On the sources (and a possible remedy) of so-called "governance failure"

The much-storied scandals at FIFA, HSBC and Toshiba have highlighted a plethora of weaknesses in the way large companies are led and run. Fingers have been pointed and blame apportioned. Management has copped a fair bit of flak, but the board has not been immune either. While the media has had a field day, finger pointing and broad statements provide little comfort to those in pursuit of long-term performance. Remedies are required.

Reputability has studied a number of failures recently(*), in pursuit of remedies. The analysis identified nine prominent categories of weakness, the first six of which were influential in the majority of failures:

• Board skill and NED control
• Board risk blindness
• Defective information to or from board
• Leadership on ethos and culture
• Risk from incentives
• Risk from complexity
• Risk glass ceiling
• Charismatic leader
• Poor crisis management

When these factors are considered holistically, the stark implication is that failure appears to be associated with board weakness in at least three areas (engagement, strategy and risk). If boards are to make effective contributions, these weaknesses need to be resolved. And therein lies a challenge: a return to first principles, and a different conception of corporate governance is likely to be necessary. Will boards embrace such a change in pursuit of better business performance? Let's hope so.

(*) The full Reputability Report, entitled Deconstructing failure—Insights for boards, is available here.