When travelling, what's your favourite destination? Mine—from a work perspective anyway—is anywhere where board directors and executives who are eager to debate issues of boardroom practice and business performance. Since Tuesday evening, I have been in Dublin, Belfast and Dublin (again) doing exactly that—addressing groups of directors and answering questions. Matters of strategy in the boardroom; diversity; board structure; accountability; and, culture, amongst other topics, were discussed with vigour.
To work with well over 70 directors and executives, all of whom were motivated by the discovery of board practices that might lead to improved business performance outcomes, has been wonderful. Thank you to the Ulster University Business School and the Irish Times Training for inviting me to visit the Emerald Isle to work with such influential people. That these busy directors and executives gave their time to debate important issues bodes well for the future performance of Irish businesses and social enterprises. I look forward to hearing great stories of success in the months to come!
Fifty leading board researchers, directors and company secretaries assembled in London this week to consider the topic Corporate governance for a changing world: capturing long-term value. The event was hosted by Tomorrow's Company and Frank Bold, at Cass Business School. I had the privilege of joining the discussion.
Dr Roger Barker, Deputy-Director at the Institute of Directors, provided the catalyst for a lively discussion amongst the attendees. He offered some rather provocative comments about boards, short-termism and business performance in the longer-term, as follows:
Several interesting thoughts emerged from the group and plenary discussions that ensued:
I came away from the meeting in good spirits. That a group of influential academics, researchers, directors and company secretaries are both in agreement that the current model of corporate governance is problematic (flawed, even?) and that a new model perhaps via purpose and strategy might offer hope if boards are to make meaningful contributions in pursuit of longer-term value creation and a sustainable future.
The informal discussion and private comments over drinks after the roundtable session served to reinforce these points; especially that well-intentioned leaders are committed to realising the potential of the businesses they lead or govern and that there is a hunger for 'answers'. My hope is that these messages are both transmitted and heard amongst a wide constituency, and that people get on board. I am committed to playing my part. If you have questions or would like to know more, please get in touch.
Finance Ministers from the twenty most powerful trading nations, the G20, have endorsed a new set of corporate governance principles published by the OECD. The principles provide recommendations on matters including shareholder rights, executive remuneration, financial disclosure, the behaviour of institutional investors and how stock markets should function.
The OECD principles have been promoted as contributing to more effective corporate governance. That sounds good—but what does 'effective corporate governance' mean and why might it be important? The OECD preamble offers this guidance:
Good corporate governance is not an end in itself. It is a means to create market confidence and business integrity, which in turn is essential for companies that need access to equity capital for long term investment.
Wow, this suggests that corporate governance is a mechanism to protect investors and markets. The responsibility of the board for business performance is not mentioned—thus implying that corporate governance is not a performance-based mechanism through which to pursue wealth creation. Rather it is positioned as a conformance tool to manage agency costs. What is the likelihood of boards spending time thinking about the purpose of the company, strategy or future performance if they are beholden to a set of conformance-oriented principles?
Sadly, it would be appear that these latest OECD principles represent an opportunity lost—for medium-sized and privately-held companies at least.
Much has been written about corporate governance, board practice and business performance in recent years. Many claims have been made along the way as shareholders, directors, researchers, consultants and members of the business community have tried to understand what boards do and how they influence business performance.
Despite the best efforts of many—and many claims that various observable attributes of boards are causal to performance—credible answers have been few and far between. That we cannot explain how boards influence the achievement of business performance outcomes remains a rather large blindspot, especially as boards hold the responsibility for business performance. Hopefully, help is not far away.
In the meantime, we have much to learn from each other. If you are wrestling with some aspect of corporate governance, board practice or value creation that is proving to be a thorn in your side or the side of your board, I would like to help you wrestle with it and, perhaps, even resolve it.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.