The problem is, apparently, that the workings of most FTSE 100 boards remain opaque to shareholders – not a single one has objective success measures in place. That means the only way to evaluate directors is to judge them by the success of the strategies they come up with – by which time it’s probably too late to do anything about it.
‘Chairmen and their boards always claim they are effective,’ said partner Tom Bonham Carter. ‘However, we have unearthed strong evidence to the contrary’. Apparently, 12% of the FTSE 100 would have produced a better return simply by investing in cash. And 40% produced returns lower than the FTSE index as a whole (though surely that’s inevitable, given that the index is an average?)
It also found that nearly a quarter of chairmen have no direct experience of the relevant industry. Some might see this as a good way to import good practice from other disciplines, but ABC suggests it could be ‘a significant risk to the leadership of the company’.
It claims to have identified six criteria of a board’s effectiveness: a competent chairman; a clear and achievable aim; a CEO with a record of value creation (40% don’t have one, it reckons); sufficient operational resources; good communication of business strategy; and the introduction of suitable success measures.
It’s not exactly a shock that a board advisory firm thinks boards should take more external advice. But most boardrooms remain fairly mysterious places, so improving accountability and transparency can only be a good thing.
And since most non-execs will probably have similar roles on other boards, it’s not unreasonable for shareholders in a particular company to ask for some proof that they’re getting value for money from their directors – and aren’t just being used as another free lunch before retirement. Something to chew on...