For immediate release
JD Wetherspoon plc
Press article
The following article first appeared in Propel on 13 October 2014 and is repeated to further its distribution. It represents the personal views of Tim Martin, chairman of JD Wetherspoon plc, and builds on comments he has made in the last two annual reports of JD Wetherspoon.
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Breaking News - Opinion Special: Tim Martin criticises corporate governance
The ruinous absurdity of corporate governance by Tim Martin
Woof, woof! What's that at the boardroom door? Why, it's the dog that hasn't barked - until now. This corporate governance dog has surreptitiously devoured our major banks and pub companies and has moved on to make mincemeat of our biggest supermarkets. Like Frankenstein, the carnivorous canine has outgrown its corporate governance creators and is munching its way hungrily through our finest companies.
The dog has been lucky so far: corporate mayhem has been blamed on others. Gordon Brown mendaciously blamed bankers' troubles on sub-prime American loans. Others have blamed "hot money", the Bank of England or greedy and incompetent executives, perhaps forgetting that they were appointed through the governance system, which created the dog in the first place.
The travails of our biggest pub companies, for example, beset in recent years by various corporate catastrophes, have been lain at the door of the smoking ban or changing consumer tastes, rather than the governance industry itself. Supermarket troubles have been blamed on aggressive foreign companies, the internet and high prices, but the dog had not been identified, until recently, as the main source of the devastation.
However, the Tesco fiasco may have let the cat out of the bag. One of the greatest absurdities of the governance system is that you can comply with the rules and have, as many companies do, only two executives on the PLC board. If they fall out, or one leaves for any reason, you only have one, and if you're unlucky you may, like Tesco, end up with none, a dangerous void for a major company. In fact, only two or three executive directors is a dangerous void.
The far more widespread malaise though, under the radar until now, is that so-called compliant PLC boards are, in reality, highly inexperienced and unstable. The unholy combination of a majority of part-time non-executives, including the chairman, with a maximum of nine years' tenure, and CEOs who average only four or five institutionalises these weaknesses. A board led by part-timers, with a short-term chief executive, which has very little real contact or knowledge of the worlds of executives and customers, is really a sitting duck in the business jungle.
These weaknesses are compounded by a raft of other governance shibboleths: excessive emphasis on the role of shareholders (the 2012 Code refers to shareholders 63 times, employees three times and customers not at all); performance-based pay, which encourages over-borrowing in order to enhance earnings per share targets; the discouragement of CEOs becoming chairmen, exacerbating the short-term mindset of the former; autonomous board committees, manned by non-execs, operating as remote and detached satellites, clogging up company accounts with jargon-filled reports; remuneration committees which have legitimised huge pay increases; and audit committees which have effectively removed power from executives and have presided over financial Armageddon at our banks and other major companies.
The key to understanding the current problems, pointed out by journalists like Chris Blackhurst and Anthony Hilton, is that the pendulum of governance, designed to prevent Maxwell and Enron-style debacles, has swung too far the other way. The composition of the board of the Financial Reporting Council, which oversees governance, mirroring the non-executives on PLC boards, consists almost entirely of "City" types, with little experience of civvy street, let alone pub or supermarket companies. This aspect is exemplified by the appointment to update the rules of Lord Sharman formerly head of Ernst and Young and Tony Blair's main advocate for Britain to join the euro, whose financial judgement on the big issues is transparently deficient. The great and the good, les énarques, as the French say, have their role to play , but too much power has been ceded to them, to the serious detriment of corporate performance.
The nature and the tone of governance urgently need to change: if you have top CEOs like Stuart Rose at M&S or Simon Wolfson at Next, they should be encouraged, in due course, to become chairmen, subject to appropriate checks and balances. Executives should be properly represented on boards and should form a majority: the tail should not wag the dog. Performance-based pay should be consigned to the dustbin of history. There is no evidence that it does any good, and it often encourages perverse behaviour.
Britain's most senior judge, Lord Neuberger, who has seen many dogs in his day, recently said that the reaction of the authorities to failed regulation is often to produce more regulation, when what is needed is different regulation. Inexperienced yet compliant boards were intimately involved in the collapse of our banks, our pubs and our supermarkets. We now need a new system of regulation, which takes account of these factors.
Tim Martin is chairman and founder of JD Wetherspoon
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Enquiries:
Company spokesman Tel.: 07956 392 234 / 020 8352 5012
Eddie Gershon
Notes to editors
1. J D Wetherspoon owns and operates pubs throughout the UK. The company aims to provide customers with good-quality food and drink, served by well-trained and friendly staff, at reasonable prices. The pubs are individually designed, and the company aims to maintain them in excellent condition.
2. Visit our website: www.jdwetherspoon.co.uk
3. The next interim management statement will be issued on 5 November 2014.
