I arrived in London yesterday, ahead of what promises to be an interesting week. Formal commitments include delivery of the CBiS seminar in Coventry; planning for the Future of the Board launch event in June; and a miscellany of meetings in which corporate governance, effective board practice and this recent article will be discussed. Two recent events, Carillion's fall from grace, and the now-public machinations at the Institute of Directors (which have resulted in the resignations of the chairman, Lady Barbara Judge, and deputy, Ken Olisa), are likely to invigorate discussions. Already, I've been asked to comment publicly on the Institute's troubles.
The problems at the Institute of Directors in particular are troubling. They strike at the heart of what many say is wrong with boards and corporate governance; the Institute becoming a laughing stock in some quarters. The Institute's effectiveness as a professional body is contingent on it being the epitome of good board practice. The IoD chief executive, Stephen Martin, said on Friday that the resignations are a victory for good governance. They are not. Rather, they are an indictment of poor governance.
Sadly, the Carillion and Institute of Directors cases are not unique. They are but two of many examples of poor practice that reinforce perceptions that boards are not effective. The ancient Chinese saying (more correctly, curse) seems especially applicable just now.
If trust and confidence is to be restored, the power games, hubris and ineptitude apparent in some boardrooms need to be rectified. Flawed understandings of what corporate governance is and how it should be practiced also need to be corrected, especially the misguided belief that any particular board structure or composition is a reliable predictor of firm performance (the following letter highlights the conventional wisdom problem).
The scene is set for some fascinating discussions this week. I'll let you know how I get on.
Larry Fink, co-founder and CEO of influential investment firm Blackrock may have just moved the goalposts.
Writing in his annual letter to CEOs, Fink argued that companies think beyond shareholder maximisation, a maxim that has dominated investor thinking since the early 1970s. Companies need to determine their raison d'être, their reason for being, towards which all effort should be aligned. Fink could not have been more clear:
Without a sense of purpose, no company, either public or private, can achieve its full potential. Ultimately, it will provide subpar returns to the investors who depand on it to finance their retirement, home purchase, or higher education.
Fink directly associates strategy, board and purpose—and in so doing Blackrock's expectations are spelt out. Simply, boards need to take their responsibility to ensure the long-term performance of the companies they governs much more seriously. Specifically, the board should both determine and agree several things, namely, the reason for the company's existence (its purpose); how the purpose will be achieved (strategy); and, how the progress towards the agreed purpose and strategy will be monitored, verified and reported.
Together, this is corporate governance.
To have such an influential firm speak so boldly is wonderful. Mind you, I am rather biased: my research findings and experience working directly with boards over many years now is consistent with Fink's assertions.
I commend the letter to all boards. Two rather obvious questions boards may wish to discuss having read it:
From hardly rating a mention a few decades ago, boards are now newsworthy. Questionable practices and failures of various kinds have seen boards become highly topical; targets of both curiosity and criticism in the business media, regulators and, increasingly, the wider public. A plethora of corporate governance codes and 'best practice' recommendations have been produced, but most are yet to have their intended effect. What's more, many well-intentioned directors say they have become confused about the appropriate role of the board, what corporate governance is and how it should be practiced.
Clearly, corporate governance is in troubled waters.
I have joined a group to do something about it. The "Future of the Board" is a new research-based initiative dedicated to getting to the root of some of the problems that beset boards, and to producing rigorous guidance to help boards achieve better outcomes.
I had the distinct privilege of attending the 9th Global Peter Drucker Forum in Vienna this week. Approximately 500 people attended the two day forum held in Aula der Wissenschften (Hall of Sciences). The programme included fifteen plenary sessions and a parallel session (four tracks). The very full programme was run to time; a Swiss watch operated with Germanic efficiency, in the birthplace of Drucker.
