For decades now, researchers have been searching for the link between governance and performance that supposedly exists. Most of the research has investigated isolated attributes of governance—things like Board size, gender diversity, the inside/outside director balance, and CEO/Chair duality. The results have been mixed. Some researchers have suggested correlations. Others have disagreed. Despite considerable effort—over an extended period—researchers seem to have reached an impasse.
I was thinking about this while watching a motor racing programme on television yesterday, and concluded we've been looking at the wrong things.
Do cars go faster because they have a male driver or red paint, (for example)? Of course not. Rather, they go faster because of the way they are prepared and what happens on the race track. Racing drivers win because of what they do (techniques, decision-making), not who or what they are (gender, fitness levels, red car).
We have much to learn from this analogy. If a link between governance and company performance exists (as several well-regarded scholars have postulated), it will, in all likelihood, be due to the activities of the Board as a whole—what they talk about, the decisions they make, the way they monitor performance. If progress towards exposing the elusive link between governance and performance is to be made, the research agenda needs to change—from attributes to activities. Does this sound plausible to you?
This is one of the perennial questions of governance. It just keeps coming up. Almost every month I am asked to comment on the "best model" of governance.
Governance is hard to grasp as a concept. What's more, it is a complex and socially dynamic phenomenon. Governance has lots of moving parts, and things change, depending on context. Indeed, no universally accepted definition for "corporate governance", "IT governance", "policy governance", or even "governance" itself seems to exist. The OECD definition of corporate governance, written in 2004, is widely recognised and generally accepted, however many directors and owners of smaller companies question how it fits their circumstances.
Back to the question. The research literature is fairly clear: the pursuit of a one-size-fits-all governance model—or an optimal Board structure for that matter—does not appear to be practical, feasible or even desirable. Just as different organisational structures and operating policies make sense in different settings (who'd apply Fortune 500 structures in a SME?), different governance models also make sense in different settings. So, the answer is "no"—but that begs another question: how should one go about implementing effective governance in an organisational setting? Well (you're not going to like this), it depends.
Clearly, working out how to implement an effective governance framework is important, because the question keeps coming up. I've decided to try to tackle this question over the coming weeks. I'll share what I learn through Musings. Watch this space!
According to the calendar on my desk, today is 4 January 2013. However, in my mind's eye, today is "day two" of 2013—because yesterday was the first day back at my desk since about 18 December.
The two-week break has been refreshing. I spent a lot of time on the three 'R's: reading, riding, relaxing (with family and friends). However, now it's time to "get stuck in" again—to what is shaping up to be a huge year of data collection, analysis and (hopefully) writing.
I spent the morning reviewing my doctoral journey to date, and sorting out the priority items that need most attention over the coming weeks. Here's what emerged:
So, hello 2013. As I proceed, I'll draw strength from Isaiah 40:31.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.