Hubris is always CEOs’ worst enemy

Allister Heath
IT has been an embarrassing couple of days for Tidjane Thiam, Prudential’s chief executive. On Wednesday, he accepted a non-executive directorship at Societe Generale, the French bank; 48 hours later, he had changed his mind, after a backlash from City institutions already upset at the looming dilution to their holdings from the Pru’s planned $21bn rights issue. Thiam, a graduate of Ecole Polytechnique, France’s best university, as well as the Ecole Nationale Supérieure des Mines, another elite school where he came top of his class, was right not to take the job – but that should have been his answer from the start. He ought to have had enough nous to understand that to accept another job would be seen as presumptuous and arrogant at a time when he is still fighting to convince the City to back his plans.

When Thiam, who is as ambitious as he is intelligent, was offered the Pru job here in London (he previously worked for McKinsey and Aviva), there were many in Paris who saw this as yet another blow for France, which has been hemorrhaging its top graduates for years. The job at SocGen, one of France’s most powerful institutions, would have propelled Thiam back into the French establishment. One can understand the temptation on both sides – but Thiam should have had the strength to resist. He was either misadvised, or else failed to listen, which would be even worse.

Despite yesterday’s debacle, the takeover bid for AIG’s Asian operations will almost certainly be nodded through, despite misgivings; thirty or so banks are underwriting the issue, with eye-wateringly large fees at stake. But Thiam must be more realistic in the future. It is difficult to run a large business at the best of times, let alone one that is about to engage in a massive, transformational and controversial acquisition at a time of huge disruption for all financial institutions and intense regulatory uncertainty. It is nigh-on impossible to do all of these things properly if one is distracted by taking on extra part-time jobs at other equally complex financial institutions. Hubris is always fatal for any chief executive, especially one who – like Thiam – remains untested in such a high-profile job (he was previously the firm’s finance director, but that is not the same thing as being at the deep end).

The Pru/SocGen saga highlights another, more substantial problem: it doesn’t make sense for large institutions to rely too much on non-executive directors who cannot devote more than a few days a year to their second, third or even fourth jobs. Societe Generale expects its non-execs to attend just five meetings a year.

What we really need is a new generation of external directors who split themselves equally between 3-4 employers and who spend at least 25 per cent of their time working for the firms on whose boards they serve. They ought to be compensated more generously – for example, an outside director of a FTSE 100 who spent 12-18 hours a week working for the firm could be paid at least £100,000 a year. In return, he or she would be a troubleshooter and gain an intimate knowledge of the firm – spending time on the floor, visiting plants, talking to staff – and not merely attend a few board meetings a year, reviewing paperwork and signing off accounts. These sorts of roles would be useful and add real value. A revolution in the boardroom may be too much to ask for – but we certainly need radical change.