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ALEX BRUMMER: Independent directors don’t fix a frail boardroom

As we know from Carillion, Arcadia-Top Shop owner Taveta and other recent corporate imbroglios, a line-up of seemingly robust independent directors does not stop businesses going wrong.

Powerful executives at Carillion published misleading financial reports before it headed into insolvency.

Sir Philip Green, who decorated his board with respected business and legal figures, still sold BHS to Dominic Chappell, now a convicted tax evader.

Sir Philip Green, who decorated his board with respected business and legal figures, still sold BHS to Dominic Chappell, now a convicted tax evader

Restraining dominant bosses set on ill-advised steps can be impossible. As a pioneer in strengthening governance standards, the UK should not allow them to be dismissed. Quite the contrary, it ought to be doubling down.

By sheer coincidence, two quoted firms in urgent need of better governance have made new non-executive appointments.

A few short weeks after Alison Levitt QC released an excoriating report criticising working conditions in the supply chain of online fashion group Boohoo, along with weak boardroom scrutiny, the Leicester firm has unveiled veteran tech executive Shaun McCabe as the answer.

At The Hut Group (THG) a former Deloitte audit partner Damian Sanders has been parachuted in and will take charge of remuneration. As good as it is that Boohoo and THG have started to listen, the choices made do not look bold.

The fundamental governance weakness at both is an all-powerful founder chairman who holds all the cards and is able to force decisions without thorough examination.

What is really needed is an end to the role of executive chairman or the appointment of heavyweight business figures able to stand up to all the pressures.

We recently saw the value of this at Rio Tinto when powerful independent directors Sam Laidlaw, formerly of Centrica, and Simon Henry of Shell insisted the top team leave after the desecration of First Nation spiritual sites in Australia. McCabe is an expert on online enterprises from his roles at Trainline, AO and Amazon Europe.

But with the best will in the world, it is hard to think that he is going to exert huge control over Boohoo boss Mahmud Kamani’s appetite for inter-family transactions, fat cat bonuses and appallingly weak supply chain controls.

Similarly, Sanders, a senior audit partner at Deloitte in Manchester, will have an uphill task keeping ripped, bare-chested CEO and chairman Matthew Moulding in check. 

Sanders already had a THG connection as special adviser to the audit and risk committee, which raises immediate questions about his independence and ability to keep pay awards in check.

Moulding’s potential payout is already worth £830million after just a couple of months as a public company.

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It makes past big recipients such as Jeff Fairburn at Persimmon and Martin Sorrell of WPP look like paupers.

The High Pay Centre has noted the THG’s remuneration committee is comprised of ‘other serving executives who personally benefit from the prevailing culture of excessive top pay’.

There is a promise of another non-executive appointment within the next year, which is a feeble timetable for a company riddled with governance shortfalls. Shareholders will only have themselves to blame should Hut’s ambition fall to earth.

Safety first

The Co-op Bank, the favoured choice of charities (including two this writer chairs), deserves good ownership if its ethical and green credentials are to be nourished.

The speculation that it could fall into the hands of private equity group Cerberus will not instil confidence among loyal customers. 

Cerberus is already well known in UK banking for its cold-hearted approach to customers after it acquired bad loan portfolios from Northern Rock, RBS and Lloyds in the wake of the financial crisis.

It is not the only UK bank heading to new ownership. Spain’s BBVA is seeking to buy Catalonia’s Sabadell, which in turn is the owner of TSB. 

Before an IT meltdown in 2019 TSB liked to describe itself as the John Lewis of UK banking.

It is hard to think that BBVA, which has just sold its US arm, will be greatly interested in ownership of a UK bank although it could see it as a footprint in ‘Global Britain’.

There is also the possibility that BBVA will seek to put TSB together with digital pioneer Atom in which it has a strategic stake. If any of this happens, it is going to require some high hurdles to be cleared.

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