Only shareholders can drive out bad habits in the City

Even with its ownership of the redolent old brand of Smith & Wesson, Tomkins plc was hardly a household name. Until now, that is. With the resignation of its chief executive, Greg Hutchings, and some lurid tales of goings-on at the company during his regime, Tomkins shows every sign of becoming a byword for malpractice in British business.

Even with its ownership of the redolent old brand of Smith & Wesson, Tomkins plc was hardly a household name. Until now, that is. With the resignation of its chief executive, Greg Hutchings, and some lurid tales of goings-on at the company during his regime, Tomkins shows every sign of becoming a byword for malpractice in British business.

The enquiry ordered by Mr Hutchings' successor as chairman, David Newlands, has unearthed some frightening examples of corporate excess. Mr Hutchings is alleged to have made use of four corporate jets, one helicopter and two London company flats. And the terms of his contract mean that he could be in line to receive compensation of £1.5m plus share options of perhaps £11m. Not bad, even by the sometimes debased standards of the City.

Whatever the truth about Mr Hutchings, we have to accept that there is a long history of bosses who have taken an elastic view about the proper use of shareholders' funds. Few have equalled Sir Bernard and Lady Docker's extravagances in the 1950s - gold bath-taps and jaunts around the south of France in a gilded Daimler - on the shareholders of BSA. We hope that we won't see another Robert Maxwell for a long time. But the greedy and the dodgy will crop up, and shareholders should be able to rely on non-executive directors of quoted firms, and Codes of Practice on Corporate Governance, to curb the most venal tendencies. It matters to the rest of us because of the effect of such a culture on the efficiency of the economy as a whole.

What is most disturbing about the Tomkins case is the way that it shows how weak these safeguards are, and how those clubby, mutual back-scratching old City habits still persist. It was Tiny Rowland who once dismissed non-executive directors as "decorations on a Christmas tree". And it seems that several of the non-executive directors who served on the Tomkins board over the years have had strong links with Mr Hutchings.

The solution? Even making the Codes statutory and trying to tighten up the rules only invites the invention of new abuses. The only answer is the vigilance of the shareholders. Rumours about Tomkins had been circulating for years before institutional investors in the company bothered to raise questions. If shareholders won't protect their own interests then it is hard to see what, apart from highlighting cases such as Tomkins, can be done.