Guest blog: Dr James Lockhart (College of Business, Massey University, New Zealand)
During the late 1990s and early 2000s the hot topic in corporate governance was independent directors. Independent directors, it was proposed at the time, were the very panacea for performance improvement. It didn't really matter what the problem was the solution was independent directors, preferably a majority of them—and fast!
Much effort went into defining an independent director and veritable lists emerged of the much needed characteristics and attributes, especially concerning ownership (the lack thereof); earnings from ownership (the lack thereof); or, employment or former employment (the lack thereof). Sadly, in all that enthusiasm the single most important attribute—independence of thought—was seldom mentioned.
Fast forward a decade: now its diversity’s turn. Diversity, it is now proposed, is the panacea for improvement. Just like independent directors in the past (where no systemic evidence emerged supporting the assumption that independent directors actually improve performance) business is besieged with the idea that diversity on boards will enhance performance. All of the board diversity research conducted to date has been from outside the boardroom. We know that because there have been only four longitudinal studies conducted within the boardroom—one in Norway by Morton Huse; one by a serving board member (no conflicts there); one by a British colleague (Silke Machold); and, one by Peter Crow.
So what is being measured? Just like the independent director research, the diversity research has reduced the boardroom to a simple input-output model. Diversity then refers to the measurable appearance of directors, such as, skin colour, ethnicity, sex, age, qualifications, professional backgrounds, and so on with a focus on sex, colour and age. But does diversity of appearance produce a diversity of opinion? Does diversity of appearance produce different strategic decisions that would not have been considered or not approved in the absence of such diversity on boards?
Given that we don't know how effective men are in the boardroom, it is implausible to argue that we know the effectiveness of women. That is not to suggest we don't need more women on boards—we do. But the focus of the discussion ought to be one of building better boards, boards that are focused on wealth creation, and boards that deliver the company’s aspirations.
As with the independent director argument that preceded it, repetition seems to matter—if something is repeated often enough it will eventually be believed. The discussion is being fuelled by the post-modern/neo-Marxist views currently dominating the B-school landscape, one that will acknowledge diversity everywhere other than amongst Caucasians. And with that, the point is lost. The focus of corporate governance should be on performance, in organisations where the thinking folder is overflowing, not what people look like.
About Dr James Lockhart:
James is a Senior Lecturer at Massey University’s Business School, and a credentialed and practising company director. He teaches and researches in strategic management and corporate governance, and is responsible for the delivery of the College’s business internship and professional practice (Management) courses. He currently holds two directorships; is on the Defence Employers Support Council; and, is a Chartered Member of the Institute of Directors in New Zealand.
Business leaders cite change management as their biggest challenge, both on a day-to-day basis as well as from a long-term internal culture perspective. This challenge is what sees change management consultancies make millions of dollars per year, from acting as an external driver and catalyst. What many executives fail to realise is that they actually fear change themselves.
Are your own fears a subconscious barrier to the change you know your business needs to make?
Coming to terms with human nature:
At the most basic level, the fear of change is hardwired into us. Those of us who like change are therefore the different ones. If we fear change, we’re normal, regular human beings. Some of us might even struggle to come to terms with the fact we find change difficult. If you fit into that particular category, it shouldn’t be something you worry about.
Embrace change or walk away?
Often we’re faced with this very simple question: do we embrace change, or do we walk away? When walking away is the option picked, there may not be an actual fear of change itself, but of the process that needs to be gone through before that change is implemented.
As business leaders, we may resist change because we’re not too excited about the process of self-analysis that we need to go through. Self-analysis usually raises some tough questions that need to be asked, and human nature dictates that we don’t necessarily want to have that internal conversation—or learn the answers.
Change carries risk:
With change comes risk. This is perhaps the biggest reason why so many executives, and by extension businesses, continue with the status quo. A business with six-figure profits could embrace change, and in a few years be approaching eight-figure profits. However, this business may be happy with what it is currently achieving. While the proposed change will put certain things in motion to help the business move forward, it may also trigger other events, more self-analysis, and drive demand for change in other areas as well.
Change can, therefore, be something of an unwelcome can of worms. The executives who deal with their own fear of change effectively and, therefore, manage change better within their businesses, are those skilled at focusing on the positive final result, even if this may be years down the line.
Beating your internal fears:
Beating any internally-held fear of change comes down to your approach. Many executives—even today when data and tangible insight is more readily available than ever before—still rely on gut feeling and “tradition” in terms of their business processes. Learning to embrace change may be as simple as learning to embrace the data and tools available to help you understand the impact change can have, and how you can manage that change yourself to a positive outcome.
Most importantly, it is crucial to recognise that change is not instant. When change is implemented and managed correctly, it is very much a soft evolution rather than an immediate, overnight change in culture that completely redefines how you operate. Change isn’t always the answer, but do not allow your internal fears to stop you assessing whether it might be what you need.
