Morning:
8°c
When you meet someone these days who was until recently a non-executive director of one of the banks, it does not take long before the conversation turns to what went wrong.
It would be a mistake to say that every non-exec is beating him or herself up for their small role in the disaster that overtook the sector, but neither are many of them in denial. Rather, they admit freely the system did not work as it should, but what they do not understand is what it was they could or should have done instead that would have been sufficient to change the outcome. What should they do differently next time?
This has also clearly been exercising Sir Christopher Hogg and his colleagues at the Financial Reporting Council, the umbrella body with responsibility for the UK's Combined Code on Corporate Governance. Today, at a conference on governance organised by the Institute of Chartered Secretaries and Administrators, he announced a review of the code's effectiveness and called for those interested in the topic to submit their suggestions.
He did his best to create the impression that this was not a panic measure, pointing out that it is now normal practice to review the code every two years or so. He also said specifically that in launching this latest review, " there was no assumption that the Combined Code is fundamentally flawed or that a different regulatory framework for corporate governance could have prevented some of the current problems".
That sounds fair enough, until you turn it on its head. Consider, for example, if the result of the review is to confirm the above assumption that there were no flaws in the code and that there are no regulatory changes which would have made an iota of difference in preventing the disaster. That surely is a pretty bleak conclusion, in holding out that what we have now is as good as it gets. One might also ask what good is a corporate governance system that only works in good times, which is when you least need it.
It seems fair to assume that while they don't want to prejudge the outcome, the members of the FRC, like those non-executives cited earlier, feel instinctively there must be a better way, if only they knew what it might be. Nor are they so politically naïve they miss the significance of Sir David Walker being asked by the Government to conduct a review specifically of bank board governance. Some of what he eventually writes must surely have implications for all boards everywhere. Better therefore to co-operate and have him inside the tent looking out than outside looking in.
Similarly with institutional shareholders. The chief executive of the Financial Services Authority, Hector Sants, made it clear last week that he thinks shareholders should have engaged more with the boards, and done more to challenge their thinking. The fact that they failed to do so or, as Legal & General and some others claim, were brushed off when they tried to do so is itself surely a sign of gaps in the code.
There is one further matter not mentioned by Sir Christopher but also within the broad church of the Financial Reporting Council, and that is the role of accounting conventions in making things worse. Fair-value accounting has come in for considerable criticism in recent weeks - being cited by FSA chairman Lord Turner as probably adding to irrational exuberance and encouraging more irresponsible behaviour at the top of the market, and also being put in the frame of blame last week by Sants.
Having opened the Pandora's box of corporate governance and the role of directors, can the FRC continue to ignore for much longer the demands that something be done about the accountants and their standards?
Van aid? That's rich
Call me old-fashioned, but I don't understand why a small business part-owned by one of the world's richest men should expect Government support when it gets into difficulties.
LDV, the British maker of vans once better-known as Leyland Daf, is today owned by Gaz, a Russian company in which Oleg Deripaska has a stake. There are all sorts of ideas kicking around for the company, but the bottom line is it is in deep trouble, and the parent company and shareholders are markedly reluctant to support it.
Deripaska, of course, has problems of his own because he is so highly borrowed against assets that have plunged in value. But the van maker is tiny, and if he wished he could quite easily find the wherewithal to help it.
He has, for example, a 50% stake in Russia's second-largest insurer Ingosstrakh, of which just under 40% is owned by PPF Generali, the Italian insurer. Relations between the two are not good but the Italians have offered to buy him out, and at the current price it would be worth $500 million (£356 million). Deripaska could take that, bail out LDV, and still have cash to spare to repaint his yacht.
