Comment: Fans of Grafton Group will be interested to see the latest market share statistics from the British Builders Merchants Journal.The adoption of a new report may help end the unfettered dictatorial-style leadership that, as with Enron, can so quickly hit shareholder value, writes Martin Rafferty

On two occasions during my business career, I have met Derek Higgs wearing his hat as an investment banking corporate adviser. There was a balance to these meetings: the first was in an adversarial situation many years ago, the second when a company of which I was a director was fortunate to rely on his wisdom and experience.

It is no surprise to me, that his recently published report, The review of the role and effectiveness of the non-executive director, is so well-balanced, pragmatic, down-to-earth, as well as being well-written and easy to read.

The essential basis for me of this report - its solid foundation - is when Higgs writes: "I do not presume that a one-fits-all approach to governance is appropriate. The review is not a blueprint for box-tickers, but a counsel of best practice that can be intelligently applied."

In any board, the pivotal role is that of the chairman, and with him or her lies the primary responsibility of ensuring both efficiency and effectiveness. It is the role of the chairman to run the board for the shareholders, not the company for the executives.

The adoption of the recommendations set out by Higgs will, hopefully, end the unfettered dictatorial style leadership that, as recent events in Enron and WorldCom have demonstrated, could so quickly undermine shareholder value.

I share Martin Dawson's reservation in Tuesday's Financial Times when he suggests the greatest controversy seems likely to surround that part of the report that concerns the recommendations that impinge on relations with shareholders, especially the interpretation of the role of the senior independent director in that regard.

Shareholders now come in many different forms: institutional, pension funds, hedge funds, arbitrageurs and individuals. It has been obvious in recent years that institutional investors have developed a much shorter timeframe within which they seek to optimise value. This is understandable, given the intensifying competition for mandates to manage pension funds. Short-termism in funds management contrasts with the basics of long-term strategy that a company should pursue on behalf of its shareholders.

During last summer, in my role as the senior independent director with the Jefferson Smurfit Group, I dealt at some length with hedge funds on both sides of the Atlantic. In some cases, they deal in shares of the same company many times within an hour.

There is a real danger that, in the wrong hands, the senior independent director could become a third and disruptive centre of power, especially when involved in takeover situations. My guess is that, this element of governance, remains unfinished business.

From an Irish perspective, space permits me to deal briefly with one key question - should a small-sized plc have some power of derogation from general rulings? Is the necessity and expense for a small plc to have five non-executives in the best interest of all the stakeholders?

While I would like more time to think this one through, my initial reactions are as follows.

The pressure on stockbrokers and issuing houses to advise companies to list, for commission and fee generation, is best exemplified by some of the technological companies listed in the last few years.

It is now obvious that a number of these stocks should never have been listed, and Dublin is but a microcosm of what ensued in the major stock exchanges.

Would the necessity to have five non-executives have changed the decision to float? My answer is that it would have depended on the strength of character, experience and competence of the non-executives in question.

There are some companies that are better to remain in the private sector, and there are some executives/shareholders who do not easily adjust to having their companies valued on a daily basis.

Thirty years ago, I advised a leading Irish family business that their interests would probably be best served by remaining in the private sector. A close friendship remains to this day. Overall, my initial instinct, is that competent non-executives can have an even greater influence in smaller companies.

Some lessons from experience. Non-executive directors are not God's gift, they are by no means the answer to everything. They are a device to provide part of the answer to some of the questions.

The Higgs recommendations will not eliminate risk. Risk and reward are commensurate with success and failure. Sound judgement is a main prerequisite of the good director, executive or non-executive. Judgement cannot be taught or learned in a classroom; it comes with experience.

This report is a welcome addition in the evolution of a framework for good governance. It is required reading for managers, not just business managers.

Its principles are equally worthy of consideration by Ireland's three main sporting organisations, the Football Association of Ireland, the Irish Rugby Football Union and the IRFU and the Gaelic Athletic Association, the bureaucracy of government, the Church, and boards with responsibility for the media.

Over the past 35 years, Martin Rafferty has been chairman, chief executive and director of many companies, publicly quoted, private, and multinational subsidiaries, as well as the State sector.