The rather smooth road along which Hyundai has been travelling in recent years just got bumpy:

• Yesterday, reports emerged of some rather shonky decision-making in the Hyundai boardroom, whereby a major land transaction was approved by the board, even though it did not know the ($10B!) price tag. The market reacted by stripped $8B off the value of the company's shares. Strike one.
• Today, it was the workers turn. Over three-quarters of the workforce walked off the job, in protest. The union had been negotiating employment terms and conditions, and had been stonewalled by "cost issues". It now turns out the cost issues may have been related to the land transaction. Strike two.

Claims (that the land purchase will enhance brand value) and counter-claims (that the Chairman wields outsized influence) are circulating. Whereas the company has performed well in recent times, things may not have been as rosy on the inside as they seemed to be from the outside. Clearly, Hyundai has struck a nasty section of potholed road. The board and shareholders face some difficult decisions:

• Will the directors admit their rather large mistake and at least offer their resignations?
• Will the management team, who successfully pulled the wool over the board's eyes, now respect the authority of the board?
• Will the shareholders step in and shake-up the board?

One hopes the shareholders, board and management might set their egos and inherent response (save face) to one side, to create and implement a plan to repair a now-damaged brand image. This nasty series of potholes will not be fatal to Hyundai's long-term prospects if the three parties act quick and smartly, and do so together as one. However, if they don't strike three may not be too far away.

The latest round of annual reporting in New Zealand confirms that the size of CEO remuneration packages are continuing to track upwards. Reports from SkyTV, Ebos and others suggest that the now well-established trend shows no signs of slowing down.

The concept of executives (actually, all staff) receiving remuneration commensurate with their performance and the value they add to the corporation sits comfortably with me. However, the steady spiral upwards of CEO packages, at what seems to be an unchecked rate, may be the harbinger of a longer term problem: that any linkage between the package, actual performance and market forces is lost. If boards are truly focussed on the optimisation of performance in accordance with the wishes of shareholders, then boards need to ask the following three questions every year:

• Is value being delivered by the CEO? 
  
• What is the company prepared to pay for that value?
• Are alternative CEOs available if the incumbent declines any package offered?

I am sure that the first and second questions are being asked by boards: the evidence is in the packages. However, I suspect the third question gets much attention. If a board was exploring its options, the likelihood of being captured by the CEO (or their reputation at least) should be much lower. While easy answers are unlikely to exist, boards need to grapple with these matters, by asking and acting on all three questions. Until they do, the law of supply-and-demand is likely to prevail, and the upward trend is likely to continue unabated, possibly to the detriment of long-term shareholder value.

Decisions about major transactions, or matters that might be material to the future prospects of a company, are usually reserved for the board of directors. This is appropriate, because directors have a duty of care—to the company they govern and to the shareholders that own the company. In fulfiling their duties, directors must ensure they are adequately informed regarding the affairs of the company, so that decisions can be made in the best interests of the company and, ultimately, the shareholders. 

This all seems straightforward and tidy, but is it always so? Unfortunately not—well not at Hyundai anyway. Recently, the Hyundai board of directors approved a bid to buy a large and valuable parcel of land—without actually knowing the price! Claims by management that the bid price was "top secret" and therefore could not declared seem to have been accepted by the board:

The making of strategically important decisions without vital information borders on reckless trading. That such a large transaction would be approved without knowledge of the price defies normal logic. That $8B of market value has been wiped off Hyundai should come as no surprise.

Why did the Hyundai board make the decision without knowing the bid price? If the board carries the ultimate responsibility for company performance and business value, it should know everything that is material to a decision. If information is missing, the board should insist on it being provided, and to defer any decision until the information is provided. That management thought that the board could not be trusted with knowledge of the bid price, and the board let management get away with it, is an indicator that there are some fundamental problems with the corporate governance systems at Hyundai. The directors need to take a good long look at themselves and the way they operate, and seriously consider whether they are fit to carry on.

