- Sustainable capital market reform: what needs to be done?
- The board of the future: will it be fit for purpose?
- Share ownership in a global context—is stewardship working?
- Human rights: what are investors expected to know and do
- Driving accountability across the voting chain
The 2015 edition of the International Corporate Governance Network annual conference is just a week away (3–5 June). This year, ICGN will be celebrating 20 years of governance change and reform. Hosted by the City of London, the conference is being held at the historic London Guildhall. Over 650 delegates have registered to hear 80 speakers over three busy days. The organisers have assembled a fantastic programme. The wide range of topics includes:
I will be at the conference (as a delegate only this year). Summary reports will be posted here, so please check back next week for updates. If you would you like to meet up at the conference, please get in touch to make an arrangement.
The ICGN annual conference is the first of three conferences that I'm attending in June. I will be at the International Governance Workshop in Barcelona and the European Academy of Management conference in Warsaw, to present the latest findings of my research and discuss implications for boards. Please get in touch if you want copies of the papers.
A muse that I wrote yesterday asked a series of questions about company ownership. It stimulated quite a bit of interest, albeit for reasons other than I expected. Having discussed the matter with several commentators, I now know why. It turns out that one of the underlying assumptions upon which the muse was based—that companies have owners—was wrong.
How often have you heard someone say they 'own a portion of <company name>' or that they are 'company owners'? These statements, while plausible, are actually incorrect. People (individuals, groups, other companies) own shares in a company, they don't own the company (or a portion of the company) directly. The company is an entity itself. It issues shares ('bundles of intangible rights') and these can be owned or traded, as is so ably explained here (see clause 2).
Thank you to those people that contacted me to point out my error. The phrase 'company owner' has been removed from my vocabulary! However, the notion of 'ownership' remains. I hope this brief note goes some way to putting the record straight. Please contact me if you would like to know more.
Please excuse this rather sensationalist title—I have just picked myself up from the floor having read this clause in the recital section of a [draft] directive being prepared in the EU:
"Although they do not own corporations, which are separate legal entities beyond their full control, shareholders play a relevant role in the governance of those corporations."
The proposed directive, which encourages long-term engagement and gives voice to shareholders in listed companies and large companies, seems to be well intentioned. However, the statement that shareholders do not own the corporation left me flabbergasted. It raises all sorts of questions:
Why anyone would buy an asset if they knew that a condition of purchase was that they did not own what they had just paid for is beyond me. Is this sloppy drafting, or have I missed something in the semantics? Can someone with a legal mind and expertise in this area please elucidate?
Here's the trip schedule:
In just under two week's time (June 1), I embark on another trip to England and Europe. The main purpose of this trip is to attend three important corporate governance conferences, to contribute to the emerging conversation. Many of the world's leading advisors, company directors and academics will be at the conferences. I am honoured to be speaking at two of them.
If you are interested in a specific conference presentation but cannot attend, please let me know. I'll try to attend for you and post a report. Conference updates will be posted here and on Twitter during the conferences, so check back if you are interested.
I'm looking forward to reconnecting with #corpgov friends and associates, making some new connections and testing some of the ideas that have emerged from my research work. Much coffee will be drunk, no doubt! If you'd like to meet up, at a conference or separately, please get in touch.
Is it ever OK to sell a major company asset to one of the company's directors? One must be careful, very careful. The safe answer is probably 'no', because the proximity of conflict is ever-present and the question of whether the transaction satisfies the director's duties provisions (to act in the best interests of the company) sets a very high bar to clear.
However, a recent case in New Zealand suggests that such transactions can be completed, and well, if certain provisions are satisfied. In this case, Dorchester Property Trust (DPT) wanted to sell one of its properties the Goldridge Resort Queenstown (GRQ). A DPT director wanted to acquire the asset. The DPT board acted cautiously. The director took no part in determining whether the asset should be offered for sale, and was excluded from the process of assessing acquisition offers. As such the board's handling of the matter satisfied the related party transaction requirements.
While some investors were a bit scratchy over some some matters (see the article), few if any concerns over the GRQ transaction have been raised. This suggests that the board handled the matter well, in both a legal and a moral–ethical sense. Well done to the DPT board.
