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Ten days in the UK & Europe: A snapshot

27/3/2023

I have just arrived back in New Zealand, from ten days in the UK and Europe. My meetings with directors, advisors, academics, students and directors’ institutions had two primary objectives: to listen and to share. The listening aspect was to gain firsthand knowledge of issues and opportunities; the sharing aspect to provide updates on the craft of board work and my experiences as a practicing director.

Learnings (a few immediate observations, in no particular order):

Directors say they are finding it hard to distinguish between signal and noise—that which is material to monitoring and verifying performance and progress, and that which is, essentially, argumentation from stakeholders asserting preferences with only tenuous associations with sustainable performance.
ESG remains 'hot', although everyone I asked said the marketplace was fracturing. Acolytes are becoming more assertive, especially in their expectations that companies prioritise net zero, climatic change response, and equity above all else. Others are less convinced, as they are yet to see any increase in company performance or alpha. The gap between the groups is growing too—adherents have started using the 'anti-ESG' moniker, in an effort to claim the high ground. Detractors have not been silent either, saying the discourse needs to move away from what they describe as ideological fervour to pragmatism and common sense.
Increasingly, directors are questioning whether quarterly board meetings (common in Europe) is actually a good idea. The directors I spoke with said they find it really difficult to keep up with compliance matters, much less contribute well to strategic items. The power balance leans reasonably strongly in favour of the CEO too.
Calls for optionality to be removed are becoming more commonplace. (Optionality meaning all directors of companies of substance should be required to be professionally qualified, in the same way as doctors and lawyers need to achieve and maintain a relevant professional accreditation.)
Geopolitical turbulence is front of mind (greater in Eastern Europe than Western Europe). The situation is exacerbated by economic headwinds and energy security concerns (think: gas and electricity supplies) despite Europe emerging from a mild winter. The UK and France (in particular) are also struggling with high inflation, strikes and, in France, a proposal to raise the age of retirement. Given the uncertainties, many leadership teams have shortened their strategic horizons and some have become quite defensive.
The Credit Suisse bailout by UBS unfolded before my eyes—I was in Zürich the day after the failure. Like many other failures, this one came as little surprise to insiders; the company has endured scandals and criticism for some years. (My early assessment: the board appears to have been asleep at the wheel.)
Directors continue to struggle with what corporate governance is and how it should be practiced. Sadly, the confusion observed during this trip is as widespread as in the past. Directors' institutions have a critical role to play, to clearly and straightforwardly assert what corporate governance is and, critically, what it is not.

Amongst it all, there were some gems:

Several directors spoke passionately about their work, and how efforts to engage more actively, with an underlying sense of purpose, is starting to make a difference.
Researchers are moving focus, from quantitative studies using public data, to trying to get inside boardrooms to observe boards in action (ie: the practice of governance).
Advisors to General Counsels, CEOs and SME founders have recognised a different conversation is needed to appeal to boards and directors. I was pleased to offer a few insights and suggestions.
I had the delight of delivering a guest lecture to forty or more researchers and students at Leeds Beckett University. The Q&A was fascinating—a candid exchange with people passionate about helping boards govern well.

Amongst it all, several requests were made for me to return in May, and in September/October. If you want to know more, contact me as soon as possible for an obligation-free discussion.

The headline picture, showing a derelict property in Soho, London, is analogous to the state of governance in many places in Europe: structurally sound but outwardly messy.

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Picking an adjective...

17/3/2023

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When aiming to achieve something in business, is it better to be good, or effective, or both? Should boards for example pursue good governance, or prioritise effectiveness? And, are these qualifiers mutually exclusive, or can a board claim both? These 'challenge' questions have beset contemporary boards of directors, more so as various stakeholders have sought to impose their expectations and ideological preferences onto corporate values, purpose, strategy and decision making.

If these questions are to be considered and answered well, agreement on the meaning of the adjectives is necessary. To wit:

'Goodness' speaks to benevolence and decency—of doing the right thing. It conjures an ethical or moral motivation, of acting in the best interests of someone else.
'Effectiveness' is about producing an effect or achieving a goal, result or outcome.

Instinctively, good governance sounds attractive. It satisfies a human condition; of doing the right thing and acting in the best interests of someone else (a particular stakeholder interest, for example). But what if doing the right thing has the effect of compromising the competitive position of the company; the achievement of agreed performance objectives; or, potentially, the viability of the company? And, what might be considered good by one person or group may not be upheld elsewhere. Turning to effectiveness, the threshold is more objective—either the goal is achieved or it is not. But, what if the pursuit of an agreed objective results in environmental or social harm, or some other negative consequence? That is not acceptable either.

Given the extremes, some sort of balance is needed, in the same way that every board must ensure conformance requirements are satisfied (compliance, value protection) and performance objectives are achieved (value creation). If this is reasonable, should a different adjective be used, to more adequately describe the value of the board's work?

My recommendation: drop goodness and effectiveness, for one (at least) is highly subjective and has become emotively charged (think, what ESG has become), and the other focuses more on the goal without necessarily considering unintended consequences. Ultimately, in extremis, neither is sustainable without the other. Instead, boards should pursue enduring impact.

Boards that strive to be effective in role without incurring social or environmental harms are more likely to exert a positive and enduring influence beyond the boardroom (that is, have impact). As a result, they should be well-regarded by shareholders and legitimate stakeholders as well. The Strategic Governance Framework offers insights to boards intent on realising the full potential of the companies they govern.

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Ten days in the UK & Europe: A snapshot

Picking an adjective...

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Peter Crow PhD CMInstD