Cambridge IELTS 12 Academic Reading Test 4 (Questions 38-40)

D

A radical solution, which may work for some very large companies whose businesses are extensive and complex, is the professional board, whose members would work up to three or four days a week, supported by their own dedicated staff and advisers. There are obvious risks to this and it would be important to establish clear guidelines for such a board to ensure that it did not step on the toes of management by becoming too engaged in the day-to-day running of the company. Problems of recruitment, remuneration and independence could also arise and this structure would not be appropriate for all companies. However, more professional and better-informed boards would have been particularly appropriate for banks where the executives had access to information that part-time non-executive directors lacked, leaving the latter unable to comprehend or anticipate the 2008 crash.

E

One of the main criticisms of boards and their directors is that they do not focus sufficiently on longer-term matters of strategy, sustainability and governance, but instead concentrate too much on short-term financial metrics. Regulatory requirements and the structure of the market encourage this behaviour. The tyranny of quarterly reporting can distort board decision-making, as directors have to ‘make the numbers’ every four months to meet the insatiable appetite of the market for more date. This serves to encourage the trading methodology of a certain kind of investor who moves in and out of a stock without engaging in constructive dialogue with the company about strategy or performance, and is simply seeking a short-term financial gain. This effect has been made worse by the changing profile of investors due to the globalisation of capital and the increasing use of automated trading systems. Corporate culture adapts and management teams are largely incentivised to meet financial goals.

F

Compensation for chief executives has become a combat zone where pitched battles between investors, management and board members are fought, often behind closed doors but increasingly frequently in the full glare of press attention. Many would argue that this is in the interest of transparency and good governance as shareholders use their muscle in the area of pay to pressure boards to remove underperforming chief executives. Their powers to vote down executive remuneration policies increased when binding votes came into force. The chair of the remuneration committee can be an exposed and lonely role, as Alison Carnwath, chair of Barclays Bank’s remuneration committee, found when she had to resign, having been roundly criticised for trying to defend the enormous bonus to be paid to the chief executive; the irony being that she was widely understood to have spoken out against it in the privacy of the committee.