Guest blog: Gemma Walford is head of Sales and Account Management for Convene for the EU region. She has extensive experience in the Public sector and a particular interest in improving productivity and business change. Azeus Convene is a board portal, developed to serve the needs of boards and management teams around the world.
Family-owned businesses constitute a special category of company—made different by the familial influence that often pervades decision-making and operations. Consequently, directing within this environment can be challenging, especially for external directors.
The challenges associated with family influence can be mitigated somewhat if the family members know why they might want to recruit external directors, and the purpose of the family business is defined and agreed. Each director needs to understand the business of the business well if contributions are to be effective. This does not mean that directors need to be fonts of technical knowledge. Rather, they need to understand the business’ strategy, supply chain, business model, core competencies and operational mechanisms.
The question of what family members want from the business and the board, and especially from external directors needs to be answered. In some cases, the family simply wants added expertise and independent contributions in pursuit of agreed performance goals. However, it is more common for expectations to ‘creep’ beyond this because of the inherent complexities of the three overlapping frames of family business: family, business and ownership. As a consequence, external directors can find themselves snared in all manner of (often unstated) expectations beyond the boardroom.
Families considering adding one or more external directors need to become ‘board ready’. This is where sound rational discussion often meets emotional attachment and passion! As an accredited family business advisor I take significant time to understand the dynamics and prepare the family for this important step, which is often a massive leap of faith for many families. A good rule of thumb when writing director profiles is to think in terms of 40% IQ, 50% EQ and 10% SQ. Why? In addition to being technically competent, external directors need to be both aware of and sensitive to family and personal dynamics, and they need to understand the family legacy.
Influential family members may or may not own shares; may or may not be directors; and, they may or may not work in the business on a day-to-day basis. These variations often lead to quite different expectations. Managing the family’s expectations is critical because directors have a legal obligation to the business first and foremost. The board’s main priority is to deliver on agreed strategic priorities. However, family members often expect more from external directors including (but not limited to):
As a result, the family and potential directors should conduct due diligence, to understand and clarify expectations in order to minimise the chance of unpleasant surprises at a later point. On the flip-side, the addition of external directors can be incredibly rewarding. While there is no ‘silver bullet’, the appointment of external directors can lead to a dynamic boardroom and, ultimately, a highly valuable family-owned business.
About Lloyd Russell:
Lloyd is a fourth generation family business member and an accredited family business advisor. He is based in Brisbane while servicing clients throughout Australia and internationally. He is a specialist in family business strategy and governance with a particular focus on inter-generational transfer; has over 30 years’ experience in senior management; and, is an accredited neuroscience practitioner.
Contact Lloyd by phone +61 413 549 748 or by email email@example.com
Board rejuvenation is often considered and discussed, but statistics on boards member ages show little progress. The general public thinks a board of directors is a set of relatively old people. Common sense and corporate governance approaches lead one to think that the introduction of new ideas from younger generations would surely be a company asset.
Age diversity within a board is unquestionably desirable, but will one or two younger directors be enough? Probably not. In fact, except in exceptional cases (mainly in new technology fields), board members will probably be least 35 years old—hardly 'young' any more—by the time they have acquired the experience needed to be a skilled board director. Also, younger leaders often have full-time jobs, so will there be sufficient candidates available anyway? Recruitment of younger directors may be difficult and generally will not be enough to ensure that potential contribution from truly young people will be brought to the boards. How then to proceed ?
One approach to solving this problem might to be create a Young People Board, under the leadership of the official board—a 'shadow cabinet' of sorts. With slightly different goals, some municipalities use this approach. A Young People Board could be composed of 18 to 25 year old volunteers—a similar number of members as the official board. Recruitment could be for three-year terms (with renewal of one third every year). The aim would be to achieve multi-faceted diversity.
Periodically (say three times per year), the company board would invite the Young People Board to consider a topic discussed by the official board. The Young People Board would meet to debate the topic and develop proposals. Many ideas would emerge as young people naturally consider new technologies; social networks; data protection; ecology; ethics; and, international perspectives. Each year, a half-day meeting would be scheduled with the official board, to receive presentations and debate the topics studies by the Young People Board .
The Young People Board formula would be light, without any significant expenses or time commitment from the official board members. However, the process would enable official board members to be positively confronted with new ideas coming from truly young people. They may even retain some ideas for implementation!
Members of the Young People Board and, indirectly, their friends and relatives, would derive benefits including learning about the company activities, its executives and, importantly, the 'corporate governance' world. Through the process, the company may identify young talents for later hiring. The company could use this approach to improve its image, especially among young people.
Many speeches and writings advocate innovation. As one dwells on this, the realisation that innovation applies not only within technology areas, but also in organizational processes and the social domain. The Young People Board is a concrete example of this type of innovation. Is this something your board can support? If so, please contact Guy Lé Pechon at Gouvernance & Structures.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.