I’ve been holidaying in Scotland this week, the first of two in the Highlands after whistle-stop visits to Edinburgh and Glasgow. I prefer the countryside over cities, the wide-open spaces and the scenery. The vistas in Scotland are especially magnificent, especially if the weather is fine, which it has been this week. Today, I saw the Jacobite Steam Train in action as it crossed the famous Glenfinnian Viaduct—well almost in action, for the chance of a wayward spark starting a fire in the adjacent bracken has limited this famous tourist experience to a push-me pull-you configuration with a heritage diesel locomotive bringing up the rear. The question, in my mind and the minds of others witnessing the viaduct crossing, was, “Which locomotive is actually doing all the work?” Or, more plainly, what is driving what? From the picture, the answer is not immediately obvious. However, the very presence of the diesel locomotive provides an important clue. And so it was. Today, the Jacobite Steam Train excursion was, in fact, the Jacobite Steam Train experience, powered by diesel.
The visual imagery provides a powerful analogy for something I read today; a press release issued by the Institute of Directors entitled, “ESG must not neglect governance!”
The headline implies that governance (from the Greek, meaning to steer, to guide, to pilot) is little more than a component of ESG (a means of measuring corporate performance). This, despite governance being the term that describes the work of the board of directors (the means by which companies are directed and controlled). But, reading on, the situation is not quite as it first seemed. Dr. Roger Barker, head of the policy unit, acknowledged the importance of boards taking non-financial (so-called, ESG) factors into account when making decisions. But he also noted the emergence of an “ESG industry” that has started to control various agendas, with little interest in the enduring performance of the company. And, with it, boards are being subordinated to a lesser role. Barker issued a strong call: to subsume governance within ESG may well result in the important work of the board in driving business performance becoming neglected.
Bravo, Dr. Barker! This is exactly what institutions need to be telling their members and others interested in corporate performance: ESG is a measurement and reporting mechanism, no more and no less. The board of directors is duty-bound to ensure the performance of the company, now and into the future, a high calling. If it is to discharge its duties well, the board needs to remain in control, driving the agenda. In doing so, the board should consider various externalities including social and environmental factors), of course, but it should not be beholden to them or to those applying the pressure.
Several times in the past six weeks, I have been asked to share some thoughts on artificial intelligence and board work; specifically, the impact of emerging AI capabilities on corporate governance and, even, the need for board of directors. The rapid emergence and now widespread awareness of ChatGPT has been a catalyst for many of these enquiries, it seems. I have been fascinated by the unfolding situation, not only because of a longstanding interest (I studied artificial intelligence at university nearly four decades ago), but also the speed by which awareness has spread, and expectations climbed to such stratospheric heights, is unprecedented. Claims have been made that computer-based tools will soon supplant the need for human directors and, with it, board meetings. Some, especially those with jaundiced perceptions of boards, their work and any value they add, have confided this may be a good thing. Others have reserved judgement—for now at least—saying the situation is far too fluid and complex to make anything approaching an informed or reliable decision, much less widespread change.
That so many people are questioning 'conventional' corporate governance practices feels a little bit like ground hog day. While I do not claim any particular expertise in the topic of artificial intelligence, I have read widely, asked many questions (of myself and others) and pondered both the purported capability and potential impact (of artificial intelligence) on board work.
The departure points for my enquiry has been, as always, definitional. What is artificial intelligence, and what conception of governance does one hold? My responses to these questions are as follows:
So, the proposition to be considered is, "Can a computer replace a social group charged with steering and guidance an organisation in a complex and dynamic environment?"
Those people wondering whether AI might be a viable mechanism to support or even replace boards have much to ponder. What is the role of a board of directors in companies? How might the operating context beyond the organisation be assessed? Where does accountability for statutory compliance and overall performance lie? And, to whom should the Chief Executive and management of the company report? If one holds the view that the board is the ultimate decision-making authority within a company (a responsibility delegated by shareholders), and that this (decision-making despite uncertainty and ambiguity) is 'core business', the board has a vital role to play.
My early training in computers and technology taught me that computers respond to instruction; they cannot 'think' autonomously or handle ambiguity, and they lack feelings and intuition. They do what they are 'told'; if the 'telling' is poor, the result is likely to be poor: the phrase "garbage in, garbage out" springs to mind.
But that was then. Computing power is far greater today than it was even five years ago, much less forty. Has the evolutionary development of computing capability reached the point whereby computers can displace humans? For a large and growing list of tasks and activities, yes, of course. The analysis of data is a relevant case in point. But for many other enquiries, the answers remains a resounding no. How might a computer make sense of the unspoken feelings, intuition and biases of staff, customers and board directors, and reach a credible decision? For this, a much higher order of capability is necessary. And, with that, I stand with those reserving judgement.
