The Cadbury Code and Recurrent Crisis by Donald Nordberg

Author:Donald Nordberg
Language: eng
Format: epub
ISBN: 9783030552220
Publisher: Springer International Publishing

This language shows, however, that the debate concerning board design was not over. The uses of ‘unitary’ here are defensive: the ‘whole structure’ needs to be reviewed; that he is ‘not convinced’ about two-tier boards leaves this issue open in general, just closed for the moment. That he shares the ‘majority’ view acknowledges the legitimacy of the minority. He has considered other systems (‘European’ and US), concluding that the evidence in their favour is not convincing. But its subtext further legitimates those views.

Evidence in favour of the UK system is not mentioned, an indication that he and the respondents to his consultation and research studies took those advantages for granted, but the word ‘unitary’ does not appear in Higgs’s proposed text of a revised Combined Code. Whether intended or not, taken together these uses and omissions seemed to give respondents reasons to think Higgs had taken a position somewhat short of a ringing endorsement of the unitary boards.

The FRC used the Higgs Review and its proposed code changes as the basis to conduct only a light-touch, ‘fatal flaws only’ consultation for a new version of the code. The sharply critical reaction it received came as a surprise (Nicholson, 2008). The Association of British Insurers, a mainstream investor voice, saw a ‘potential danger to the unitary board’ if the code had a ‘formal requirement’ that non-executive directors meet periodically without the executives or the chair present (April 2003).14 In a literal sense, this is arguing against a case Higgs did not make. Higgs did not require such a move; the text of his draft was that of recommendation: ‘should meet regularly as a group without the executives present and at least once a year without the chairman present’ (Higgs, 2003, Provision A.1.5), where ‘should’ also sits underneath the code’s ‘comply-or-explain’ principle.

The CBI, representing large corporations, used more forceful language to make a similar point. It expressed ‘deep reservations’ about provisions that ‘concern or affect the chairman’, whose role is ‘pivotal in the UK’s tried and tested unitary board system’. The choice of ‘pivotal’ here echoes with irony Higgs’s language (Higgs, 2003, Paragraph 5.1), seeking to reverse his intent. The CBI’s next sentence elaborates this concern relating it to separate meetings of non-executives, suggesting the provision ‘could be misunderstood and could lead to a two-tier board in practice’ (16 April 2003). The use of ‘could be misunderstood’ is an example of language aimed at repairing unintended damage in drafting to maintain the core values of the code. The word might be read as a diplomatic way of disrupting a feared change in direction. As in the ABI submission, the value in a unitary board does not receive, or seem to require, explanation or articulation; neither does the ‘danger’ or ‘risk’ in a two-tier board.

Sentiment on this point was even stronger among company chairs. For example, Sir Brian Moffat, chair of the steelmaker Corus, wrote (20 March 2003) in his capacity as senior independent director of the banking group HSBC not to the

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