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We must not conflate governance with democracy

30 January 2017 by Henry Ker

We must not conflate governance with democracy - read more

Giles Peel discusses his career in the armed forces and his decision to move into governance, the dangers of undermining the unitary board system and the value of the secretariat.

Giles is Head of Governance Advisory Practice at DAC Beachcroft and a retired Royal Navy Captain.

Could you tell us about your career in the Royal Navy?

I joined straight from school as a university cadet. I then went to university in London and during the vacations came back to sea. I spent 20 years as a full career Royal Navy Supply and Secretariat Officer – now called a Logistics Officer. I served all over the world and from time to time in Whitehall too. I ended up as a Royal Navy Captain and then decided to leave early to start a second career in governance.

What prompted that decision?

I had always wanted to work in business of some sort, so although I was always going to spend a good chunk of time in the navy, it seemed a sensible thing to do to prepare for after that. Having done the ICSA qualification I wanted to try and use it while I was still relatively young, so I made a decision to leave before I was 40. I left at 39 years and six months – just in time to meet that target!

In my day you began a full career at the age of 18 – you could apply to serve for 30 plus years. Nowadays you have to sign on for a series of periods of time. So it is even more important today to have some notion about what you might do when you leave.

Back then it was considered odd to leave at the age of 39. Nowadays there are breakpoints when you are in your late 20s and 30s. You have to be focused on having a set of skills that you develop in the military, so that you have a choice when you get to those breakpoints.

Could you tell us about your experience of studying to become a chartered secretary?

It was not easy – the exams are difficult. One of the attractions and the detractions of being a chartered secretary is that it requires you to be numerate and literate and our education system still streams you into one or other of those things. So to do something that actually stretched both, and in terms of company law and financial accounting, seemed to me to be a good thing – and that was the main appeal.

I did the studying on my own, which meant understanding the syllabus, reading the books, shutting myself away for months at a time, prepping for the exams and then turning up to London to
sit the papers.

In one morning, I landed from a ship to get on the train to London and sit the exam. It was not an easy way of doing it, but because of the life I was leading there was no other way. I did one course with the Kensington School of Business. That was a mix of distance learning and turning up on Saturday mornings for an eight-hour financial accounting session, which I did for about three or four months – it required a lot of discipline.

The thing I found most useful as a test on how I was doing was reading the Lex column in the Financial Times – being at sea, occasionally a bunch of newspapers would be dropped off. If I could understand more than half of what they were talking about, I felt I was progressing.

Do you feel that members of the armed forces are a natural fit for governance or secretariat roles?

I was in a specialisation that was intrinsically based on high-quality administrative skills and staff work (as the military call it). I have been an ADC (aide-de-camp) to an admiral, an executive assistant to another senior person and I have worked in the Ministry of Defence where high levels of skill, negotiation and analysis are required. So the skills I learned lent themselves to the secretariat very well.

It is not a clear cut thing, because plenty of young people now want to join the forces to serve in exciting places, to get themselves into slightly sticky situations, and therefore administration and governance are not necessarily the bedfellows for the young service man or woman.

But there is no doubt that if you want to make more of a career of governance, if you get towards the administrative side of government – which in the Ministry of Defence you do – then you learn very important skills.

I also believed that if I was going to compete with civil service colleagues for jobs – and there is a lot of competition for jobs within uniform and non-uniform people – then having the ICSA qualification gave me an edge because I was able to say I had strong commercial qualification (and I do view this as a commercial qualification).

I have done a Part 3 accounting exam and an equivalent law exam, so I could hold my own with Treasury officials and people like that. Today that is as relevant now as it was then.

Does the armed forces experience governance issues in the same way as businesses and charities?

In areas such as financial decision-making undoubtedly there is a lot of similarity. Anything to do with the infamous planning process in the Ministry of Defence, procurement and major contracts, there are similarities too. But it is also about being able to relate to the fact that the civil service must act in a more governed way and therefore anything you can do to hold up the uniformed end of it is a good thing.

What advice would you give to members of the armed forces who are planning their second career after the services?

There are some parts of the job finding process that are difficult, so I would make use of the resettlement facilities that you are offered when you leave − things like CV writing and skills analysis.

I would spend a proportion of your time every year that you serve thinking about what next. Cliff-edge planning does nobody any favours. I found I was much more comfortable about staying longer once I had become a chartered secretary, because I knew I had alternatives.

You are now Head of Governance Advisory Practice at DAC Beachcroft. What do you think are the biggest governance challenges for organisations?

It is a fast moving world and we are constantly on the edge of having an overburden of regulation. On the one hand you have demanding investors, shareholders, stakeholders, and on the other and you have an assertive regulatory regime that is trying to police that.

So undoubtedly directors are more pressurised with the greater breadth of compliance and governance knowledge required than in the past. But governance has to remain practical and agile. A lot of what I do is to try and deliver pragmatic solutions for my clients which enable them to comply, but do not stop them from doing their day job.

I always felt governance was an enabler; I still feel that now. Well-governed organisations undoubtedly do better – it is not a coincidence that a well-organised company tends to flourish.
I have been lucky to work in a number of different jobs; this is my fourth since I left the navy.

I have also built a non-executive portfolio too. All of that is possible because I understand how organisations work and I can contribute to that. Undoubtedly the armed forces gave me the confidence to be able to believe I could do that.

I have worked hard in the past 15 years to gain the experience that I lacked when I left. If you serve for the amount of time I did, you have to be ready to come across bosses who are younger than you and who probably have less experience than you.

