BioWorld International Correspondent
LONDON - Boardroom performance in the UK biotech sector has improved since the introduction of new rules governing the role and responsibilities of nonexecutive directors (NEDs), according to a new study.
But despite progress, a lack of formal training for directors and a shortage of skills remain issues, according to Ruston Poole International’s survey of more than 40 CEOs and chairs of listed and private UK companies.
More than 70 percent of unlisted and 100 percent of listed companies have taken action to comply with the Combined Code on Corporate Governance, with only 25 percent saying that imposed unnecessary burdens. Three-quarters of respondents thought boards are functioning more effectively as a result.
Ruston Poole carried out a similar survey in mid-2003 when the rules were proposed. "Three years ago, it was feared the new wave of regulations would be inappropriate for most UK biotechs, but it turns out the view of senior board members is that the rules help, because it means they know where they stand," David Collingham, executive chairman of Ruston Poole, told BioWorld International.
The rules were proposed in the 2003 Higgs report, commissioned by the government to look at how to formalize the role of NEDs in the wake of corporate implosions such as Enron and Marconi.
Collingham said, as a result, the NED’s role has become much more onerous: There is a duty both to ensure a company is meeting its regulatory and compliance obligations, and to help in setting strategic direction and checking on implementation.
"Now the demands are such, NEDs really have to know what the company is up to. For example, if the management recommends an acquisition, merger or partnership, nonexecs are liable if it goes wrong," Collingham said. "I would estimate they have to put in two times the unofficial time preparing for meetings and so on, for each day they are formally engaged."
Bureaucracy apart, one of the main fears raised by companies in Ruston Poole’s 2003 survey was the cost of compliance.
"It has been estimated that the cost of compliance with [the equivalent U.S. legislation] Sarbanes Oxley, is up to $1 million a year in fees for auditors and lawyers, etc," Collingham said. "But putting processes in place has not cost this much [in the UK]. And our survey showed NED pay has not risen, and in comparison with U.S. rates, is low."
Given that, it is not surprising that Ruston Poole, a major recruiter of NEDs, finds they remain in short supply.
It is true that the same names crop up all the time, and Collingham said there is evidence of an altruistic motive in the cadre of life sciences NEDs in the UK. He added that there is an urgent need to widen the pool of potential NEDs.
"Skills are needed from outside the industry," he said. "For example, financial experience or public affairs, and there needs to be greater diversity, especially as regard to gender."