What of the future? AI may become a viable mechanism to expedite board decision-making, of course. But the likelihood of directors being supplanted any time soon is low (those failing in their duties excepted). For that, artificial general intelligence (AGI) is likely to be necessary, and some moral and ethical questions will need to be resolved as well. If that is achieved, I may take a stronger position.
Regardless of whether this muse is sound or not, directors, shareholders, regulators and their various advisors need to be alert, because the situation may change quite quickly.
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):
Amongst it all, there were some gems:
Several followup visits are now being planned, to advise, assess, educate and speak on topical board and organisational performance matters. If you want to discuss a matter of interest, or check my availability to assist, contact me for a confidential, 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.
Picking an adjective...
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:
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.
Ramping up, for the year ahead
And with little more than a blink, January 2023 is, nearly, done. January is, for me, a time to relax, reflect on the year past, spend time with family and friends, read and get ready for what lies ahead.
In the last ten days, things have started to ramp up again: international calls, my first board meeting for the year, and local enquiries—all indicators that minds are turning to board work and the pursuit of sustainable performance once more. Soon, I shall be travelling again too, in response to requests to discuss corporate governance, board work, and the role of the board in realising organisational potential.
After a good break, I not only feel ready for what lies ahead, but excited at the opportunity to help boards and directors, academics and regulators grapple with some complex issues. The first three trips for the year are scheduled, as below—and planning is already underway for several more in the months to come.
While events and engagements are being loaded into the diary daily, some gaps remain, mainly in Singapore and England. So, if you want to take advantage of me being in your neighbourhood, best to get in touch soon! If you want to talk or meet, but the timing doesn't suit, let me know anyway—there will be opportunities later in the year.
The claim, that a picture is worth a thousand words, is widely known. Pictures are valuable because they capture one's attention, often evoking memories of significant or special events (as real of imaginary as they may be), or of possibilities. Indeed, the phrases 'every picture tells a story' and 'the picture tells the story' encapsulate the essence of pictures—they tell stories. But visual images are not the only means of stimulation and sharing ideas. Words are important too, especially when the ideas they convey are presented as a story.
Over the seasonal break, I have been delving into a selection of books, in search of stories and ideas. The very practice of reading is, I find, a powerful enabler—to provoke, gain insight, form opinions, and learn and build knowledge about all manner of things. I have also gone back through the Musings archives and re-read many older posts. Several that piqued my attention were re-posted on LinkedIn (check my feed) to share with a new generation of readers. To my great surprise, many of these re-posts garnered considerable attention and engagement. That some ideas continue to be relevant is gratifying. Thank you to readers who have engaged with those posts.
Notice the mechanism at play: hearts and minds are captured through 'story'. Pictures and words are important without doubt, but they are, simply, delivery channels: two of four mechanisms (the others being aural and kinesthetic (experiential)—together, VARK) to communicate the message.
Information and its effective delivery is crucial in organisations too; board work in particular. In such situations, stories can be incredibly influential for informed decision-making, a precursor of all that follows:
As managers and directors, the way we present and consume written reports, and ask and answers questions, is material to informed decision-making. Ultimately, the board's provision of effective steerage and guidance to achieve the organisation's strategic goals depends on it. Such is the craft of board work. With this in mind, what refinements might you consider to lift your game in 2023, and lift the effectiveness of your board?
Reading through the seasonal break
I have the good fortune of meeting many hundreds of people every year—aspirational and established directors, board chairs, executives, journalists, shareholders, MBA students, doctoral candidates, lobbyists, regulators, policy analysts, conference organisers, and more besides. Sometimes, contact is fleeting; sometimes it is enduring, as we work together to gain insight, educate, or tackle a difficult problem.
One question that keeps coming up (besides the big three, namely, what is corporate governance; what is the role of the board; and, how should governance be practiced) is, "How do I stay current and relevant?"
The answer is straightforward. I read, a lot.
Every morning—well, at least six days a week—I dedicate 90 minutes or more, to check newsfeeds, blog posts and emails that have arrived overnight. The primary goal is to ensure I have sufficient awareness to engage well with colleagues and clients on topical matters. Some people call this continuing professional development. I prefer a simpler description: reading to keep up.
This commitment is, I find, a bare minimum because it does not afford space to read widely and think deeply about ideas, perspectives and the human condition. For that, I read books; sometimes in the evenings, but most often on flights and during holiday breaks. Why? Because I have time to think and mark (in pencil in the margin if a physical book, or electronic bookmark if an e-book) specific points to investigate further.
Several people have asked what I'm reading. Here is a list of books either under way or to be read this summer break. Notice only one is directly linked to my board and governance work. That is intentional. Reading widely means, to me, reading beyond normal boundaries to discover new ideas and ways of thinking about things.
This list is a selection of the books awaiting my attention. If you read, I'd love to hear any recommendations!
The practice of corporate governance has garnered much attention over the past couple of decades; curiosity about boards growing each time news of a corporate failure and serious misstep becomes public. While those with axes to grind are quick to jump on their hobbyhorses, failure studies indicate that suggestions of hubris, malfeasance, narcissism, ineptitude, incompetence and poor engagement are not without basis.