Most people I know live fairly busy lives. Western culture and the 'always on' society we live in has done that to us. However, some—by my assessment anyway—have become a bit too busy for their own good. Societal norms seem to reward busyness and excellence, yet cracks start to appear when we get very busy for long periods. We get tired and make mistakes. Our commitment to do things with excellence suffers. How do you cope in such situations? Do you plan well ahead; or, do you manage your commitments on a daily basis; or, do you simply back yourself to keep up with what work and life serves up?
One habit that has served me well for many years is the 'heads-up' habit. It's really simple. Every week, I pause and look ahead, as follows:
In the past, I sometimes lost sight of important upcoming activities (and ended up suffering late into the night trying to make up—the results of which were never that great). However, last-minute rushes have become a rarity since I embraced the heads-up habit. If you don't have a habit to stay of top of your commitments, you might like to try this one. It made my life easier and I seem to be more productive. Also, my wife says that I'm easier to live with!
David Thodey, outgoing chief executive of Telstra, has just gone on record: CEO pay is out of control. Swimming against the tide, Thodey said his remuneration was indefensible, and called for change. A cynic might suggest that it is all very well for Thodey to say these things, especially after he pocketed $27M while he was the chief executive. Nevertheless, Thodey's call is not unique. One in four chief executives think that time is more important the money.
Is Thodey's call, and those of others, a harbinger of change to rein in executive pay? I hope so. History tells us that gross disparities between the 'haves' and the 'have nots' can lead to uprisings and, potentially, bloodshed. The French revolution, Bolshevik Revolution and the Arab Spring are notable examples, although there are many others. To make some adjustments now may be just the pressure release valve that many in society are looking for.
The NYSE has just published the results of its 12th annual director survey. The survey, conducted by Spencer Stuart, makes for interesting reading. For example, strategy and performance features as a "perennial concern" of respondents—directors claim a strong interest in strategy. However, the responses do not bear this out. When asked to identify board actions that are critical to company performance, the top six responses from directors were:
Do you notice anything unusual these responses? Apart from reviewing the strategic plan (presumably developed by management), none are practices of strategic management at all! If the board is responsible for business performance, why isn't it directly involved in the development of strategy, or monitoring strategy implementation, or verification of business performance goals? Why don't these elements, which are crucial to any influence the board might exert on business performance (watch for my forthcoming research), feature at all?
Directors say they know strategy and performance is important. That's clear. So why, when directors are asked specifically, do 'monitor' and 'control' activities feature more highly? Ouch! Why are some director's actions inconsistent with their claims?
The National Association of Corporate Directors (NACD) has announced the establishment of a Blue Ribbon Commission to investigate the board's role in driving long-term value creation. You can read the full announcement here.
Twenty-six "distinguished corporate leaders and governance experts" have been appointed as commissioners. Surprisingly, no corporate governance academics have been appointed. This begs the question of how the BRC intends to go about its work, and to conduct empirical research in particular. I hope the opportunity to investigate what value creation is—and how it is created—is not lost.
I'm in two minds about this investigation. On one hand, it confirms the profession has a serious problem: that we simply don't know how boards add value or influence performance begs the question of what directors and boards actually do. On the other hand, congratulations are due to the NACD taking the bold step of commissioning the investigation. The subject is topical (in the last six months alone, I have been party to well over 100 conversations and debates on the topic of strategy in the boardroom), to the point of being somewhat personal (the subject is at the heart of my doctoral research).
Consequently, I intend to watch developments closely especially as the commission seems to be very similar to a study undertaken last year. If asked, I will make my research findings available to the BRC.
About three and a half years ago, I had the privilege of listening to a leading thinker speak about some of the problems with boards, board practice and the phenomenon of corporate governance. The comments were as contentious as they were disarming: we don't know nearly as much as we would like to think we do. Further, many of the widely discussed measures (women on boards, board size, an independent chair) provide little if any guarantee of increased business performance.
My initial reaction was to dismiss the comments. They stood apart from the prevailing opinions of many practitioners and consultants. However, there was something compelling about the the way the story was told. Something made sense, so I dug deeper. Pretty soon, I found myself on the quest that became my doctoral journey, to try to work out how boards can influence business performance in real terms.
That quest continues today. However, the doctorate is nearly complete so the time to package the learnings (there have been many), tell the emergent corporate governance story and discuss implications for boards and businesses has arrived. To this end, I will be travelling internationally in June (as signalled yesterday), September and November as follows:
If you want to know more about any of these events, or want me to meet your board or executive team, please get in touch.
Peter's thoughts about corporate governance, strategy, our place in the world and other things that grab his attention.