Hearken to Gypsy Rose Toady, and know what you will know. Let us peer into the depths of Arthur Andersen's Corporate Register, that Old Moore's Almanac of the quoted sector: through the swirling mists of accountants' jargon, what is this we see? Those wandering, eldritch figures are non-executive directors (neddies), and Arthur Andersen has strange things to say of them. Apparently, the fewer of them there are on its board, the more likely a company is to do well, judged by AA's criteria of earnings growth and diminished gearing. Contrariwise, those boards echoing to the neddy's elfin cry ("Where is the executive cocktail cabinet?"), have been tracked by the AACR as consistent underperformers. One reason apparently is that these neddies are supposed to police executive pay awards. Strange then, that the Register finds "the more non-execs there are on a board, the higher are the salaries for the top directors". In best-performing firms with five or more neddies, the average top salary is £340,000; in those with no neddies at all, that sum falls to £114,000.
But let us look a little further. Here is another figure, gaunt, unsmiling, with £1.38 million a year in its pocket - wait, I see it, Lord Hanson. And what is it doing? Why, it is talking to these same non-executive directors, appointing them to its board: first, Simon Keswick, director of the trading house that put the hong in Hong Kong, Jardine Matheson; then David Hardy, chairman of the embattled London Docklands Development Corporation; and last, Jonathan Scott-Barrett, of the diminutive publishing house, Centaur Communications. Why should this entrepreneur of reputed genius be doing such a thing, given the revelations contained in Old Andersen's Almanac? Toady can not disclose: it may be that he has simply been stung by criticism of his recent actions, notably last year's purchase of 2.8% in ICI. But the AACR does not lie. Hanson's profits are falling for the first time. Hearken and be warned.