Economies emerging into the entrepreneurial age seem to go through the same phases regardless of when they emerge. To those who have already been there, perhaps several generations ago, that can seem appalling, infuriating or merely quaint. Exploitation of labour in China and India mirrors the worst in Britain 150 years ago. Iran succumbed to revolution at much the same stage as tsarist Russia. Modern Russian oligarchs are a post-communist variant of America’s even more unflatteringly named robber barons.
Now the smart venturers sprouting from the nations of the former Soviet Union are aping a gentler practice long familiar to UK investors of yesteryear. They like to put some pukka British toffs on the board to make the newcomers look more respectable.
Lord Renwick of Clifton, vice-chairman of JP Morgan Cazenove, is on the board of Kazakhmys, the FTSE 100 mining stock that his bank helped to float. Lord Daresbury, who chaired De Vere Group, now chairs Kazakh Gold. The 21st Lord St John of Bletso, who also has a City background, is a director of the Ukrainian Regal Petroleum. Lord Mackenzie of Framwellgate, once a senior policeman, hopes to keep the board of the AIM-listed Oriel Resources on the straight and narrow. Lord Lamont of Lerwick, a former Chancellor of the Exchequer, chairs the advisory board at Unistream, a Russian finance group due a London listing.
Earlier in the Queen’s reign it was still de rigueur for UK companies in a respectable industry such as banking or insurance to have a member of the aristocracy on the board. At Pearson, which then represented the array of Lord Cowdray’s business interests, a peerage was more or less a requirement for directorship, though an Irish one would do.
Elsewhere, vestiges of proper feudal respect were maintained. At the Royal Exchange insurance group, a box containing the brand of cigar favoured by Lord Kindersley was kept in each room on the executive floor so that the chairman would not be inconvenienced on his progress.
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Like most traditions, the lord on the board came to be abused, in this case by those who thought they could buy undeserved reputation by hiring a title. In the 1970s various enterprises honoured by association with one direct descendent of King Charles II came into disrepute, dividing opinion as to whether the duke was merely careless in his pursuit of directors’ fees or himself a party to events.
Bernie Cornfeld, the American whose rotten fund-of-funds investment operations subsided under the weight of their excess, was an avid collector of big names. Several UK fringe banks that collapsed in 1973-74 had a peer, prominent politician or former Whitehall mandarin on the board.
The tide of opinion turned so completely that hiring such luminaries as non-executives aroused suspicion and tended to cause shares to trade at a discount. Aristocrats were subjected to semi-official negative discrimination and had to open cafés in their gardens.
Of Britain’s big six listed companies, BP, Royal Dutch Shell, HSBC and Vodafone have only five directors with peerages between them. All are life peers, two being former mandarins, one a former vice-chancellor, one a Hong Kong luminary and one BP’s chief executive, ennobled for his efforts on the company’s behalf. GSK and AstraZeneca have none. Four other clearing banks share just two life peers. Pearson has only Lord Burns, who came from modest North East beginnings to be enobled via the London Business School and the Treasury.
The peers on the Kazakh and Russian boards appear to be there mainly for what they can bring, ranging from their knowledge of mining markets to familiarity with City ways and the corridors of power, as well, perhaps, as to add a show of ersatz class. Investors should not prejudge peers either way for their titles. In these companies, however, their lordships seem unlikely to be able to protect investors from any excesses of their bosses.
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In losing the aristocrats at home, one virtue of having the effortlessly superior as outside directors was also lost. We live in an era when non-executives represent no one, feel impotent against top managers and are supposed to be subjected to the annual humiliation of performance vetting by the chairman. Investors could do with someone on the board who regards the chief executive and finance director as mere staff.
At BP, for instance, it took the Earl of Ashburton, a scion of the Baring banking family, to lead the coup against the oil group’s last unpopular executive chairman. Many self- regarding, pocket-lining chief execs of today could do with being put in their place.