularly in the banking sector, with many people held out as Directors and even Managing Directors who are nothing of the sort.

Nevertheless, notwithstanding the definition of “director” in S.250 of the Companies Act 2006 as “any person occupying the position of director, by whatever name called”, it would be odd to say that ordinary executives of a public company were directors when a full-blown board exists. In any event, this is not the problem I am exploring. I am trying to see what restrictions might be imposed by the law or regulation on people who patently are not directors. So let’s keep on looking.

Do the “shadow director” provisions of our companies legislation apply to ordinary executives . (A “shadow director” is defined as “a person in accordance with whose directions or instructions the directors of the company are accustomed to act”.) It will obviously be a matter of fact as to whether or not a particular ordinary executive falls within this definition in any particular case. Clearly an ordinary executive could fall within the definition, but the shadow director concept is of limited application. Shadow directors are not directors for all purposes and the main external impact of the concept of is to be found in the wrongful trading provisions of the Insolvency Act 1986. Nevertheless, s.170(5) of the Companies Act 2006 states that the general duties of directors specified in sections 171 – 177 of the Act apply to shadow directors “where, and to the extent that, the common law rules or equitable principles so apply” – whatever that means. So the shadow director provisions might impose some restrictions on ordinary executives but, again, this does not address the particular problem I am exploring. What restrictions are there in our general body of company law and regulation on senior executives who are not acting as directors?

Now I assure you that I am not citing from this book simply because Professor Worthington, who invited me to give this lecture, is one of the authors, but Gower on Company Law acknowledges that there is a paradox here. The authors state:

“The general statutory duties [of directors set out in the Companies Act]…clearly do not apply to managers who are not directors of the company. However, it is important to note that, when applying the law relating to directors’ duties, the courts do not distinguish between the actions of the director as director and actions qua manager, where the director is an executive director of the company. Those duties will apply to both aspects of the director’s activities.”

So the general statutory duties are a good rule book for anyone managing a company but only if you are a director of that company. The authors acknowledge the force behind the argument that the statutory duties should be extended to ordinary executives but acknowledge that this view has not found favour in the English courts. They conclude:

“The exclusion of senior managers as such from the statutory general duties of directors probably depends upon the continuation of the UK practice, as recommended in the UK Corporate Governance Code, that the board should contain a substantial number of executive directors. If British practice were to move in the US direction of reducing the number of executive directors on the board, sometimes to one (the CEO), confining the statutory duties to members of the board might become a policy which needed to be reconsidered.”

If you recall, I mentioned the following guidance from the Corporate Governance Code at the beginning of this talk:
“The board should include an appropriate combination of executive and non-executive directors (and, in particular, independent non-executive directors) such that no individual or small group of individuals can dominate the board’s decision taking.”
This is a so-called supporting principle behind a main principle of the Code dealing with boards having an appropriate balance of skills, experience, independence and knowledge. But if you look at the 2006 version of the Code, you will see that a very slightly reworded version of this supporting principle was in fact the main principle under a section headed “Board balance and independence”. This old version spoke of “a balance of executive and non-executive directors” rather than “an appropriate combination of executive and non-executive directors”. In addition, there was a supporting principle which read:

