Dual role for Rose bends code too far
SOURCE: SCOTSMAN, 7 APRIL 2008
The name of Sir Stuart Rose, retailer extraordinary, would not normally be included in any list along with those of Saunders and Maxwell but, if the Marks & Spencers board get their way and promote him to be their Chairman and Chief Executive, in the face of public criticism from their institutional shareholders, (just like his predecessor, Sir Richard Greenbury, Chairman and Chief Executive of M&S until 1995 – M&S have previous “form”), that is the company he might keep.
But why the fuss? A man of his pedigree should be an ideal candidate to lead both the management and the board of directors of any FTSE company. If Michael Grade can do it at ITV – why not Sir Stuart at M&S?
For the answer, turn to the Combined Code on Corporate Governance, consisting of 82 pages of principles, provisions, guidance and checklists – but not one bit of legislation. It is not therefore illegal for a company to depart from the Code – but, if it does, it should explain why. The myriad problems besetting ITV in a fragmenting broadcasting market made any explanation of why Michael Grade, with his track record in television, should become both Chairman and CEO, straightforward. The same does not apply at M&S.
When Rose returned to M&S in 2004 and began his transformation of the business, there was more justification for combining the roles of Chairman and CEO than there is now. The explanation that this is the only way in which he can properly evaluate the candidates to succeed him as CEO does not wash.
That the present Chairman, Lord Burns, (formerly Chief Secretary to the Treasury, who will step down by not seeking re-election at the AGM, thus avoiding awkward questions) and Sir David Michels, the senior non-executive director (who took Stakis into the, now reunited, Hilton Group and who is to become Deputy Chairman under Rose), are said to be on a “charm offensive” to have the City accept Rose's dual role, simply compounds this flagrant breach of the Code.
To avoid a Saunders or Maxwell situation (or even a Greenbury one, whose reign ended with the start of M&S's decline and who, ironically, gave his name to one of the Reports which led to the Combined Code) the Code provides for the separation of the roles of Chairman of the Board and CEO. The former should protect shareholders' interests and ensure board independence by providing a proper balance of executive and non-executive directors, who should be independent both of the company and of the other directors. The latter leads the management team.
The Code sets a pattern for what should be good corporate governance – a word defined in the Oxford English Dictionary as "government, control, direction, behaviour". Whilst a breach of the Code is not a crime and whilst M&S have “explained” their departure from the Code, their behaviour has to be questioned. The Code has nurtured the notion that the big boys of the FTSE 100 will set an example for others in the thousands of smaller companies in the UK.
If the board of M&S behaves badly, coming so soon after the deficiencies exposed in the Northern Rock board before its nationalisation, what kind of example is that to set to the smaller board meetings which are the daily stuff of commercial life for the majority of UK companies? If the board of M&S cannot behave, why should anyone else?
There cannot be one rule, Sir Stuart, for the big boys and another for the little people who, incidentally, probably buy their underwear from your shops.