People's interest in a subject waxes and wanes. For a while it may be fashionable and receive great attention. But gradually interest will slacken. Maintaining an atmosphere in which continuous improvement is not only an objective but also an achievement is much more difficult than it is comfortable to admit.
For the past few years, within the corporate sector, corporate governance has been a major preoccupation and non-executive directors have been given key responsibilities for ensuring the improvement in governance. A similar approach has been adopted in many other sectors.
Early in January, an annual survey of the remuneration of non-executive directors (NEDs) of major listed companies was published. A number of features of this survey seem worthy of comment:
• There has been a reduction in the proportion of NEDs who feel that collectively non-executives have sufficient power to enforce key corporate governance requirements.
• Most boards expect to undertake the required board effectiveness reviews internally without taking advantage of external advice.
• There has been a reduction in the proportion of respondents who believed that they had adequate directors' indemnity insurance.
• There has been a further increase in the time commitment expected from NEDs.
• There has been a reduction in the effective per diem rates paid to non-executives.Getting tired
All of this made me wonder whether we are reaching the point where people begin to tire of the pressure to improve corporate governance. Increasing time requirements may be reasonable. After all, the responsibilities of NEDs are considerable and at times uncomfortable. But the decline in day rates for non-executives is not encouraging. Given the difficulty of the position, the rates of payment could easily prove a disincentive for some.
When this is coupled with the decreasing confidence that non-executives appear to have in their ability to insist on proper corporate governance, a slight concern might be justified.
I suspect that it would be wrong to be unduly concerned about these developments at this stage. This was only one survey and it does not demonstrate that there is a trend. But if this were to continue then there would quickly be a need for a means to stiffen the sinews. Perhaps the most striking point is the softness in remuneration. Non-executives should not expect that their remuneration will rival the higher reaches of executive remuneration.
Nonetheless, the level of remuneration is a demonstration of the value a business places on a person's contribution.
Since similar approaches to governance are now being followed in many areas other than major listed companies, a slackening of the effort would be doubly disappointing.
For example, the pension fund sector is currently in the process of implementing regulations which increase the requirements for pension fund trustees.
Trustees will have to demonstrate relevant qualifications and experience: not least in investment policy. Interestingly, the annual directors' survey found that an increasing number of directors are also taking appointments as pension scheme trustees.
It is difficult to criticise these developments: they make a great deal of sense. Improving the management of pension schemes is a key objective for society at large and the role of trustees in this is fundamental.
But as the demands on trustees grow, so will the risks and pressures of their position. Just as NEDs should be appropriately remunerated, so should pension scheme trustees. These boards cannot any longer be regarded as relatively unimportant backwaters.
A similar point applies to people holding similar responsibilities in major charities.Becoming distracted
The problems experienced within companies at the end of the 1980s and then at the end of the 1990s occurred because people became tired of rectitude and allowed themselves to be distracted. Ensuring that the work of governance reform bears its true fruit requires that this should be resisted.
Chris Swinson is an expert witness and past president of the ICAEW. If you wish to debate with Chris, email him at.