BioWorld International Correspondent

LONDON - Proposals to tighten up corporate governance by changing the role and responsibilities of nonexecutive directors (NEDs) are not appropriate for many UK biotechnology companies and would make it even more difficult to recruit good NEDs, according to a survey of 52 CEOs.

The government proposals do not take into account the stage of development of the industry and the complexity of the biotech marketplace, according to the survey carried out by Ruston Poole International (RPI), a leading recruiter of NEDs for the life science industry in Europe.

The survey shows that the requisite roles and responsibilities of NEDs can vary significantly from company to company, David Collingham, chairman of RPI, told BioWorld International. "The UK industry is comprised of a broad range of different companies, from Celltech to small university spin-outs. Early stage private companies are in a very difficult position [in terms of complying with the proposals] and are very much anti."

The proposals are contained in the Higgs report, commissioned by the government to look at how to formalize the role of NEDs in the wake of the Enron Corp. and similar corporate scandals. While corporate failures in the U.S. put the focus on preventing malpractice and fraud, in the UK the loss of shareholder value has been more of an issue, putting the focus squarely on the role and effectiveness of NEDs.

Collingham said that while most companies would like to take up some of the Higgs recommendations, the boards of early stage companies likely are to be comprised of the founder inventors and venture capitalists. "It is very difficult for them to find truly independent NEDs who can add value."

The CEOs in the survey said there is a shortage of good NEDs coming into the industry. "In general it is hard to find people with experience of the sector, who don't have conflicts of interest," Collingham said. The research indicated that the introduction of strict rules on NEDs would make it more difficult to "widen the gene pool" and recruit people from outside the industry.

The other concern for smaller companies is renumeration, Collingham said. "The majority of companies in our survey haven't got a lot of cash to pay NEDs, making it even more difficult to recruit good ones."

The recommendations of the Higgs report are broadly consistent with the Cromme Code in Germany and the Bouton Report in France, and Collingham said the situation in the UK is similar elsewhere in Europe. "Different countries have different board structures, but there are similar problems in recruiting nonexecutive directors elsewhere in Europe," he said.