What a great question. Throughout my business career, of over thirty years now, the prevailing answer has been 'yes'. However, Peter Thiel reckons the answer to both parts of the question is or at least should be 'no'.

Thiel's thesis, that competition is for losers, and this response to it will get you thinking... Boards and regulators might need to take note.

Corporate boards and executive managers have endured some criticism of late, as yet another wave of reports of incompetence, fraud and hubris have reached the public domain. Some directors have been lambasted for their actions, while others have avoided any direct consequences. Clearly, this raises an interesting question of consistency. Where should the accountability benchmark for acceptable director performance be placed? 

• Is the crystal ball approach that seems to be favoured in the UK appropriate?
  
• Is 'fair and reasonable', which seems to be the benchmark applied in the Feltex case, appropriate?
• Should directors and boards be beyond reproach and, if so, how might this be measured?

My sense is that directors need to think very carefully about why they are appointed and what duties they must fulfil having accepted any appointment. All directors have a duty of care and a duty of loyalty—to the company or to the shareholders (depending on the jurisdiction) and not to themselves. This means that the director role is a servant role, of serving the best interests (of the company/shareholders). In fulfilling these duties, directors need to ensure they are adequately informed and well-intentioned, lest the wool is pulled over their eyes or they make decisions that are not consistent with their duties. The role of the director bears a weighty responsibility, so directors need to take their appointments seriously. Most do, but some, clearly, flout the boundaries of moral and ethical acceptability. 

Directors need to be beyond reproach, and clear demarcations of what is acceptable—and what is not—need to be established. The challenge, of course, is holding directors to this level of performance, in the public domain and through any legal processes that may be required.

More news on the Feltex front today: a judge has just cleared the directors of liability for disclosure failures. I have discussed the sorry story of Feltex before. That the directors were charged seemed to be fair, given the seemingly strong evidence that something was awry. However, the judge has now issued their reserved judgement. Many will be surprised that, in the face of incriminating emails and other evidence that directors knew there was a problem with the business fundamentals, the decision was not guilty. However, and interestingly, the judge did note "some justification" for the criticisms of the prospectus upon which the case was based.

Is this a case of well-heeled directors being able to rally a strong defence to protect their reputations, or was no wrong done? Regardless, the decision has been made, and with it a potentially dangerous precedent has been established—that the standard of accountability for directors may actually be quite low. While this is good news for directors, I'm not sure it is good news for shareholders, or for society more generally.   

So, the 28th Annual British Academy of Management Conference is now over. Something approaching 800 delegates (total attendees, including late registrations) have considered over 650 papers, workshops and symposia over the last three days, on three adjacent sites centred on the Belfast Waterfront complex. Overall, the conference was well-run—although not without some interesting nuances. A few reflections, based on my experience: 

• That the organisers successfully marshalled delegates to twenty-something meeting rooms spread across the three sites—in half-hour slots—was a sight to behold!
  
• There was only one plenary session—the opening—to bring all of the delegates together and to reinforce the conference theme. Also, the opening was scheduled after lunch on day one, and there were no other plenary sessions throughout the conference. My experience at other conferences is that the opening welcome and keynote address typically occurs at the beginning of the first day, and a plenary keynote is delivered as first scheduled session each following day of the conference. It provides a very useful means of pulling people together to reinforce the conference: a sense of purpose if you will. I hope the organisers of future BAM conferences consider adopting the more traditional programme.
• The catering was pretty good. Finger-food was the order of the day for morning and afternoon breaks and for lunch. While there weren't enough seats, the food was such that delegates could eat standing without too much difficulty.
• While the number parallel tracks (24 from memory?) meant that delegates had a wide range of topic and paper choices at any given point, the unwanted effect (from my perspective and many others that I spoke to) as that the audiences for many papers were small. I would rather that the conference organisers set a higher bar on paper selection (select fewer, higher quality papers) and run fewer parallel tracks, but over a full three days.
• The conference is an academic-cum-research conference. Consequently, many of the papers were quite theoretical with only tenuous practical application. This served to highlight the chasm that often exists between research and practice. One way of minimising this chasm might be to call applied research papers and case studies. In so doing, a broader audience of managers and executives might find value in attending the conference, to hear about emerging trends that they can utilise in practice in their own environment.
• The breaks between sessions enabled much interaction between delegates. I was able to take advantage of this as well, to meet several esteemed thinkers and to bounce ideas around.

