To avoid Enron and WorldCom-style catastrophes, the Higgs report has set out rules intended to keep the portly pusses on company boards in line. But, in an industry used to mucking in and doubling up, will it ever succeed?
Scandal has infested the corporate world recently. There was outright fraud at two US corporations, Enron and WorldCom. Then, in our own industry, there was the executive mismanagement at Atkins and Amey, which led to disastrous profit warnings and the collapse of investor confidence. So, it was perhaps inevitable that the government would take action to tighten the regulations dealing with corporate governance.

This took the form of last month's report by a former investment banker at SG Warburg. Derek Higgs recommended that the chief executives of plcs should not go on to become chairmen; that the roles of chief executive and chairman be split; and that the number of non-executive directors should be the same as executive directors.

The end result could be the need for disruptive, expensive board shake-ups, particularly for public firms in the more specialist sectors, such as construction and support services. Although the Higgs recommendations are meant to be guidance only, and are out for consultation, industry figures concede that such guidance has a funny way of becoming a mandatory code. Tim Hough, managing director of Miller Homes, says its parent group will probably consider integrating the recommendations, despite the fact that it is a private company, so that it is seen by clients to present itself professionally.

The idea that chief executives, or other executive directors, should not wind down their careers by becoming chairmen of their companies will particularly affect housebuilders, where this pattern is commonplace. Take Persimmon for example: there, Duncan Davidson held both top roles before John White became chief executive in 1993.

Mike Foster, an analyst at KBC Peel Hunt, says there will have to be some give and take between Higgs and housebuilders: "I think there's going to have to be a lot of time to bed these recommendations down. The letter of the Higgs report cannot be applied in every case."

Sir Neville Simms, non-executive chairman of contractor Carillion, would fall foul of this recommendation – he was chief executive of Tarmac before it demerged and became Carillion. Simms also sat on the main board for more than 10 years, as has Viscount Weir at Balfour Beatty. This is a no-no: Higgs believes that such a background compromises a non-executive director's independence. A spokesperson for Carillion said: "We shall be addressing the recommendations of the Higgs review in relation to Carillion. If we conclude that any changes are needed we will make them progressively over time."

Ensuring that the roles of chief executive and chairman are split is already considered best practice, but is not always adhered to by the industry. At housebuilder Wilson Bowden, David Wilson holds both roles. Atkins' chairman Mike Jeffries took over as acting chief executive after the departure of Robin Southwell in October.

This was meant to be a temporary measure, but it now looks as though Jeffries will keep hold of the reins and bring in Southwell's replacement at the chief operating officer level. This way, a new recruit would be inculcated into the Atkins culture before becoming Jeffries' successor as chief executive. If the Higgs report was codified, Jeffries would have to drop one of those roles.

Jeffries is critical of some parts of the Higgs report – notably the recommendation that chief executives should be restricted in the number of non-executive directorships they hold – but he accepts that, in the present environment, companies have to be seen to be whiter than white. "If you have to have a rule, then you have to have a rule," he says, philosophically.

On the other hand, one of Higgs' rules might be particularly difficult to implement. This is the half-and-half split between executive and non-executives directors. The aim is to protect shareholders by subjecting decision-makers to greater scrutiny. The top contractors meet this criterion, but most of the big support services group would need to appoint additional non-executives. For example, support services group Waterman would need at least two extra board members, possibly at £18,000 a year each, and the other leading support services groups – except Atkins, which had an executive cull after its profit warning last year – would also have to bring in new people.

Even without this additional cost, it would be difficult to find people to fill these roles. Jonathan Hook, construction partner in PriceWaterhouse Coopers, says few prospective independent directors have the right knowledge to scrutinise companies in the sector: "It's hard for construction groups to get lots of non-executives – it's difficult to get your head around problems such as profit recognition."

This problem might be exacerbated by Higgs' definition of "independent". Non-executive directors that represent major shareholders would not be independent, so because Costain's board includes representatives of its Malayan shareholder, it would have to find more directors to redress the balance.

Leslie Kent, an analyst at JM Finn, thinks that rather than class shareholder representatives as non-independents, their role should be beefed up to help fund managers in their investment decisions. Although Kent thinks the report is generally useful to the building industry, he argues that the shareholders' representatives, who are naturally cautious, may provide an important check on audacious executives. "A lot of these guys are entrepreneurs and don't like being told 'no' – but sometimes that's the right thing to do," he says.

Additional recommendations, such as only allowing chief executives to take only one non-executive directorship, mean that Higgs' has indeed attempted to rein in the entrepreneurs. Some analysts say this may destroy the spirit that being a listed company is supposed to foster; others hope it will avoid mismanagement. Either way, it seems that by July, when the updated Higgs report is published, it will lead to boardroom changes that could mean the end for some of the traditions of the construction sector.