Going soft on board reform

OVER the past few months I have lost count of the number of company chairmen wanting to bend my ear over the Higgs report. 'Derek has gone too far,' is a familiar refrain and the word 'unworkable' has been used.

Given this co-ordinated onslaught, in which the CBI played a key role, it became obvious that Higgs - himself a serial non-executive - was on to something.

One does not have to look far across the British industrial horizon to understand the hash which so many chairmen have made. There may have been no WorldCom or Enron in Britain - just MyTravel and Bulmers - but we have not been without our misfortunes.

The destruction of shareholder value at Marconi, with Sir Roger Hurn in the chair, Invensys under Lord Marshall and BT in the days of Sir Iain Vallance all provide testimony to the need for counter forces on company boards. It is rather sad, therefore, that the Financial Reporting Council has undermined Higgs' original proposals.

Among the most unpopular of these was the requirement that the chairman should be barred from serving on the nominations committee. This was important since it was a means of disentangling the backscratching that turned some non-executive appointments into jobs for the boys.

Of course, chairmen should be involved in executive succession. But they can do that by providing a list of names to a nominations committee - which would have the happy choice of throwing them out.

Similarly, the objectors have weakened one of the most valuable Higgs provisions - that of a senior independent director who could be a conduit for dealings with shareholders without the presence of the chairman. The fear in the chairmen's club was that this might lead to internal conflict. But that is exactly what some boards - with nodding-dog members - need.

Where the FRC is correct is to ease the rules on over-regulated smaller companies and to endorse Higgs' ideas for better induction and monitoring of non-executives. This does not compensate for emasculating the robust and workable core Higgs proposals.

Lomax dissent
THE edge was taken off the latest minutes from the Bank of England's monetary policy committee by the statement provided when rates were cut to 3.5%. But the minutes were not without surprises. The biggest was the decision of new deputy governor Rachel Lomax to be the lone dissenting voice against a rate cut.

Some might put this down to the reluctance of a debutante to make a decision. After all Sir Andrew Large, who voted with the doves this month, also held back in his early days. But there may be something more to this. Lomax was clear that she believed conditions in the economy were 'benign' and that there was no need to make a change. In so doing she was displaying the same kind of independence of spirit that made her a feisty presence in previous jobs in government and in Washington. She is not going to be rolled.

As it happens Lomax was almost certainly wrong. All that we have seen at home and overseas since July 10 - including the latest downbeat CBI survey and the strengthening of the pound - suggests it was right to trim rates and they should be cut again before the end of the year.

That is the way some members of the Federal Reserve are now thinking in the US. They are seeking to tackle deflationary conditions and the loss of pricing power for industry. Ben Bernanke, the most free thinking of the board's governors, makes it clear that the Fed would be ready to cut to zero rates 'should that be necessary to provide support for the economy'.

Anyone who has learnt the lessons of Japan over the last decade or so, or policymakers in the 1930s, would know the wisdom of his remarks.

Rates on both sides of the Atlantic have not yet reached their bottom.

Davis switch
IT may be just as well that Sir Peter Davis is set to become the first chief executive to breach Higgs by moving upstairs as chairman of Sainsbury. He has done much of what he promised by bringing the group's infrastructure into the 21st century and smartening up stores that had become shabby.

But although sales are fractionally up, he has not found the magic pill. Instead of going the Tesco and Asda route of diversifying out of foods, many City investors think Sainsbury should try something else.

It should build on its reputation for freshness and wholesome foods by moving upmarket and taking on Waitrose and M&S in the more aspirational grocery market. That might be the first task for a new chief executive.