Many global authorities in strategy, innovation, entrepreneurship and related addressed those in attendance (and many more utilising the live feed option). Presenters included Richard Straub; Angelica Kohlmann; Jenny Darroch; Hal Gregersen; Roger L. Martin; Anil K. Gupta; Bill Fischer; Rita Gunther McGrath; Sidney Finkelstein; Tammy Erickson and Carlotta Perez, and more. The forum produced many insights; the following commentary merely a portion lifted from my 28 pages of notes:
Richard Straub, President of the Peter Drucker Society, set the scene by noting that Drucker, a man genuinely interested in the bigger 'why' questions, maintained a strong focus on business performance. He avoided cookie-cutter 'solutions', a reflection perhaps that such solutions don't work within the dynamic and social context of modern organisations. Straub went on to say that management is most accurately conceived as a liberal art [to be understood holistically], not as a social science that can be reduced to constituent elements.
Lisa Hershman, DeNovo Group, posed the question, "How do we generate growth and ensure more people participate in it?" This was not a veiled call to embrace left-leaning socialist ideals and anti-business practices, but rather a clarion call for 'inclusive capitalism'. (I've been using an equivalent term in speeches in the last couple of years: 'capitalism with a heart'.) Hershman noted that around half of the young people in the United States say they prefer socialism over capitalism. This, she said, is a clear indication that something is wrong. Business leaders have become too focussed on themselves and shareholders, to the exclusion of others. This collapse of confidence needs to be addressed by business leaders. If it is not, companies are likely to find it increasingly difficult to recruit motivated and capable young people. Why? Because they are not interested in working for poor leaders who they do not believe in, much less aspire to.
Jenny Darroch, Dean, US Peter Drucker School, explored the essence of an effective business and societal ecosystem. She described five key interests (characteristics), namely, a functioning society, where all can participate; recognition that management is a liberal art, not a simplistic of formulaic process; that self-management is important, because neither the state nor business 'owes' people work; that performance [actually] matters; and, 'transdisciplinarity' (i.e., looking beyond the immediate context, sector, role, team) is crucial. These comments set a solid platform for what was to follow.
Hal Gregersen, MIT Leadership Center, spoke on the important topics of community and communication. He asserted that isolation is the number one enemy of innovation. The world is far too complex for one person acting alone to be effective. Leaders that sit in their office and wait for input are far less effective that the best leaders, who actively seek to reduce (to zero, if they can) barriers in pursuit of the best possible information to understand current reality and what might be possible, so as to inform effective decision-making. The best leaders also encourage dissent, inviting people to both ask and respond to uncomfortable questions, because they want to discover what is wrong and what can be improved. Asking the right questions and, importantly, getting authentic responses (but not necessarily simple answers) depends on being in the right place (read: with staff, customers, in the market) and inviting people to challenge the status quo.
Roger L. Martin, Rotman School of Management, built on Gregersen's comments by observing the prevalence of certitude (that sense of 'being right' common amongst leaders especially so-caleld alpha males and queen bees. Rather than stridently asserting preferences and blindly applying models (which are often wrong because they are simplifications of reality), Martin recommended that leaders reframe their statements as follows. "I'm modelling the world, but my model is incomplete. What can you add?" Great leaders pursue multiple models, combining and building to make something better (note, a better solution not a compromise). According to Martin, this always leads to better outcomes.
Several speakers addressed the question of whether growth is actually an imperative. No speaker spoke against growth or its optionality. Rather than almost assumed the answer is 'yes', and moved quickly to consider how growth might be achieved. Anil Gupta, for example, noted that China is responsible for 27 per cent of global carbon dioxide emissions, and India 6.6 per cent. He opined that if India is to grow out of poverty then growth must be coloured—green—to avoid killing the very people it seeks to lift out of poverty. The recommended route is to industrialise, but to do so with smart technology to avoid the avoid the environmental mistakes (and their negative consequences) experienced by China and others.
Martin Reeves, Boston Consulting Group, added that while growth is necessary, it is beomcing increasingly elusive. As a consequence, companies operating in developed nations need to change their focus. Rather than growth at any cost, companies need to discover and pursue the right type of growth. Invoking Aristotle, Reeves observed that companies that embrace both economic and social goals (oikonomic companies) do better in the long term. Specific recommendations (boards and directors, take note) include:
Allyson Stewart-Allen, International Marketing Partners, and Julia Hobshawn, Editorial Intelligence, sounded a warning, arguing that the unfettered pursuit of connectedness—networking in pursuit prosperity, health and whatever else—has a dark side: info-besity. An over-reliance on social media networks have the unwanted effect of starving people of what actually matters: deep socail connections. People are human beings, not human doings, and social connections matter much more than activity masquerading as social connectedness. Pointedly, sustainable relationships and business sustainability is dependent on people, and their interaction and curiosity not social media. I found myself thinking, "Isn't this obvious?". Maybe so, but a quick glance around the room suggested maybe not: almost everyone within eyesight has their eyes down, using a smart device as the speakers continued.
