When are advisors deemed directors?
The matter of advisory boards has become topical in recent years, particularly amongst emerging companies seeking additional help. Advisory boards are established in many cases to provide advice and oversight on some sort of ongoing basis—the motivation being to access advice without forfeiting control or passing responsibility.
However, vital differences between boards of directors and advisors to boards are not well understood, such that advisors may be deemed to be directors (or officers) anyway. Kevin McCaffrey made this point at a symposium earlier this month (see point #4). The matter has also been discussed on the Institute of Directors' discussion page on LinkedIn.
As a further illustration, the Employment Relations Authority has reportedly imposed maximum penalties against a business owner and her advisor in relation to an employment matter. While this case appears to involve malpractice, it highlights the point of this post—that advisors can be (and increasingly are) deemed to be accountable in the eyes of the law.
Christmas 2013 is now history, which means 2014—and all the rituals associated with New Year—is nigh. For many people, the act of hanging a new calendar on the office wall in the last few days of December carries far more significance than simply closing off one year and opening the next. It stirs thoughts of the future, of what lies ahead, of one's dreams, hopes and aspirations. I am amongst those that think about the future and what lies ahead when the new calendar is hung. However, this year, I'd like to briefly look back before looking forward, lest an important anniversary in the world of corporate governance is overlooked.
The Cadbury Report has just turned 21 years old. Do you remember the Cadbury Report and the recommendations it contained? The so-called Cadbury Report was actually the Report of the Committee on the Financial Aspects of Corporate Governance. An archive containing copies of Sir Adrian Cadbury's speeches, the report itself, and other related matters is now available online. The Report was commissioned following several scandals and company collapses, and the damage to investor confidence that ensued. It provided several recommendations to improve corporate governance. Amongst other items, these included:
The goal was to improve trust, transparency and performance. Subsequent to the Report, many companies have adopted the recommendations (motivated perhaps by the London Stock Exchanges "comply or explain" requirement), although not without resistance and reluctance in some quarters.
The question to be asked on the occasion of the Report's 21st birthday is whether the recommendations have improved corporate governance and, perhaps more importantly, company performance. Sadly, the evidence is mixed, very mixed. History shows that the structural provisions, including those contained in the Cadbury Report, were insufficient to prevent the high-profile failures of the early 2000s (Enron, WorldCom, Tyco, et al), the global financial crisis of 2007–2008, and some more recent failures in New Zealand and elsewhere as well. But that should not be a surprise to anyone, because the purpose of rules and structures is to provide boundaries. Rules and structures cannot ensure or predict any level of future performance. The human condition; ethics; and, the propensity to act in good faith (or otherwise) need to be factored in, if a performance orientation is to be pursued.
Reading list: all queued up
I had a wonderful Christmas Day yesterday with my family: giving and receiving gifts, eating together, telling stories and relaxing. This year, I was blessed to receive three books (I'd sent some signals), and no e-anything! I have come to really enjoy reading for pleasure in recent years, as a diversion from the copious volume of journal articles and books that I have to deal with for my research. The books I received as gifts are:
I am seriously tempted to start reading these straight away, but two books currently on loan from the local library need to take priority:
In case you are wondering whether I am a glutton for punishment, I also have two books on order from Amazon:
Given the rate at which I read, these books are likely to keep me gainfully occupied well into Autumn! Do you read? If so, what titles are you currently enjoying?
Signing off for 2013...
Unless something compelling occurs in the next few days, this blog entry is likely to be my last for 2013. Christmas is upon us, so it is time to pause.
Christmas can mean different things to different people. For some, the deep spiritual significance of remembering the birth of Jesus is almost palpable. For others, Christmas is an opportunity to buy and give gifts, to eat and to catch up with family and friends. Yet others enjoy Christmas because it is "time off"—a holiday. However you spend Christmas this year, may it be a joyful time for you.
Overall, I've had a good year. The opportunity to travel (to speak in Australia, Asia and Europe), to meet some wonderful people, and to spend time pondering some pretty tough questions to do with my research, has been amazing. While there have been several times during the year when I've felt becalmed, it's not until I've stopped in the last few days and looked back that I've realised just how far I've travelled. I hope it's the same for you as you take stock this Christmas season. Thank you for your support and encouragement throughout the year, I appreciate it.
Every now and again, an article lifts itself above the many that I read each day to capture my attention. This one is one of those. It is short, easy to read and, crucially, on the money.
In seven days' time, the mayhem so commonly associated with the lead-up to Christmas will be over for another twelve months—although the busyness of preparing for holidays, Boxing Day sales and other distractions will no doubt replace the void.
