Consultants are dragging us down

Now though we are again becoming becalmed. The tidal wave of corporate governance and the committees it has spawned has turned too many boards into overpaid compliance officers, who have either stopped thinking altogether or outsourced that function to consultants.

What is the point of a body of (usually) men who see their job as following the rules, not providing leadership and direction for the business? How long before we can again correlate Britain's business decline with the growth and influence of consultants?

As an example it seems a reasonable observation that a large number of the problems which arise over management succession and executive pay would be avoided if boards took more interest in the process. If, for example, a board clearly mapped out its strategy for developing the business in the coming years and took the trouble to argue it through with investors and the rest of us and gain acceptance for that plan. This would give a yardstick for what was meant by performance, and how it might be measured. It would then be much easier, using that blueprint, to decide what sort of chief executive the business needed and how much the job was worth.

Instead everything is done the other way round. The consultants decide (or, strictly speaking, recommend) how much the company is going to have to pay - the so-called market rate - and then they work out what the executive should have to do to justify that amount.

Where the company is headed ought to be a fundamental decision of any board interested in providing leadership for its organisation, not some incidental by-product of a process devised by remuneration consultants. The remuneration strategy should be totally integrated into and a driver of the group strategy, not kept in a separate silo.

This happens not, I hasten to add, because consultants are venal or stupid, although they do of course have a vested interest in keeping in with the executive whom they are recruiting or whose pay is being decided. This does rather undermine their independence. Indeed it is worth noting the paradox that their qualities are just the opposite of the apparently desirable qualities of non-executive directors. Consultants are prized for their skill and knowledge, not their independence. Non-executives are judged by their independence, not their skill and knowledge.

Also, where non-executive directors are supposed to bring simplicity and clarity, consultants have a business model which has a vested interest in creating complexity and opacity. In remuneration they make their money by designing and implementing new schemes, or changing existing ones. The more complicated these schemes are in their design, the more certain it is that they get a regular stream of work modifying and updating them.

This, however, can cause havoc, not just in the boardroom, but throughout the company. Indeed one of the problems thrown up by the recession is that whole teams of executives have targets which are no longer relevant to what the business needs in its changed circumstances, but they continue to pursue them. The new things which do matter are neglected because there is no financial incentive to pursue them.

It becomes very difficult to argue in such circumstances that the board is running the business.