“To ensure that power and information are not concentrated in one or two individuals, there should be a strong presence on the board of both executive and non-executive directors.”
This reference to there being a “strong presence on the board of both executive and non-executive directors” has now gone. On a straw poll that I conducted recently by looking at the websites and latest annual reports of the ten largest companies (by market capitalisation) in the FTSE , each company had on average usually 2 - 3 executive directors and usually 10 – 12 non-executive directors. The CEO and the CFO were always directors and, where there was a third executive director, this was usually a Chief Risk Officer in the case of the banks or a Chief Operating or Technical Officer (or the equivalent) in other cases. Three of the top ten companies in the FTSE only had two executive directors. We have gone from the executive directors having a “strong presence” on the board to having them swamped!
In the UK, we might not have moved to the US model but we have certainly moved towards it. If you talk to recruitment consultants, they will confirm as much.
But let me come back to my hunt for provisions in the general law regulating the conduct of ordinary executives. As employees of a company, ordinary executives owe certain duties to their employer under employment law and their employment contract. While some of the duties under employment law are co-incident with a director’s statutory duties – in particular the duty of fidelity - general practice is to expand on an ordinary executive’s duties in his employment contract or through the company’s employment policies. But I have never seen an ordinary executive’s employment contract which replicates the general duty to promote the success of the company contained in s.172 of the Companies Act (with all its nuances). S.172 marked a turning point in recasting the old common law duty for a director to act in the best interests of his shareholders so that a company’s place in larger society was recognised: in exercising his duty to promote the success of the company, a director now has to “have regard to”, inter alia, the impact of the company’s operations on the community and the environment. Does an ordinary executive have a legal duty to have regard to such matters? Even if he does, if this duty arises out of his employment contract, it is owed in practice to the CEO as his line manager and not to his company’s shareholders.
What about the Corporate Governance Code? Is there anything there? The latest version of the Code cites a paragraph from the first (1992) version of the Code and goes on to say:

“Corporate governance is … about what the board of a company does and how it sets the values of the company. It is to be distinguished from the day to day operational management of the company by full-time executives.”

So the Corporate Governance Code does not seek to directly regulate ordinary executives .

So what about the UK’s Listing Rules? These only make mention of ordinary executives in connection with dealings in a company’s securities and pursuant to provisions in the Financial Services and Markets Act 2000 which require rules to be made for the disclosure of dealings in a company’s securities. The relevant provisions of the Listing Rules apply to “persons discharging management responsibilities”. These persons are defined in section s.96B of the Financial Services and Markets Act 2000 as each director and each:

“… senior executive … who –
(i) has regular access to inside information relating, directly or indirectly, … [to his company]; and
(ii) has power to make managerial decisions affecting the future development and business prospects of … [that company].”

An ordinary executive may fall within this definition. It is not a bad definition of an ordinary executive, in fact, although I personally believe it could be improved by referring to an executive having “power to make managerial decisions affecting the future development and business prospects of … [a company] or any substantial part of its business.” But rules governing when an ordinary executive can deal in his company’s shares and requiring the disclosure of such dealings is hardly a comprehensive rule book. It is, however, instructive that the legislators thought that senior executives should be subject to the same rules in this area as directors.

Even though next year is the 800th anniversary of Magna Carta, I think we should swallow our pride and look at what another jurisdiction does. I appreciate that Germany mandates a two-tier board structure for its public companies, but how German law deals with executives is instructive.

As I’m sure many of you already know, a German public company has a supervisory board (Aufsichtsrat) and a management board (Vorstand). The members of the supervisory board are appointed by the shareholders (or, where employee co-determination rights exist, some members are appointed by the shareholders and some by the employees). The members of the management board are appointed by the supervisory board. At law, the management board is tasked with the management of the company and the supervisory board has to supervise the activities of the management board . A member of the supervisory board cannot simultaneously be an active member of the supervisory board and a member of the management board . By virtue of this rule, German law draws a very bright line between its non-executives (the members of the supervisory board) and its executives (members of the management board).

When carrying out their respective duties, members of the management board and members of the supervisory board both owe the company the same general duty: they must exercise the care of a prudent and conscientious businessman. It is very easy to make this statement because the section of the German Stock Corporation Act which imposes this general duty on members of the supervisory board does so by cross reference to the section imposing the duty on members of the management board.

In addition, Germany has its own corporate governance code, the Deutscher Corporate Governance Codex. (And, yes, an acceptable translation of “corporate governance” into German is “corporate governance”! ) This code contains extensive provisions regulating (on a comply or explain basis) both the supervisory board and the management board. It also mandates co-operation between the supervisory and management boards. In particular it states that “good corporate governance requires an open discussion between the Management Board and the Supervisory Board as well as between the members within the Management Board and the Supervisory Board”.

Let us now come back to the original question. Just what is the trouble with executives, or, more particularly, the people I refer to as “ordinary executives”?