Regarding your submission to the BEIS Select Committee inquiry, you said that moves to put onerous responsibility onto NEDs, through the SMR and SIMR, are unhelpful. Could you outline your concerns?

I am passionate about the principle of collective responsibility for boards and in law there is no difference between the liabilities of a non-executive versus an executive. Albeit the non-executive does have, in some circumstances, a degree of mitigation, because they do not necessarily have enough operational understanding of the workings of the organisation.

The SMR and SIMR are pushing some non-executives to be more responsible for the inner workings, and the two roles they have quoted most are the chair of the audit committee and the chair of the remuneration committee.

We have already seen the notion that those types of NEDs are going to be paid more and that is starting to translate into reality out there. But, that somehow they have a greater accountability and should take more interest in the operational running of a business seems to me to start greying what has been, up to now, a reasonably well-understood distinction between non-executive and executive.

One of the challenges I have tried to address with organisations like the FRC is that I would like to see it making more noise about this, because if we have categorisation of NEDs, we are no longer in the same ballpark of collective responsibility. You will get NEDs who want that responsibility, that profile and that regulatory extra scrutiny. You will get NEDs that do not want it. I am not sure we want two tiers of NEDs.

Regarding proposals for worker representation on boards, you said the idea is superficially attractive and ‘it is wrong to conflate governance with democracy’. Could you elaborate?

Most people acknowledge that liberal capitalism is in trouble at the moment, because there is no doubt there is corporate excess. The traditional press targets the ‘fat cats’ reward for failure’ and so on. You do not have to look far to find examples of that. The spirit therefore of saying there should be greater connectivity between a board and senior executives and the workforce is entirely right.

We can see an example of this in the concept of NHS Foundation Trusts, where staff governors have a right through a history of election and appointment to take a greater interest in the affairs of the boards and, in particular, the conduct and the efficacy of non-executive directors.

However, the staff governors may potentially find themselves in an invidious position, because they often know stuff through their day jobs that they cannot share with their fellow governor colleagues and feel pressurised to do that. Then, equally, there is a danger that they become apologists for the board or the management back in their day jobs. You cannot win in those ways.

There are European examples of worker representation, but I suspect if you are to talk to our equivalent corporate secretaries in the European sphere, they would say that there are massive levels of bureaucracy.

The fact that the Prime Minister appears to have lessened her charge on this is sensible. We have got to find ways of holding people to account so that where there are disparate levels of remuneration in an organisation, it must be justified. Where there is reward for failure, that should be targeted.

Whether or not appointing individuals to sit on a board to be the eyes and ears and the mouthpiece for the workforce, and then have to go back and justify themselves to their own colleagues is the answer, I am not sure.

Another area I have done a lot of work on is conflicts of interest. Conflicts of interest in company law are quite clear; they must be avoided. There are other sectors where that is blurred – for example, under the health legislation, a clinical commissioner group governing body member or a GP has to manage their conflict to avoid them. So we end up in the realm where people are jumping in and out of the boardroom as decisions are being made.

This relates to my point about the practicality of governance, because somebody has to make the decision. Even if people are conflicted, if the board has got itself to a position where it can recognise and declare the conflicts, but also recognises the imperative of a sensibly made decision, then authorisation, which company law permits, should drive that through.

I am much more interested in organisations that realise the responsibility in timely decision making, even if there are some conflicts present. If they can work their way through those and still make a decision, nine times out of ten that has got to be better for the organisation than constantly throwing people out of rooms and never quite getting to a quorum.

From your experience as a governance adviser, are there any common cross-sector governance problems?

Boards establishing a cultural set of values and monitoring that is a constant challenge. A disconnection between board and workforce is a common theme in lots of areas.

Non-executives who are out of their comfort zone, and therefore for various reasons become slightly more timid, is another one. I am always quite intrigued when in their day jobs those non-executives are executives and therefore bullish. When translating those relevant experiences to a different sector or a different type of industry, a lot of people seem to find it hard and they become more reticent.

Is that because they are not putting in the time with the organisation or do not understand it well enough?

It is because there is a degree of deference that goes on when someone comes into a new environment. But if companies and charities, or any other kind of board, take the time to induct people properly, that should be overcome. Often the induction process is inadequate, because you find people one or two years down the line are still slightly nervous about giving a strong opinion.

You were Policy Director at ICSA between 2003 and 2007. How has the profession and the governance sector changed since then?

The profile is much higher and the ICSA has done a very good job with that. There is recognition in a world of complexity that the general skills in numeracy and literacy that chartered secretaries can bring to a boardroom or to an organisation are worth their weight in gold.

It is interesting that the officers of the company remain as important. The general counsel and the company secretary remain pivotal, even though in the Companies Act of 2006, which came in when I was at ICSA, we were worried that we were losing ground as the requirement for all companies to have a company secretary was removed.

But we have not lost ground in any way – rather we have gained it. Most organisations, even if they do not think they need a company secretary, recognise they need a chief administrative officer or similar. Now there is no other qualification that comes anywhere near ours in giving people the skills for that – I am very proud of it.

What do you think governance will look like in years to come?

If we get it wrong it will be a series of dreadfully imposing regulations which come out of kilter with the basis of company law and charity law. That is what we have to fear, that the regulation becomes more draconian than the legislation.

If we get it right, the broad principle of comply or explain should remain and be strengthened, and the profession has a role in making sure the explanation is as valid as the compliance.

Interview by Henry Ker, Deputy Editor, Governance and Compliance

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