Why I ...believe academics should serve as non-executive directors of companies

August 2, 2002

The perennial questions asked after any big corporate scandal include "what were the auditors doing?" and "where were the non-executive directors?" The Enron scandal may have left UK regulators with the smug satisfaction that UK accounting practices are healthier than those in the US, but there is little room for complacency. As a result, the government has commissioned Derek Higgs, chairman of Partnerships UK, to lead a short independent review of the role and effectiveness of non-executive directors.

Non-executive directors are in effect "part-time" directors. Although they are not new, they have flourished on UK listed company boards since the 1992 Cadbury committee made them central in combating overpowerful chief executives and in supervising audit and board appointments and pay.

A key question for the Higgs committee is: what knowledge, skills and attributes are needed, and what can be done to get the best people in non-executive roles? The committee also wants to find out how to encourage more diversity in non-executive appointments. In considering these questions, academics could help provide an answer.

The National Association of Pension Funds says that in seeking non-executive directors, investors look first for technical qualities such as strategic awareness and relevant experience. But also important are character traits such as independence of mind, integrity and a willingness to learn.

The arguments for widening the pool of non-executive directors to include academics are persuasive. The image of academics as unworldly, bearded, balding figures is dying. In many universities, academics are honing commercial skills with enterprise activities, including forming spin-off companies. In 1999-2000, according to the Higher Education Funding Council for England, 199 spin-offs were established nationwide and share sales in spin-offs brought institutions £38.4 million. This may be chicken feed to listed companies, but it promises a culture change. And many academics, especially in newer universities, will argue that they brought with them into higher education first-rate business or professional expertise.

However, business or professional experience in itself means little. The crucial argument for making academics non-executive directors is that UK companies should have access to the finest minds at board level: academics who possess world-class scientific or technical expertise, academics who can challenge conventional thinking, academics who are untainted by conflicts of interest. Obviously not all academics fit this saintly image, and it would be as undesirable to foist academic bureaucrats on companies as it has been to grow them in universities.

Few non-executive directors show academic connections. But there is evidence that forward-looking companies are changing. GlaxoSmithKline's 2001 annual report lists a board littered with academic achievement: Sir Richard Sykes, then non-executive chairman, rector of Imperial College, London, and a fellow of the Royal Society; Sir Roger Hurn, chairman of the court of governors of Henley Management College; John McArthur, former dean of Harvard Business School; and Lucy Shapiro, a professor at Stanford University, among others of distinction - all valuable precedents.

Getting academics on the board is about more than filling a hole in academic salaries and holidays. It is about ensuring that UK companies have access at the highest level to the best brains in the country - people who possess independence of mind, integrity and can learn quickly. Let's hope the Higgs committee responds to ensure that this becomes not merely best practice but normal practice.

The full text of the Higgs committee consultation can be downloaded from
www.dti.gov.uk/cld/ non_exec_review/condoc.pdf

Stephen Copp
Senior lecturer in corporate governance
Bournemouth University

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