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For some months now, I have been wrestling with the possibility that corporate governance might not be a structure or a process, but rather a mechanism that is activated by boards in some way. I've been beavering away on this, without seeing much other research activity in the same area—until today, when this release from Penn State arrived. The article referred to corporate governance and mechanisms in the same sentence. Wow! Could this article point to some research along the same lines as my attempts to get to the bottom of what actually happens in boardrooms? Here's the first three paragraphs: UNIVERSITY PARK, Pa. -- The most effective corporate governance occurs when a mix of complementary mechanisms that include CEO incentive alignment and both internal and external monitoring mechanisms are present, according to a new study from Penn State Smeal College of Business faculty member Vilmos Misangyi and his colleague from the Singapore Management University. By the time I got this far—three paragraphs into a nine paragraph release—the wind was gone from my sails. My hopes were dashed. Misangyi and Acharya seem to suggest that effective corporate governance occurs when CEO incentive alignment and monitoring mechanisms are in place. They evaluated two variables (they call them mechanisms) in 1500 firms and described their research as holistic. Interesting. There is a growing body of research that suggests that board's involvement in the development of strategy and in the making of decisions is what matters. Misangyi and Acharya's release makes no mention of anything along these lines, nor is there any suggestion that the researchers directly observed any of the 1500 boards in their study.
I'm looking forward to reading the full research report when it is published, to see whether this is another study based on secondary data and hypothetico-deductive science, or whether Misangyi and Acharya have discovered a whole new paradigm.
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I got a little bit fed-up with writing today, so I decided to read back through Musings, to see how the corporate governance discussion has changed over the last couple of years. Sadly, many of the topics discussed two years ago are still being discussed. Sure, the prevalence of articles about boardroom performance seems to be waxing, and the number of quota-based gender proposals has waned somewhat. That a very similar set of topics is being discussed is a shame. It suggests we are making slow progress. The following muse, originally written in October 2012, illustrates the point fairly well. Have you noticed the rising tide of news stories about corporate governance in recent months? While some have highlighted the fraudulent behaviours of some boards and directors, most of the articles have focussed on efforts to improve the quality of governance around the world. I've been on vacation this week, in Perth, Western Australia, with my wife. One of the things that we enjoy while away is to read newspapers that we wouldn't normally see at home, especially the local newspaper. This routine gives us a different perspective on what's going on in the world at large, which serves to broaden our horizons. I try to get my hands on a print copy of the The Australian when in Australia, and often read online versions of the New York Times and The Times as well.
The commentary pieces and investigative articles published in major newspapers are often quite thought-provoking—particularly when one is relaxing over a coffee and a muesli breakfast. For example, this article, published in the New York Times today, caught my eye. It highlights the difficulties that investors are having in talking with the boards of the companies they own (or, more correctly, part-own). I was stunned. Why would any director who is serious about their contribution not talk to the people to whom they are responsible and accountable? It smacks of hubris. More importantly, what can be done to remedy this problem? One of the big challenges for boards, managers and business leaders in the modern business world concerns change. Many leaders seem to be able to formulate strategy reasonably well. However, far fewer are effective when it comes to making organisational change happen. I was discussing this topic with a colleague this week—the context being the board's role in overseeing change—when they referred me to this short article published on the London Business School – Business Strategy Review website. The article took me about five minutes to read. However, as I pondered the ideas that author Therese Kinal mentions, the significance of her recipe started to dawn on me so I thought I'd share it with you. Kinal suggests that successful organisational change requires six ingredients:
Kinal offers some wonderful and highly pragmatic insights, based on a model she calls Unleashing. I won't repeat the detail of the article here, other than to say the recipe is people-centric (surprise, surprise), that none of the ingredients are optional and there are no shortcuts. If you are a company director, or an executive manager, I recommend you click on the link and read the article. I doubt you'll be disappointed. I am thinking about the possibility of opening Musings up to guest contributions. At this stage, it is just an idea, but it is one that I am keen to explore. For the last two years, every post to Musings has been mine. I am happy to continue to be the sole contributor, however when a couple of people recently asked me whether I had ever considered inviting others to provide contributions, it set me thinking.
What does Musings offer? It's an outlet to share ideas—about corporate governance, strategy and our place in the world. From small beginnings, the readership has grown, to the point where over 4000 unique visitors drop in each month. Something about the blog must interest people. Anyway, to the question. Would you like to read contributions from other folk from time to time, to provide some variety? Would this be appreciated? The general theme of Musings would stay the same. Please reply here if you have an opinion, or contact me directly if you'd like to become a guest contributor. One of the greatest challenges I face on a daily basis is that of overcoming jargon—of understanding industry- and topic-specific language that is common parlance within a community but akin to a foreign language without. For example, some of the jargon words that I have had to embrace as a researcher include 'ontology', 'epistemology' and 'dialectic'.
