It’s an old saying, but you really must practise what you preach. And this is especially important when you work for a regulator of any sort. Having taken up the position of deputy chairman at Quindell this month, Jim Sutcliffe stepped down from his position as chairman of the Codes and Standards Committee at the Financial Reporting Council (FRC). This came after criticism that the share options handed to him by Quindell were in breach of the UK Corporate Governance Code (the “Code”), which Sutcliffe was responsible for overseeing at the FRC.
His departure demonstrated two things: first, it’s not possible to easily reconcile occupying a non-executive role at a regulator alongside working for a publicly-listed company; second, you cannot enforce a system of governance only to undermine it shortly after by “interpreting the rules differently.”
Sutcliffe is experienced, well-connected and incredibly appreciative of how integral the Code is to maintaining good levels of governance in the UK listed market. And in his defence, the one problem with any code of governance is that it is just that: a code, a set of principles that is open to interpretation or in some cases (although not in Sutcliffe’s) exploitation. Indeed, many companies can, and do, construe the rules of governance in the UK slightly differently. Such flexibility permits firms to tailor their governance frameworks to their specific needs, albeit within the broad parameters of widely accepted best practice.
So what was the crux of the problem? The share options Sutcliffe received from Quindell will be exercisable within 12 months of his appointment. However, as a member of the company’s executive, the following rule in the Code should have applied: “[options] should not be exercisable, in less than three years.” The justification from Quindell was that exceptional times call for exceptional measures, and certainly the appointments of Sutcliffe and Richard Rose appear to have done the firm some good, with shares having risen 30 per cent on the news of their arrival.