Mar 20 2024 20 mins 2
What are the key differences between the U.S. and the U.K. in their approaches to corporate governance? How do these differences impact an independent/Non-Executive Director in their duties?
In this podcast, with Susan Skerritt, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses corporate governance practices in the U.S. and U.K.. Susan was the CEO of Deutsche Bank Trust Company, Deutsche’s US commercial bank. Since 2018, she has served on the board of financial services organisations in the US and UK.
"I've been lucky to find boards that want my experience, perspective, and where I think I can add value"
To Susan, the most important thing when looking at board opportunities is whether you see yourself bringing value to the organisation. She pursues global board opportunities because she's always operated in and enjoyed the global business world.
Susan notes that while boards in the U.S. and the U.K. have their differences, there are also many similarities. Both operate on the Anglo-U.S. model, which differs from the German, Continental, and Japanese models.
"The most important differences are the philosophical differences"
For Susan, the most important difference is philosophical. U.K. corporate governance is principles-based. There is a corporate governance code that's updated regularly, and it's applicable to companies with a premium listing on the London Stock Exchange. The code operates on a "comply or explain" basis, and that really recognises that one approach may not be appropriate for all companies. The U.S. approach is more prescriptive. There is no corporate governance code per se. Rather, publicly listed companies are subject to four areas of law and regulation: state corporate law, federal securities law, Stock Exchange listing rules, and federal and state laws related to specific industries, such as financial services.
The second philosophical difference relates to whom the board is ultimately responsible. In the U.K., the duty of Directors is to shareholders and stakeholders. In the U.S., shareholders' interests tend to be the primary concern. The Business Roundtable and Association of Chief Executive Officers recommended in 2019 that the U.S. shift toward stakeholder focus, but that's still evolving.
"Beside philosophical differences, there are structural differences"
Susan sees several structural differences between U.S. and U.K. boards. For example, in the U.K., the Chair and CEO are more likely to be separate, with fewer than 10% of FTSE companies having a combined role. In the U.S., over 50% of S&P 500 companies have a combined CEO and Chair role. Susan finds this can lead to conflicts of interest, and prefers the U.K. model.
"There are also differences that impact the Directors themselves"
There are also key differences beyond operational structures that impact Directors themselves. These anchor on board refreshment, compensation structures, and education for board members.
The three top takeaways for effective boards from our conversation are:
1. If you have global experience that you want to deploy in your board work, consider a board in another jurisdiction. Your experience is precious if the company operates globally and most of its existing board members are from one country.
2. Corporate governance continues to evolve in every country. By having experience in multiple jurisdictions, you bring different perspectives to the table.
3. Even if you don't join a board in another jurisdiction, keep updated about how corporate governance is evolving outside your country. There are best practices you observe in other jurisdictions that could be deployed no matter where you serve.