A recent survey, which asked 2392 people about information technology jargon, illustrates the point well. You may laugh at some of the responses in the report, wondering how people could be so naive, or you may smile, because you are can relate to some of them. Either way, the point remains: that jargon expedites effective communication within a community, but it is a barrier to effective communication beyond. However, the language used in this article exposes a disturbing undercurrent: that members of the IT community seem to expect that everyone else knows and embraces their jargon. Perhaps it is the pervasiveness of computers and technology in our lives. Perhaps it is hubris. Perhaps it is something else, or a combination of things. Whatever it is, I challenge it. If one is not a member of a community to which the jargon pertains, why is knowledge of such jargon necessary? My wife does not expect her patients to understand the jargon she uses with her medical colleagues, so she avoids certain words or provides an explanation during consultations. Equally, she does not expect to know about HTML or ABS. She simply wants to use the computer and to drive the car. It is a matter of professional ethic to remove or explain jargon, for the sake of effective communication between consenting adults. I look forward to the day that the technology sector grows up.  Over the last few months, I have re-read quite a few books and articles about models of governance, to see how my doctoral research might build on the suggestions of earlier contributors. Many years ago my father taught me that building on the work of others is smart, but only when the prior work is solid—a stable foundation being crucial to anything that follows.
The "Learning Board", developed and suggested by Bob Garratt nearly twenty years ago, is one of the models that has captured my attention. Garratt published his suggestions in a profoundly titled book The Fish Rots from the Head (3rd edition). Garratt highlights four key tasks of directors within the context of a board's lifecycle:
He suggests that boards need to balance four intellectual viewpoints simultaneously in order to achieve the four key tasks. When they do, overall effectiveness can be enhanced.
I found this to be very helpful, because it provides a useful context for my work (an investigation of how boards can influence company performance, and the influence of strategic decision-making). Regardless of my efforts though, I commend Garratt's book to aspiring and established directors. It's easy to read, and logical in its approach to the topic. I read two straight talking articles this week that provided welcome relief from the rather superficial and politically correct reporting that seems to dominate newspapers like the Dominion Post these days:
Thank you for Messrs Morgan, Guthrie and du Fresne for your forthright articles which, I suspect, reflect the views of the majority of New Zealanders. The time for the silent majority to push back on those self-indulgent folk who make an art-form of political correctness and living off the state is upon us. The production of silver bullets—panaceas—is a growth industry. New books, all claiming to contain "the" answer, appear in the bookstores almost daily. Sadly, many are far more self-indulgent than helpful to the reader. Yet we lap them up, as we search for ways to be more effective in our professional and personal lives.
I've become a bit jaundiced by the self-help gravy-train of late, however one of the books from my summer reading list has restored my faith somewhat: History Lessons: what business and management can learn from the great leaders of history. Jonathan Gifford, the author, asserts that there is no one model leadership model or kind of leader that can hope to be effective in all situations. Leadership is a complex phenomenon, and different attributes need to come to the fore in different situations. What a breath of fresh air. Gifford identifies eight skills and abilities that represent many of the essential things that any leader should be able to do and—ideally—be good at. He uses great leaders from history (not all of whom will be well known in the Western world) to illustrate his points.
The book is easy to read. I commend it as a great investment, to aspiring and established leaders. But be warmed: it will make you think about your current leadership situation. I had a fantastic meeting with my PhD supervisor earlier this week, to review my approach to the research methodology chapter of my thesis. When we stopped for some lunch and a walk outside, James showed me two articles from the 19 October 2013 issue of The Economist. They blew my mind. Entitled How science goes wrong and Trouble at the lab, the articles outlined how much of the so-called scientific research conducted by academics is actually a load of rubbish. For example:
The examples and supporting narrative floored me—it was sobering reading. The points about how research is conducted, how research articles are reviewed and, most importantly, how research is funded (the funding mechanisms drives the behaviours) were enlightening. The lingering question in my mind, having dwelt on these articles over the last two days, is this: just what research can we accept then? The answer probably lies in the maxim recorded in the first sentence of the 'goes wrong' article: 'trust, but verify'. The exercise was a timely and helpful wakeup call for my own efforts, to ensure my work is 'good science'. Thank you James. |
SearchMusingsThoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention. 
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Dr. Peter Crow, CMInstD
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