Corporate governance - A view to review.

(From Financial Director)

Byline: Robert Bruce, a leading commentator on accountancy issues.

If there were ever a place where responsibilities are passed swiftly on to someone else, it is in remuneration committees. Yet remuneration, particularly in the US, has a unique power within a company to destroy reputations faster than anything else. That is why the topic is such a hot potato and why whenever the need for a remuneration decision turns up in someone's in-tray it is off-loaded, generally to someone outside the company.

There are two issues here. First the defensive nature of remuneration committees makes the issue worse. Second, the inevitable use of outside consultants worsens it further. Few people have thought the issues through and modified their practices accordingly, and even fewer have produced a simple formula to keep the critics at bay.

Corporate governance is in trouble, and the trouble stems from the desire to shift the responsibility elsewhere. This is something which ought to be reversed, but which is unlikely to happen. Everyone likes the idea of their own remuneration being as high, extensive and diverse as possible. It is always someone else who has gone too far and brought opprobrium down upon the company.

Former Abbey National chief executive Ian Harley has experienced both sides. He was brought down by the company's non-executives, and he has since done his own bringing down as a non-exec at Rentokil. Speaking at the last LexisNexis conference on corporate governance, he said: "Remuneration committees have made things worse. There are huge pressures on remuneration committees to use outside consultants. They are intimidated and take shelter in advice."

And outside consultants are unlikely to come back to a client company and suggest that remuneration levels should be pegged back, lowered, or maintained in a lower quartile. Harley suggests this is partly due to disclosure. Disclosing remuneration turns the process into a round of corporate bragging egged on by the consultants. American investor Warren Buffett was right when he said that external remuneration consultants should trade under just the one name - Ratchet, Ratchet & Ratchet.