Letter to the Financial Times
I refer to your editorial entitled Board Democracy in the Financial Times dated 1 June 2010.
One cannot easily dispute the proposals for sharpening the tools available to shareholders have you make and the reasons for making them. What is striking however is how far short they fall from acknowledging the cause of the wider democratic deficit in corporate governance and what needs to be done to redress this.
Empowering shareholders (and other stakeholders) has to go far beyond enabling them to select and reject board directors on an annual basis. If effective shareholder stewardship is to become a reality we have to address the fact that in many publicly held corporations they have no means of exercising ex ante influence over directors. They get to know about things that have gone wrong, for example, about the same time as everyone else. This is unacceptable. Any reforms need as a matter of urgency to address this institutional flaw.
The Combined Code and its reliance on non executive directors offers no effective remedy to group-think. What is needed is a separate supervisory institution which represents the interests of shareholders and other stakeholders alike. Relying on unitary boards to properly exercise this function is illusory.
What is long overdue is a thorough review of how publicly held corporations are governed in non-Anglo American jurisdictions. The Swedish model, as with so much else Swedish, might provide some fundamental insight into matters we continue to brush under the carpet.
The Centre for International Economics