Excess and failure

A DECADE has passed since the death of Robert Maxwell. Since then, Sir Adrian Cadbury has set out rules on how companies should be run. So has Sir Ronnie Hampel. Sir Richard Greenbury has given his views on executive pay.

Many ministers have said executives should show restraint and sensitivity in awarding and taking pay rises. Fund managers in control of the investments held on our behalf have growled and thundered about the imperative not to reward managers' failures. Corporate governance has become an industry in its own right.

And yet, and yet...even now, when a man who has presided over a spectacular squandering of shareholders' money is finally edged out of the company he helped bring to its knees, he can walk away with a pay-off that will reap him more than £3m. Have we really made so little progress?

The tale of Sir Peter Bonfield's departure from BT is instructive. It gives an appallingly vivid demonstration of the fact that, despite all the checks and balances that are now meant to be built into the running of big British companies, failure is still handsomely rewarded when an executive finally leaves. More important, it shows the frailty of the notion that good corporate governance may be achieved by leaving responsibility in the hands of nonexecutive directors.

Just look at those most heavily implicated in the Bonfield affair. Until recently, BT's remuneration committee was chaired by Lord Marshall. As chairman of British Airways he had sacked the airline's chief executive Bob Ayling, who left with a £2m pay-off and a £240,000-a-year pension.

Marshall later told shareholders that 'such a generous amount would not be paid again'. Well, maybe not at BA, your Lordship. But nevertheless, he presided over the award of a contract for Bonfield that was to pay out more than £3m. He was succeeded in the chair of the remuneration committee by Sir Anthony Greener, whose very part-time directorship at BT brings in a useful £90,000 a year.

When Greener was chairman of Diageo, which brought together Guinness and Grand Metropolitan, he oversaw a £600,000 pay-off for GrandMet finance director Gerald Corbett - who has made the collecting of golden handshakes something of speciality in his recent career.

Should we really have expected that BT was ever going to get rid of Peter Bonfield with anything less than a shockingly large pay-off? After all, BT is still paying a former director, Bill Cockburn, £10,000 a week to do nothing, though he has picked up a part-time job elsewhere that pays £120,000 a year.

It is scandalous that a big public company can be so shambolically governed that its shareholders - its owners, remember - end up paying a fortune to someone who no longer does any work. It is scandalous that it has to pay millions to a man who leaves after a less-than-distinguished tenure.

Non-executive directors are meant to be guardians of shareholders' interests. As long as they are drawn from a cosy circle where they feel obliged to look after their own, a club where back-scratching is the norm, their vigilance on behalf of investors will be compromised. The system isn't working.

A U-turn, but who's complaining?
FOR central bank watchers, this week should be the monetary policy equivalent of one of those rare conjunctions of planets that so excite astrologers.

The West's big three, the Bank of England, the European Central Bank and the Federal Reserve, are all meeting. And all are tipped to cut interest rates.

Once in a while, the three meet in the same week. Once before, on 17 and 18 September, they all cut rates. But those were emergency cuts triggered by the 11 September attacks. This will be the first time they have cut rates together during routine meetings - by an expected 0.25 percentage points in the British and European cases and by 0.5% in the US.

Is this a trick of the calendar or does it have any wider significance?

The expected cuts, assuming they happen, will confirm that 'inflation targeting' is on hold for the duration of the world crisis, possibly for good.

The eurozone inflation target is zero to 2%. Its current rate is 2.5%. Britain's central target is 2.5%. The current rate is 2.3%, but that is before recent interest-rate cuts have worked through the system. The US never bothered much with inflation targeting - probably a good thing, given its current rate of 2.6%.

Lip service will be paid to price stability 'in the medium term'. But the inflation targets look set to go the same way as money-supply targets 15 years ago. They will be quietly forgotten. Keeping the economic show on the road is all that matters - inflation can take care of itself.

Yes, it is a U-turn. No, nobody is going to admit it. And in the present circumstances, few are going to complain.