More recently, a wider group of so-called stakeholders and claimants have raised their voices, arguing that companies are having a negative effect on a range of social and environmental concerns. The ESG initiative, established in 2005 to put pressure on boards to report their activities and performance more fully, has become a movement (even an industry for personal and professional gain in the eyes of some).
On the weight of evidence presented in the media, it would be easy to conclude that practices of companies, and the system that underlies modern commerce—capitalism—are detrimental to sustainable life and wellbeing. Firing shots at boards and companies is easy, because they are visible and command media attention. But are such responses justified? What if the assumptions and motivations that underpin investor, regulator and activist critiques are flawed, or the bases for regulatory interventions ill-advised?
Some companies deserve criticism, of course. They should be called out and held to account. But many (most) operate within their means. Unsurprisingly, the boards of some reputable companies are reportedly pushing back on the expectations of some institutional investors, which, they say, have become over-prescriptive and formulaic. Alongside, some boards say new disclosure reporting rules being introduced, by the FSB Task Force on Climate-related Financial Disclosures (TCFD) amongst others, are counterproductive—for they add costs without any apparent benefit.
Together, this begs an awkward question: Are the actions of some, who claim to be acting in the name of sustainability and a fairer society, actually an attempt to exert power and control for their own purposes? And, if so, are current attempts to establish regulations to enforce certain practices on companies reasonable or are they a bridge too far? It is little wonder that relationships between some boards and shareholders are starting to fracture, and society is becoming tribal.
Twenty-one years ago this week, I embarked on a journey to pursue a dream: to help directors and boards become value creators, realising the potential of the companies they govern. At the time—four weeks after the terror attack on the World Trade Centre—governance was hardly known as a word, and most boards had a strong compliance orientation. I had no idea whether the dream was realistic, much less attainable. But, at 39 years old, the calling was strong—compelling even. So, I took a deep breath and walked away from a great company and international role, armed solely with a strong belief that I might be able to add some value. I was told that stepping away from financial security and the makings of a stellar international career was crazy. But the decision had been made.
I found that people would happily talk about their situation and what they wanted to achieve if they thought you were genuinely interested in them. That insight has provided the foundation for everything that followed—including working with thousands of directors in 45 countries across five continents, serving on boards, delivering hundreds of talks and leading many education sessions. The 2012–2016 period dedicated to complete doctoral research, to try to answer that most difficult question of how boards influence company performance provided a breakthrough that I hope, one day, will be taken up widely: the Strategic Governance Framework. To have met and spent time with doyens of corporate governance, strategy and leadership along the way—including Bob Garratt, Bob Tricker, Charles Handy, James Lockhart, Jenny Darroch, Roger L. Martin, Rita Gunther McGrath, Silke Machold, Stuart Farquhar, Andrew Kakabadse and many more besides—has been inspirational. I am indebted to everyone who has spared a few minutes to answer questions and share insights.
Other highlights include sitting with directors in India, Eastern Europe and other places well off the beaten track, to listen; experience their thirst for insight; and receive their gratitude for what little I had to offer.
Without exception, everyone I've met and worked with has wanted to find ways to guide and steer the businesses they govern with greater effect. To have been asked to contribute has been a honour.
Thank you to every established director, board trustee, and board chair; every aspiring director; every chief executive and leadership team; every MBA student, researcher and associate; everyone who has heard me speak or read my articles (note: all my articles and blog posts remain available today); every regulator and government who sought confidential assistance; and, untold others I've never met. Thank you for considering my submissions and arguments, for believing in me, for encouraging me and for engaging me.
Today, 21 years on from stepping out of the boat, the calling remains strong. I remain available to serve for as long as boards and directors call for assistance, and my ability to contribute allows. To that end, and with the passing of the pandemic, I am available once more to travel to meet in person to understand and speak into situations. So, if you have a question or want to discuss a problem, please get in touch. I stand ready to serve.
The passing of the Covid pandemic has been a great relief for many; boards of directors are no exception. Several weeks ago, I visited Sydney, Australia to meet with directors, boards and leaders of membership bodies. The feedback was clear: if companies (and through them, economies and societies) are to prosper, boards need to start thinking strategically again. Last week, more grist to the mill. During a successful visit to Bengaluru, India to lead a Board Immersion Programme for a globally-known FMCG company, the question of how boards can add value was front-of-mind throughout.
Today, I'm delighted to announce my first post-Covid visit to the United Kingdom and Europe, to continue the advisory work there.
From November 16th through 25th, I will visit the UK, several EU countries, and elsewhere as required, to respond to requests to speak, and to help boards respond well as they pursue sustainable business performance. This includes:
Do you want to meet in November? Regardless of whether you have a specific request or a general question, please get in touch. I'll respond promptly with some suggestions for your consideration.
Thoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention.