Most employees, had they presided over the emergence of a £250m accounting discrepancy, might not have been surprised to be relieved of their staff card and luncheon vouchers, and be escorted from the building on the spot.
Especially had they then compounded the folly with an ill-judged Rumsfeldian remark about such things always ‘being unnoticed until they are noticed.’
But then the chairman of a giant plc like Tesco is not just another employee. He (or occasionally she) is the head of the board, the one who hires and fires the CEO and the other directors and is responsible for the organisation’s ultimate collective decision-making process. They are, in other words, the point at which the buck stops.
So the bigger question raised by the sorry tale of Tesco relates to the structure of that board as much as to the future of the man who currently runs it. What’s a board for, who should be on it, and for how long? And is the whole concept of a control group which meets only a few times a year at best, defunct in a world where bad news can span the globe in minutes?
Here’s a piece from MT’s archive originally published earlier this year entitled 'The Past, Present and Future of the board' looking at that the evolution of corporate governance, and the answer to that very question.
1960s
The Beatles may have been bigger than Jesus back in 1960s Britain, but corporate governance was not. In those far-off days, boards were largely left to their own devices, as shareholders, regulators and the general public took little interest in what went on behind the wood-panelled doors - often over a hefty cordon bleu lunch followed by port and cigars.
If a chairman of today were to travel back to a board meeting of, say, 40 or 50 years ago, he (or possibly she) would be struck by more than the lightening of the cuisine and the dramatic reduction in the amount of booze put away now.
Things would be a lot more crowded round the top table, for starters. In 1960, ICI - then still the bluest of blue chips, as they used to say - had no fewer than 20 directors, 15 of them full-time executives in the company. The boardroom at Barclays Bank in the 1960s was even busier, stuffed to the gunwales with more than 40 grands fromages, including two viscounts, an earl and a baron.
No doubt their names looked good on annual reports and headed notepaper, but by modern standards such boards appear ill qualified, unmanageable and devoid of accountability.
The chances of anyone being other than a middle-aged man in a suit were pretty slim. Female directors of big companies were freakishly rare right up until the 1990s, and the first-ever female CEO of a FTSE 100 company, Pearson's recently retired Marjorie Scardino, wasn't appointed until 1997.
Even more recently, echoes of this cosy old world still reverberated. 'Only 10 years ago, the appointment of non-executive directors was still an old boys' club,' says John Ainley, former HR director of Aviva and now partner with executive coach business the Alexander Partnership. Jobs, he says, were handed out to 'friends of friends', with little regard for aptitude or relevant experience.
With so many faces around that 1960s boardroom table, proper conversations about the big issues of the day must have been all but impossible. No wonder then that large firms tended to be ruled by all-powerful men who often combined the roles of chairman and managing director in one (the term chief executive didn't come into common use until the 1980s), in the mould of such legendary autocrats as the late Arnold Weinstock of GEC.
The other directors were there to provide counsel and knowledge when requested, rather than to pose sceptical questions or engage in debate. It was the boss who made the decisions, and woe betide those who tried to gainsay him.
This deferential attitude persisted for far too long. Denise Kingsmill, MT columnist and seasoned non-executive director, recalls her first board meeting, which was as recent as the early 1990s. 'Afterwards, one of the other directors remonstrated with me for talking during the meeting. "We usually expect our new directors to sit and listen for the first six months," he said. That would never happen nowadays. Independence of mind is much more highly valued.'
The board of directors as we know it has its roots in the emergence of limited liability companies in the mid-19th century. It's hard to imagine now, but the idea that the bosses of failed firms should be allowed not to pay back all the money invested in them was highly controversial.
There was great concern that the ability to 'walk away' from debts would lead to a collapse in public probity, and backers demanded greater influence and more independent representation at the highest level in return for risking their capital. Sounds rather familiar, doesn't it?
But it took an awfully long time for the idea of the truly independent non-executive director to catch on. From the 1970s onwards, a series of high-profile corporate disasters - from the collapse of Rolls-Royce in 1971 (saved only by nationalisation) to the break-up of GEC (by now sans Weinstock and renamed Marconi) in the noughties - led to numerous attempts to shore up wobbly British boards.
These included calls for a wider and more vocal range of experience, fewer executive directors and stronger chairmen to deal with the ever-thorny issue of succession. A larger-than-life chief exec departing the stage has always been one of the hardest things for a board to handle. Just ask Terry Leahy's successor at Tesco, Phil Clarke.
Two major investigations were undertaken, the Cadbury Report of 1992 and the Higgs Report of 2003. Their principles - including the separation of the roles of chairman and chief executive, the introduction of a senior independent director to watch over the chairman and the 'comply or explain' principle of regulation - lie at the heart of the constitution of British boards to this day.
2014
Fast-forward to 2014 and boards are in the spotlight - the new national bloodsport is watching corporate bosses being mauled on TV by parliamentary select committees. And from the FRC's Stewardship Code to the Walker Report into diversity, official interest in what goes on in the nation's boardrooms has never been higher.
But the question remains, has all this attention actually made a difference? Are boards better now than they were? 'That's a really difficult question to answer,' admits Rob Goffee, emeritus professor of organisational behaviour at London Business School and co-author of Why Should Anyone be Led by You?.
Corporate crises arising from dysfunctional boards certainly haven't been consigned to history, rather the opposite. How different might the sorry tale of RBS have turned out had its directors stood up to Fred Goodwin's overweening ambition more robustly?
One problem is that board performance is hard to measure meaningfully. Companies whose boards are bastions of best practice can come a cropper, while others whose governance causes raised eyebrows all round may prosper, at least in the short term.
'Behind nearly every corporate disaster in modern UK history lies a united board with a common purpose and strong sense of mission,' says William Dawkins, head of the UK board practice at headhunter Spencer Stuart. 'They rush off the cliff edge together with smiles on their faces.'
Some quantifiable things have changed, however. According to the Spencer Stuart Board Index, the average size of a FTSE 150 board has dropped to 10 to 11 members. ICI is no longer with us, of course, but Barclays' board now comprises a relatively modest 15 members (the majority non-exec) and includes three women. Firms are fielding their A teams rather than packing out meetings with the entire squad.
Shareholders can now also vote directors in (or out) annually, and the average tenure of a part-time chairman is down to under four years. And no fewer than 34% of directors in the FTSE 150 are foreign born, compared with an equivalent figure in the US of only 9%.
Board dynamics - the personal interplay between directors - has come under much scrutiny of late. How well does everyone have to get on? 'Cohesiveness is good, but too much breeds group think,' says Jennifer Sundberg, founder of board information specialist Board Intelligence. It's a trade-off, and boards where there's excessive friction between members can be equally dysfunctional. 'You need a unifying purpose,' she points out.
But, if the board has changed, the world around it has moved on even faster, reckons Goffee. 'If you look at the board as a team like any other, then it's too big, it doesn't meet often enough and it doesn't have clear enough objectives. You have to ask whether boards can really work the way they are currently constituted, in terms of what we expect from them.'
Others are more sanguine. 'There is more focus on structure, and on the balance between independence and the executive,' says Sir Martin Sorrell, founder and chief executive of WPP. 'And on the male/female balance, although that still hasn't gone far enough.
'Where do I think we get value from in the WPP boardroom? From the diversity of the directors' talent and backgrounds - there's a huge variety of views and input.'
The aftermath of the 2008 crash has also focused a great deal of attention on the chairman's role. Traditionally a background figure whose job is to run the board while the chief executive runs the company, chairmen have moved upstage in recent years. Not least because so many of them have found themselves firing the chief executive.
'The chairman's role has shifted. It takes more time and involves a lot more responsibility. The range of stakeholders has become very diverse, so chairmen must now think more and work harder,' says Patrick Dunne, board consultant, chairman of the Leap Confronting Conflict charity and ex-corporate comms director at 3i.
The old adage that there are no good or bad boards, only good or bad chairmen is increasingly true, and the job calls for a rare combination of self-assurance and emotional intelligence. 'Chairmen need to have "done it" and have nothing to prove,' says Sorrell. 'They must be comfortable in their own skin. You can't have two people running the company.'
So it's a much bigger job, and increasingly a better paid one. The average part-time FTSE 150 chairman is now paid £339,600 and the equivalent for a full-time role is £417,400.
If those 1960s boards were doomed from the off by size and composition, the Hydra that their slimmed-down and sharpened-up modern oppos have to wrestle is compliance.
'The board has two roles: steering and supervision,' says Sundberg. 'The trouble is that the supervisory part now fills all the available time and then some.'
Important big conversations about where the business is going and what it should look like in five years' time are being crowded out by box-ticking, she says. 'Control is a trade-off against risk - highly controlled organisations are likely to be lower risk and lower return. There is no FCA test for being imaginative or having vision.'
Diversity remains an issue. Only 15% of FTSE 150 directors are female and there are a mere four female CEOs in the FTSE 100. 'What hasn't changed is that I have got used to being the only woman on the board,' says Kingsmill. 'That's only now starting to change, at least partly because I have got onto the nomination committees and can do something about it.'
It's more than mere political correctness. Mixed groups are less subject to group think and more likely to be in touch with the outside world - they stand a better chance of being up to the job. 'More diverse boards, where debate and challenge are permitted to thrive, tend to lead to more robust businesses,' says Dawkins.
And, as Dunne points out, there is more to the 'D' word than gender alone. 'There has been a massive but narrow thrust on diversity, but age diversity and social diversity are big issues too. With the end of grammar schools, very soon the vast majority of directors will be privately educated.'
The focus on independent directors has - as the reformers intended - shifted the balance of power somewhat, away from the executive towards NEDs. 'Good NEDs can add a lot of value in the good times by making sure that feelings of invincibility don't develop. Arrogance is the biggest killer of good judgement,' says Dunne.
But do we now expect too much of NEDs? They're part-time, required to be both policeman and coach, rarely privy to the same level of information and inside knowledge as their executive colleagues, yet equally liable.
'There is considerable dissatisfaction with the way things are now. How can a NED who works two or three days a month be expected to guarantee that, for example, a firm's compliance process is perfect?' asks Ainley. 'And yet they are required to stake their reputations on it.'
The average retainer paid to a FTSE 150 NED is £61,000 - not much in comparison with the multimillion-pound deals enjoyed by some executives. But more pay does not necessarily lead to better performance, and might also compromise NEDs' precious independence.
'Fees are about right,' says Dawkins. 'Enough to show that this is a considerable responsibility, but not enough to make a real financial difference to the person taking it on. You have to be able to walk away if necessary without it leaving you feeling impoverished.'
Besides, for today's NED in search of a better risk/reward balance, there is a new game in town that would really make those 1960s antecedents splutter into their Montrachet: private equity.
With no institutions to manage, all the shareholders around the same table and the discipline of having an exit always in sight, the attractions of PE in comparison with the venerable and compliance-laden plc model are considerable. No grandstanding MPs grilling you, the freedom to do what's right for the business rather than the City and the prospect of a big payout at the end. What's not to like?
'I also sit on a number of private equity boards, which are a lot of fun. There is less governance and regulation, and much more entrepreneurial spirit,' says Kingsmill. 'And they are better remunerated for the risk taken as you are often paid in options.'
2030
So will the board as we know it even exist in a decade or two's time? Could boards be dis-intermediated by technology in much the same way that bookshops have been by Amazon? With perfect information, perfectly distributed, shareholders could simply run companies themselves, voting remotely like the audience in a reality TV show. Google is probably already working on an algorithm for it.
What is certain is technology will make a big impression not only on the issues boards have to deal with but also in the way that they do so.
Directors have always grappled with the paradox that the biggest dangers are posed by the things you don't see coming, and formulaic risk registers - formal threat rankings prepared for the board and shareholders - are increasingly viewed with the scepticism they deserve.
Technology will continue to facilitate increasingly rapid international expansion that can leave boards unprepared for the nature of the exposure this brings. 'In a global business operating under many different sets of national regulations, a relatively small part of the organisation can carry a huge risk,' says Dunne.
Arguably the biggest challenge facing the board of tomorrow is not so much that its remit is getting broader and more turbid, it's that the pace at which the world changes threatens to outstrip the ability of conventional command-and-control-based governance to respond.
'Risk management has changed completely, there's the whole interplay with social media and the speed at which a cock-up can be transmitted,' says Dunne. Boards - especially if they continue to meet only a handful of times a year - will face the ever-increasing risk of being catastrophically blindsided by adverse public opinion. Live tweeting from the boardroom isn't going to be everyone's cup of tea, but directors clearly need to become better versed in the mores of social media.
Big companies are also only just beginning to realise that in a post-industrial, software-driven world, engaging with human beings in all their unpredictable glory matters at least as much as doing the numbers.
Directors trained in accountancy and brought up on the sanctity of P&L and the balance sheet may struggle with this. 'Boards are too finance-heavy in my view. I would like to see more HR people and customer-facing people,' says Kingsmill.
One other way of coping with the high-tech future could be to get a few younger 'digital natives' on the board. As Asda chief executive Andy Clarke recently put it: 'You have to realise that you haven't got all the answers, and that the growth channels are going to come from the next generation.'
With an average age of 59 for NEDs and 52 for executives, the UK's directorial cohort is pretty light on generations X and Y, never mind the up-and-coming tribe of millennials - adults born in the mid-1980s and later. This seems an idea worth pursuing, if only to help the older majority get to grips with their iPhones.
But if technology will cause some of the headaches of tomorrow, it may also be able to alleviate others, not least by providing directors with better and more timely information.
'Most board packs are heavily weighted towards backward-looking financials and information. But you wouldn't drive a car looking only in the rear view mirror,' says Board Intelligence's Sundberg.
'If you want the board to have a forward-looking conversation, then you need to provide it with the right information,' she adds. Her business provides a board portal to its clients, a single online repository for all the documents and information usually provided to directors - at length and cost - on paper.
Bringing the board pack into the 21st century is faster, cheaper and more secure. But it also offers the chance to hone decision-making via the oft-overlooked board agenda. Says Sundberg: 'Deciding what gets tabled is one of the chairman's most important roles, yet too often it is the product of habit rather than careful thought and architecture.
'When things do go wrong, it's rarely the case that the board engaged in a conversation about something and then made a bad decision,' she adds. But the conversations they aren't having can sow the seeds of disaster.
One final thing that the board of the future is going to have to get better at is investing. UK companies are sitting on record cash reserves - up to £500m is reckoned to be sitting idle - and if the nascent recovery isn't going to fade with the pop! of deflating house prices, they need to start putting some of it to work.
Many boards will find it difficult to change their habits, reckons Sundberg. 'They will have to start talking about the future, and daring to embrace risk rather than simply spotting it and stamping on it.'
Amen to that.
