Keith Hamill is a Non Executive Director at easyJet and Samsonite, and the former Chairman of Tullett Prebon, Travelodge and Go, and Pro Chancellor at the University of Nottingham.
What would you do to improve corporate governance?
We already have an elaborate system of corporate governance compared with international practice and there is little evidence that it improves returns compared with other systems. So I would favour less emphasis on ‘governance’ and more properly considered legislation. The danger is that so-called corporate governance becomes government’s way of passing the buck.
Remuneration illustrates the point. We all see the growing gap between executive and worker pay, but we also know that in a globally competitive market, tampering with pay risks a brain drain and fewer businesses being based in the UK.
So what do the politicians do? They make it a corporate governance issue, handing the non-executives and shareholders the choices that the government is not prepared to make and letting business take the flak.
Government should show some leadership and face up to the trade-offs between the potential economic cost of restraining remuneration, the best interests of society and short term popularity.
Wouldn’t one-size-fits-all legislation on executive pay be a blunt instrument?
Of course. However, because performance depends on a large number of variables there can be randomness from tailored pay packages anyway.
Crafting pay structures that reflect the circumstances of each business has often been more challenging than expected. It’s hard for the board to correlate pay with measurable personal value-added and determining what would be fair in advance is difficult. I know of a number of cases where exceptional growth in shareholder value due to outstanding management fully justifies significant rewards. But this is not always the case.
I started my executive career with uniform rules, where rewards were linked solely to shareholder returns. We accepted that if the shareholders hadn’t done well, then nor would we, regardless of personal contribution. And we saved ourselves a lot of complexity and frustration.
So are you a fan of the proxy voting agencies?
They are tremendous. If you do what they prescribe, they will vote for you. The board knows where it stands.
Compared with international practice, in the UK we have had an emphasis on negotiation with shareholders over our special circumstances.
But it is not clear how productive this ultimately is. And it’s unlikely to work as fund management becomes increasingly international.
What is the ‘right’ amount of tax for a business to pay?
Within the law, I believe it’s generally the job of the board to maximise the position of shareholders, although consumer brands should also consider their reputation. If companies come up with legal ways around tax rules then governments need to develop more effective tax laws.
And it’s probably time to acknowledge that our tax laws are outdated; concepts about residence and where transactions are recognised are becoming an anachronism in a global and digital world.
What does a business owe to the society in which it operates?
The thinking on the relationship between society and business has become confused and our concepts around corporate governance may not help.
In many circumstances, businesses can create wealth for society, with competitive markets stimulating new products, innovation and efficiency. Low cost flying and budget hotels are good examples of very positive capitalist system led improvements, as would be internet communication.
But there are limits to markets, particularly if unstrained and unsupervised. As Adam Smith pointed out, dominant monopolies and collusion do not operate in the interest of societies. There are also some business activities which can sometimes be negative to the general good.
There is an idea that non-executives will restrain bad things. But they are paid and selected by and are part of the company. They can act as a useful restraint but they are not employed by society.
It is for governments to look after society and, after considering the trade-offs between the benefits and social costs of capitalism, governments should do that by making practical laws that work. Laws which businesses should comply with, and if they can’t, should go elsewhere.
Are the interests of society and business not more aligned than this?
I know a number of very fine businesses with a terrific sense of social responsibility. But it’s an optimistic idea that all businesses will — or can — always do the right thing for everyone else if it conflicts with their own interests.
How important is information in the boardroom?
Boards need reliable, well explained, honestly prepared and timely information. And non-executives should supplement this with constructive questions rather than asking for too much additional information to trip up the executives with.
Board reporting should be useful to management too. Having to set out clear, coherent information and rationales is a healthy, self-correcting discipline.
How will the UK’s global influence change over the next decade?
I don’t think we have much influence now and I don’t think it will increase.
That said, perhaps as our imperial past recedes and the world develops we could usefully serve as a model of decency, fairness, good law, relative honesty and politeness.
What is the smartest business decision you’ve made?
I have been involved in three exceptional start-ups: Go, easyJet and Travelodge.
The decisions of their founders to start those businesses were inspired.
What book is on your bedside table?
What is your golden rule?
By the time received wisdom is uniformly accepted, it’s probably wrong.