In my view, ordinary executives under English law are floating beneath the surface, flying below the radar, hiding in the undergrowth. In large public companies, ordinary executives are extremely instrumental in forming opinions. They are influential and powerful in their own right. The “rule-free zone” in which they operate is almost certainly going to come to an end in the financial sector. The FCA and the PRA have just closed their consultation on the new Senior Managers Regime introduced by the Financial Services (Banking Reform) Act 2013. That Act not only introduced a new offence relating to a senior manager taking a decision which causes a financial institution to fail , it also introduced a series of new misconduct offences applicable to senior managers which are actionable by the FCA .

A “senior manager” is defined for these purposes as a person performing a “senior management function” within a financial institution . A senior management function involves managing aspects of a financial institution’s affairs which involve a “risk of serious consequences” for that financial institution . One of the new misconduct offences has already obtained a degree of notoriety because it reverses the burden of proof and initially imposes liability on a senior manager simply because a conduct rule is contravened on his watch . To avoid a fine or other disciplinary consequence, the senior manager has to prove to the FCA’s satisfaction that he “had taken such steps as a person in [his] … position could reasonably be expected to take to avoid the contravention occurring or continuing”. How did it come to this - that you can run the risk of committing an offence simply by virtue of the position you hold?

I think we should grasp the nettle and establish clear duties under general company law for ordinary executives operating in our larger companies. We wouldn’t have to adopt a two-tier board structure in order to do this for companies in the FTSE 100 largely because – with their executive committees – I think most of them already have such a structure! The only real difference is the degree of formalisation of the executive committee. We have in my view become a slave to the concept of the unitary board and have failed to move our legal structures on. The world is more complex now than it was when limited liability was first offered to companies. The theory of capitalists – shareholders – entrusting their money to entrepreneurs – directors – to use in a business and earn a return is just too simplistic. The battle was probably lost as soon as we had to start making a distinction between executive and non-executive directors.

There would be many benefits to formalising executive committees and the role and responsibilities of executives. Here are seven, just to get us started:

• First, clarity of roles as between the non-executive directors and the executives. Non-executive directors could be held to account for a failure to supervise and not pilloried when “management” got it wrong. (Non-executive directors are not “management”.) This should reset the risk/reward ratio for those aspiring to non-executive positions and place accountability for management where it should be.

• Secondly, this accountability for management would be a collective accountability, shared by all of the executives. To the extent that there is a problem with dominant and domineering CEOs, this collective responsibility should act as another check and balance. This is not some pious hope, incidentally. The point is that ordinary executives could incur personal liability if they abdicated their responsibility and simply allowed a dominant CEO to force through a particular decision. Other executives would not simply be able to point to the CEO and shrug their shoulders if something went seriously wrong.

• Thirdly, ordinary executives would become more visible and acquire a new status. In Germany, it is quite something to be a member of a public company’s management board. Giving ordinary executives of our larger companies greater visibility and a higher public profile might drive better behaviours.

• Fourth, ordinary executives could very easily be made subject to the same statutory duties as directors.

• Fifth, we could be even more radical and place the primary legal responsibility for the accuracy of accounts and public statements on executives. They are, after all, the people much more likely to know whether the relevant legal requirements have been complied with.

• Sixth, greater visibility of ordinary executives would allow greater visibility in relation to their remuneration.

• Seventh, we have directors’ disqualification orders. But nothing similar for ordinary executives.

For me, the alternative is not very edifying. We could, of course, continue to muddle through and pay lip service to the unitary board structure for our largest companies, applying a fix here and a fix there. But, equally, we could end up with the type of criminal and disciplinary sanctions that have been applied to the financial sector being applied on an ad hoc basis to other sectors. Why stop at banking? What about energy? Transport? The pharmaceutical sector? All of these have equal capacity to harm the common good and in each of these sectors the public have a right to demand clear accountability and good governance – the same as in banking.

But so that we don’t end on too serious a note, I thought I should conclude with an old American business joke. A senior executive is regaling a junior executive with stories about how, when he was a young man, the senior executives let him contribute to the decision-making process. Rather incredulous, the junior executive exclaims: “Did they really?” “Sure did”, replies the senior executive, “and sometimes they even let me flip the coin!”

Thank you for listening.