Joseph Ogutu, Safaricon, and Haiyang Wang, China–India Institute, provided insights from a developing nation perspective. Whereas many Westerners perceive social disparity to be limited in developing nations, the reality is somewhat different. Disparity between people groups in developing nations is actually higher than in developed nations. Further, many African nations have de-industrialised since gaining independence. The speakers made strong calls for developing nations to embrace manufacturing as a means of achieving the economic growth needed to lift millions out of abject poverty. While many entrepreneurs and investors stand ready to fund initiatives, local communities need to pursue partnerships, lest they suffer new forms of dependency.
Steve Blank, entrepreneur, and Bill Fischer, IMD, observed that the pressures faced by chief executives in the twenty-first century are different from those in the twentieth century. Then, if CEOs met the expectations of their boards (however expressed) and responded to competitive pressures, then they were reasonably safe in their role. But things have become more complex since the turn of the century. Two additional forces have emerged, namely, activist investors (read: corporate raiders) and disruption. If CEOs are to respond well to this new reality, they need to become comfortable with ambiguity and chaos. Helpfully, Blank and Fischer offered four additional suggestions to enhance leadership effectiveness in the twenty-first century:
Rita Gunther McGrath, Columbia Business School, introduced the forum to a tool to help leaders and investors undertsnad the future growth prospects of any given company. The 'ImaginationPremium' is, simply, a ratio of a company's market capitalisation and value from operations. If the imagination premium is high (but not too high to become hype—Tesla), the sustainable growth is likely. Conversely, low ratios suggest growth is unlikely. The extreme case of a ratio less than 1 suggests shrinkage.
On strategy, innovation and disruption. Several speakers outlined cases to demonstrate that a coherent, longer-term strategy is actually more, not less, important in times of change and disruption. They noted that well-formed strategy, not detailed plans (often, incorrectly, called strategic plans), helps lift the gaze of both leaders and staff above immediate technologies and disruptions, to focus on purpose, the customer and longer-term goals.
General observations. Standing back a little, the investment to attend was well-spent. To be amidst giants, and chat with some of them (all were accessible and none pretentious) was a privilege and an honour—I learnt a lot. The only disappointment from my perspective concerned the speaking roster. While about 20–25 per cent of the speakers were world-class (both content and delivery), a similar percentage were disappointing. The lesser speakers either repeated what others had said, or their presentations were thinly-veiled sales pitches. Upwards of ten attendees, including some speakers, voiced similar concerns in private. My hope for future editions is that the organisers review speaker candidates more closely, to ensure a consistently high standard. Stepping beyond that, the general calibre of the forum (organisation, content, delivery) was very high. My intention is to return to Vienna in November 2018, for the the 10th edition of the Global Peter Drucker Forum. Hopefully, I'll be able to share the platform, offering some insights relevant to the theme.
The 14th edition of the Corporate Governance Workshop convened by the European Institute of Advanced Studies in Management (EIASM) was held in Brussels, Belgium this week. A summary of the key insights from the second day follows below (click here to read the day one summary).
The 14th edition of the Corporate Governance Workshop convened by the European Institute of Advanced Studies in Management (EIASM) was held in Brussels, Belgium this week. A summary of the key insights from the first day follows below (click here to read the day two summary).
I've arrived in Brussels, having travelled directly from New Zealand via London Heathrow (thanks Air New Zealand) and the the Eurostar, to attend a two-day conference on corporate governance and board practice. The conference is run under the aegis of EIASM, the European Institute of Advanced Studies in Management, of which I'm a member. My name is on two of the papers to be presented (links are posted on the Research page).
Approximately 50 delegates have gathered from around the world (24 countries?) for two days of discussions and presentations. Most of the delegates are leading academics in the fields of board and governance research, although there were a few (including me) who span the so-called academy–practice divide. This was my third attendance at this event. Previously, I went to the twelfth edition (Brussels) and the thirteenth edition (Milan), where my paper received the best paper award.