Next year, the conference will be held in Portsmouth, on the south coast of England. I've marked my diary.

In the last few days, I have sat through over twenty presentations on various aspects of corporate governance and made many notes to ponder over the coming days and weeks. A few of the presentations are reported in the musings below. As I walked back to the hotel this evening, I found myself thinking about the overall state of corporate governance research. Here are a few of my initial thoughts:

• The research agenda is still dominated by quantitative research—the statistical analysis of numerical secondary data—primarily because they can't get access to boardrooms to observe what actually happens, and there is a perception that quantitative empirical research is somehow "better".
  
• Researchers are starting to realise that experience counts. People like Adam Poole, Donald Nordberg, Ruth Massie (all of whom addressed the conference) all have "working backgrounds". That they understand business and what goes on in boardrooms is helpful to making sense of what boards do (and should do).
• Corporate governance research remains a minor contributor in the field of business and management researcher. Of the 640 or more papers, less than 25 addressed the topic of corporate governance. My hope is that business schools and the researchers they employ give more attention to the topic in the coming years, given the importance of board performance to the achievement of company performance outcomes.
• The Anglosphere continues to dominate the research landscape, despite the emergence of developing nations, and the strength of China and many Asian economies. How do we correct this imbalance?

Former Reuters reporter turned academic Donald Nordberg led a very interesting discussion on the topic of good governance. He suggested that corporate governance researchers and working directors like to think of corporate governance as being a rational and tidy activity with clearly accountabilities and readily defined boundaries. However, the reality is quite different: governance is actually quite messy, with no universally accepted definition of what corporate governance is, might be or does, let alone a common and consistent set of practices to guide boards towards this so-called nirvana of effective governance.

Nordberg suggested that researchers and directors need to get down from their lofty pursuit of order, in favour of reasonableness and flexibility. They also need to embrace accountability in terms of giving an account of why something was done or a decision made, because the compliance view of accountability serves only to establish an adversarial relationship between parties. If researchers and boards embrace these suggestions, then "reasonably good" governance can follow, and that might just be good enough.

Now in the twilight of his working career, Nordberg's experience—and value as someone with both practical and academic experience—was palpable. I'm glad to have listened to him speak, and thrilled to now have the opportunity to sit with him again later in the year during my next trip to England.

Adi Bongo and Alfred Akakpo presented updates on two oft discussed aspects of board structure and composition: board size and board diversity. 

Bongo's paper considered data from Nigeria—his home country—to understand whether an optimal board size was apparent amongst listed companies. Previous studies have shown mixed results: some have suggested a positive correlation; some a negative correlation; and, some have shown no impact on performance. I was interested to see whether Bongo's research, which applied three different econometric methods would reveal anything new or different. The answer was no. Despite applying analysing the data in three different ways, Bongo found no evidence that board size has any impact on the financial performance of companies in Nigeria.

Akakpo's paper explored the impact of diversity on board performance amongst companies in the retail sector in the UK. Using data from 2000–2012, Akakpo applied a range of analytical tools. His analysis showed a positive association between diversity and company performance in 46% of the companies studied, a negative association in 13% of the companies and nil or no discernible impact in the remaining 41% of the companies. Whereas other studies have suggested that diversity is generally good, Akakpo's study showed that a positive impact is certainly not automatic. 

These studies add to the body of research that has investigated board attributes. I was hoping to hear suggestions of how or why board size or diversity might lead to increased performance, but such commentary was not forthcoming. These studies reinforce the impasse that confronts researchers; and the proposition that research methods other than the statistical analysis of quantitative data are likely to be necessary if the goal is to explain how boards influence company performance outcomes.