The Chairman’s Perspective – Paul Myners
This week we welcomed Paul Myners to BCKR. Paul’s career to date has covered almost every aspect of commercial and public life. His first career was principally in the City with Gartmore. He has subsequently chaired Marks & Spencer, Guardian Media Group and Land Securities. He has chaired the Trustees of the Tate and the Low Pay Commission and he was City Minister in the last Labour administration, a role which led to his appointment to the House of Lords. He has recently been appointed Chancellor of Exeter University.
Here is our summary of what he had to say;
Paul is a man who has reinvented himself many times. He’s been a journalist, teacher, fund manager, government adviser, drafter of governance reports, Chancellor of Exeter University, has a senior role at the LSE, manages a hedge fund, and was chairman of M&S during the bid from Philip Green.
Alongside all of this, Paul has sat on over 30 public company boards, including 9 FTSE 100 boards, of which 7 received bid approaches while he was there. These bids indicate a need for growth and size in Britain’s governance structures which he feels fails to take account of the many risks associated with bids, corporate ownership and related responsibilities.
Paul gave members a useful and energetic account of the NED and state of governance in the UK. His central thesis was that we have a significant issue on governance due to the fragmentation of corporate ownership. This is a consequence of risk reduction and share diversification by fund managers. The owners can not perform the traditional role of an owner when they own merely a tiny proportion of thousands of stocks. There is no incentive for them to think and behave like an economist would believe an owner would behave.
Influence can be given by the fund managers, and regularly the nod and the wink to deal doing or expansion does occur. But the strict ownership function of voting is dealt with in the basement by governance people who do not know who the fund manager is. Regulation has made it very difficult to be a useful owner if you’re a fund manager because you don’t want to be made an insider since you cannot then trade quickly.
His hedge fund, an exception to the rule, meets all the NEDs of their investee companies, has significant stakes in just a dozen companies, and is there for the long term. This is a very different approach from the normal fund management world, the world he used to inhabit when at Gartmore.
The NED is created to fill this gap of an owner’s mindset. We have put huge responsibilities on the NEDs to make up for the deficiencies of our governance models. But even then though the NEDs are in loco parentis, they don’t get any instructions from those parents, other than over the issue of remuneration.
Shareholders rarely meet NEDs, and the shareholders don’t speak with the same voice, even when it’s the ‘same’ shareholder. Fund managers don’t have clarity on the issue of fiduciary duties and this confuses the picture still further.
The Takeover Panel has a disposition in favour of the bidder, encouraging bids, shortening timeframes of corporates’ business plans, and all is exacerbated by golden parachutes for the CEOs. This isn’t an EC1 issue, but a national matter because it influences UK productivity.
A fund manager’s gross fee takes out 40% of the outperformance benefit of normal funds.
In many ways it is an irrational decision to become a NED because the risk is high and the rewards are small.
What does Paul look for in directors?
• How would the board behave in a crisis? Many boards collapse over a major area when taking substantial risk, and the board members suddenly have more interest in their own position.
• Curiosity is a good quality for NEDs.
• Mavericks. Good gentlemanly behaviour is not always useful. Don’t like experts on boards. Broad skills, attentive, giving their time and highly motivated.
What can lawyers offer?
Don’t bring the lawyer way of doing things into the board room. However, some lawyers have made incredibly good wise people, giving broad advice based on common sense and wisdom which is of course valued on a board.
Headhunters and networking:
Paul has never gained a good job from a headhunter! Most of the jobs he’s got have come from networking. You get a good cup of coffee, meet interesting people and might get a job out of it!
What would you consider to be examples of good governance?
• AIG who after many years of being led by macho CEs have recently appointed a CE who believes in working with the team
• National Grid who recently appointed a CE on half the salary of the previous CE
Presence of a family shareholder or a core long term shareholder can bring longevity and corporate common sense to decision making,
Is it sensible to be a public company? Half a dozen investors running a business will have a better perspective.
PE is not necessarily better at improving an underlying business. Much of that return comes from being a bit better than others at buying cheap and selling high, but most of their return comes from the extremely high leverage.
What else would help?
Less adherence to benchmarks and a longer performance period. We’ve converted long term capital into a very short term commodity. Passive index type investing is not the answer.
Directors would act more like owners, public interest tests should be substantially elevated.