This year, more than ever before, I feel under siege, by the marketers of technology. The march towards e-everything is becoming a little tedious, and it's starting to get in the way of meaningful interaction and learning. I'm no luddite—my iPhone and Macbook Air are useful productivity tools—but I draw the line at e-readers, Google Glass and other gizmos.
A couple of days ago I caught up with a friend over breakfast. We met each other 15 years or so ago, when we worked at the same company, and we've kept in touch periodically since. While standing at the counter to order, I noticed several groups of people sitting at tables. The scene looked a little odd, and then it dawned on me. In each case, every person was looking down, at an electronic device. Humans are social beings. What happened to the art of conversation? Are electronics actually getting in the way of progress in some cases?
The reading of books, and pondering of events, situations and possibilities is a case in point. Rosemary McLeod sums it up so well. Books are for reading, and the experience of reading is as much tactile and sensory as it is a journey of discovery. I can relate to McLeod on this point, and hope that none of the gifts under the tree bearing my name contain e-anything. I'd rather pick up a book, feel the pages and devour the story. Simply it's more relaxing.
I spent much of the day yesterday in the company of my doctoral supervisor, an outstanding Masters candidate and a very capable governance consultant. The purpose of the meeting was to tackle some interesting—and rather challenging—questions to do with the practices of governance, hubris and groupthink, collective decision-making and cognitive biases. In addition to being topical (read further down this blog), these topics seem to be important building blocks towards gaining a robust understanding of governance in practice. Others appear to be exploring similar topics as well.
We made good progress, but a long list of questions and opportunities to dig deeper remain. While I'm not at liberty to discuss what emerged, several seemingly separate strands of thought, research and practice appear to be coalescing. Normally when I come away from such sessions, I listen to a podcast to clear my mind. However my mind was in overdrive yesterday as I drove home. Could a grand theory of governance, so long ruled out by many, be possible after all?
I have commented on the topic of governance in the local government sector several times in the past six months—because there have been many avoidable situations that merit closer scrutiny. Today, I want to provide a short comment on the responses of the mayors to the situations they have found themselves in, not the situations themselves. For example, the recent (mis)behaviours of Mayor Brown of Auckland and Mayor Ford of Toronto have been widely criticised, yet both mayors, somewhat defiantly, remain in office.
When one knowingly breaks the rules of office once, some of the trust one has garnered to secure the office is eroded. When one knowingly does so a second or subsequent time, trust cannot survive. Actions have consequences. Sadly, this reality seems to have evaded the mayors in question. Their continued reluctance to be held accountable for their actions is staggering. Resignation is the only acceptable response. The people of Auckland and Toronto deserve better than to suffer through these continued displays of self-assured hubris (although the tide does appear to be turning in Auckland with plans of a no-confidence vote by a group of Councillors). When will the constituency or, more importantly, the mayors themselves, wake up and act?
I smiled quietly while reading an article in The Economist this morning, for it seems that calls for boards to add value are finally appearing in mainstream publications with large readership bases. A recent Schumpter blogpost with the rather unfortunate title From cuckolds to captains noted that boards are starting to play a more prominent role in steering companies—and not before time. Are American companies, so long the bastion of the rather legalistic and adversarial agency theory, starting to explore new models of governance? It seems so.
While Schumpter praised recent developments, several important questions were raised. Are boards capable of understanding the business sufficiently well to make informed strategic decisions? Will the CEO forfeit power? Can directors work with the CEO to set strategy and fulfil their monitoring duties? If boards are prepared to engage, and directors co-operate, then the answers to these questions just might be 'yes'. But time will tell. A few boards need to be bold enough to step out from established norms and try these proposals, to see what happens. If they do, they just might be surprised with the result. The proof of the pudding is in the eating, not the making, after all.
AUT governance symposium: reflections
I had the privilege of attending a corporate governance symposium in Auckland yesterday. The one-day symposium, hosted by Auckland University of Technology (AUT), was held in the recently opened Sir Paul Reeves Building on the main AUT campus. It's a great facility. Approximately 30 researchers and other experts, including several international speakers, gathered to discuss recent developments in the field of governance. Topics included ethics, performance, diversity, technology and remuneration. There were seven main presentations throughout the day, and twelve supporting papers (presented in two concurrent streams after morning tea and after lunch). Some of the main presentations are summarised below:
The symposium delivered great value to attendees—if the many complementary comments overheard during drinks at the end of the day is any indicator. Dr Coral Ingley's vision, and hard work to breathe life into it, needs to be acknowledged and applauded. Well done Coral. I hope the AUT corporate governance symposium becomes an annual event, to bring researchers, experts and (importantly) practitioners together to share and test ideas, in order to improve governance in this part of the world. It would fill a gaping void.
Thoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention.