Should we be happy with Higgs?

<b>Business leaders have been highly critical of Derek Higgss report on non-execs. But how do HR chiefs feel about it? Stefan Stern reports</b>

Like a roll call of former captains of school, the list of authors of recent reports on corporate governance resonates through the boardrooms of British business. First there was Cadbury, then Greenbury and Hampel. Next came Turnbull, Myners and Smith. And now there is Derek Higgs, with his report on the role and effectiveness of non-executive directors.

While Higgss work was received warmly on its publication at the end of January, there has since been something of a backlash now the content of the 126 pages have been read and digested. Higgss firm suggestions have been interpreted as commandments, and some distinguished business noses have been put squarely out of joint. Ludicrous, snorted Sir Stanley Kalms, the (noisily) retired Dixons boss. Too prescriptive, winced Ken Rushton of the FSA. We are concerned, said Digby Jones, director-general of the CBI.

So concerned, in fact, that the CBI polled its members last month, and found that 82% of chairmen of FTSE 100 companies believe Higgss recommendations could harm their efforts to run a unified board. Around 87% of chairmen were also against the idea of putting a non-exec in charge of the nominations committee (which appoints new board members), with 61% strongly disagreeing with it.

But as so often happens with reports of this kind, when its ideas are finally put into practice life may not be quite as problematic as the critics claim. Now that most of the dust has settled, it is time to take a closer, calmer look and ask that important if not entirely admirable question: whats in it for us?

What Higgs can do for HR

The Higgs report offers HR professionals an opportunity, if they take the initiative, says Sue Cox, former HR director at merchant bank Schroders, and now an executive coach. HR directors should be talking to their chairmen about the process by which non-executive directors are being selected: who sits on the nomination committee and how does it work? What is the role and purpose of a non-executive as the company understands it? HR is supposed to be the expert in the recruitment and selection process here is a chance to display that expertise.

But Coxs upbeat interpretation is not shared by a majority of HR directors contacted by Human Resources magazine. Here the consensus was that the Higgs report would not necessarily create immediate openings for HR professionals to assert themselves more forcefully inside the organisation. As the grumpy criticism of Higgs from distinguished sources has indicated, captains of industry show little inclination either to comply with best practice recommendations, or explain what their boardroom policies are. It is more often a case of never explain, never apologise.

The CEO/HR relationship

But if HR directors are displaying signs of passivity in the wake of Higgs, it may have something to do with the quality of the relationships they already have with their chairmen and CEOs. Says Dick Etches, HR director at engineering firm GKN, This has a lot to do with your ability and standing with the CEO. You are the expert in this area of the development of directors, but is he listening to you? If he isnt then you have got a big problem.

For Etches, Higgs underlines those areas where HR needs to be making an important intervention in boardroom life. Training becomes a key issue if directors both non-executive and executive are going to be able to contribute effectively at the head of the organisation. Where will Etches look for advice and support on this question of director development? There are already several good courses at business schools such as LBS, Cranfield, Henley and Ashridge where you can develop your understanding of the roles and responsibilities of non-executives, he says.

Higgs presents several challenges to the HR function, and perhaps one or two threats as well, says Tony Ward, now group services director at BAA, but formerly HR director. He believes that the first challenge is in the area of board effectiveness. What measures, if any, does HR put in place to monitor the boards performance? The new era of transparency and independent audit will test the organisations performance management, and the CEO could turn to HR to make sure this is happening properly.

Levels of payment for non-executives may also land in HR directors in-trays, says Ward. This subject can only increase in importance, as future trends will probably see non-executives taking on fewer but better paid positions. The recruitment of non-executives will have to become more professional. So too will the relationships between hired advisers and the company. All these matters will receive greater scrutiny, particularly from major shareholders, and HR directors may be required to monitor these relationships and make sure that good practice is being followed.

Wards last observation carries a threat with it. Quite a lot of attention has been paid to Higgss recommendation that half the board should be made up of independent, that is non-executive, directors, he says. Of course in many companies the board already has a large number of executive directors on it. It may prove simpler for companies not to hire more non-executives but simply to remove some executives from the board. This could have depressing implications for HR directors who have struggled to get on the board in the first place.

Perhaps the biggest impact of Higgs over the long run will simply be to shine more light on boardroom practice. HR professionals can then decide whether getting on the board is really such a major priority for them. Arguably, in this new era of more rigorous corporate governance, the real action in a business is going to be taking place on executive committees, and not on the board itself.

Removing the mystique

With his report Higgs has performed an important service, and not just for the HR profession. Much of the confusion and mystique surrounding non-executive directors has finally been cleared up. This was a necessary and urgent task. When Michael Grade was asked, on BBC1s Have I Got News for You, what non-executive directors were really for, he offered a rather irreverent answer. Well, they are a bit like bidets, he said. Nobody is quite sure what non-execs are for, but they do add a touch of class.