The core theme of the fourteen edition is digitalisation and, specifically, the emergent impact of the so-called digital economy on boards and effective practice. A triumvirate of leading thinkers (Lee Howell, World Economic Forum; Tom Donaldson, Wharton Business School; and, Bob Garratt, Fidelio Partners UK) will lead a keynote session on the second morning. Other topics to feature on the programme include updates on board diversity research, shareholder relations, board responses to crises, strategic control and a direct challenge to the way board research is conducted.
I'll post summaries of the key learnings. Stay tuned for end-of-day updates.
Plans and preparations for my next set of international commitments are coming together well. I'll be on the road for two-thirds of November to fulfil five speaking engagements; attend two conferences; lead a one-day learning workshop; fulfil two advisory commitments; and, attend a miscellany of meetings. The key dates are:
A common theme runs through these commitments: the pursuit of high board performance.
The talks will explore several aspects of board practice including the board's role in strategy; emerging trends; the mechanism of corporate governance; and, the defining characteristics of an effective director and board. The learning workshop (entitled The effective director) is part of the Governance Institute of Australia's new capability development programme. The conferences are the European Institute of Advanced Studies in Management, in Brussels (I'm presenting a paper), and the Global Peter Drucker Forum, in Vienna.
In case you are wondering, there are still a few gaps in the schedule in each location for additional meetings. Please contact me if you would like to arrange a meeting while I'm in your area.
If you'd like to know more about any of contributions, please get in touch. (Note: As is my normal practice, conference summaries will be posted on this blog soon after each event, so do check back if you are interested).
Bob Tricker just did it again.
Long the doyen of corporate governance (Sir Adrian Cadbury used the term "father of corporate governance"), Tricker has just posted this article, a stinging critique of several emergent ideas that, through repetitive use, have permeated thinking and are becoming accepted as conventional wisdom. Risk, culture and diversity are singled out as populist memes. Yet robust evidence to support the notion that any of these memes are directly contributory to effective governance—let alone company performance—in any predictable manner is yet to emerge. Tricker's timing is, once again, exemplary.
Thankfully, Tricker offers far more than a straightforward critique. He reminds readers that the purpose of the board of directors is to govern:
The governance of a company includes overseeing the formulation of its strategy and policy making, supervision of executive performance, and ensuring corporate accountability.
The purpose of a profit-oriented company is also made clear (a point famously made by Friedman):
To create wealth, by providing employment, offering opportunities to suppliers, satisfying customers , and meeting shareholders' expectations.
In calling out this matter, Tricker has hit the nail on the head—the effect of which is to place those motivated by the promulgation of unfounded memes in a rather awkward position. I am with Tricker; our understanding of corporate governance needs to be reset. Rather than pursue new memes (a perfectly adequate definition was established over fifty years ago), boards need to discover how to practice corporate governance effectively. Tricker (Corporate governance: Principles, policies and practices), Garratt (The fish rots from the head) and a few others provide excellent guidance as to how this might be achieved.
(Disclosure: The two books named in this article are the ones that I refer to most often when working with boards. I commend them to you.)
The effectiveness of company boards has become a hot topic in recent years, especially as the general public has become aware of various failures, missteps, poor practice, hubris and ineptitude, but also as attention has increasingly moved from the chief executive to the boardroom in search of high company performance.
The role of the company director is not for the faint-hearted. Market forces, technical innovations and human factors all contribute to a complex and dynamic operating environment. Directors need to consider and make sense of information from multiple sources, and make informed decisions in the best interests of the company. It goes without saying that directors and boards need to maintain a continuous learning mindset if they are to keep up to date and contribute effectively.
In a few days, I'll be in Sydney, Australia (18–20 September), to work with directors committed to the ideal of high performance. While the main objective of the visit is to present the first day of a new three-day course entitled "The effective director", I have time available to attend other meetings to share ideas and discuss emerging trends in corporate governance, strategic management and related topics of interest.
If you'd like to get together while I'm in Sydney, please let me know. I have some free time and would be delighted to meet informally over coffee, or in a boardroom setting with you and your director colleagues.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.