Peter Crow
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Our own worst enemy?

21/7/2023

2 Comments

 
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I have spent four days in Australia this week, meeting with directors, advisors and a couple of institutional leaders in two state capitals. While the weather has been great, a few storm clouds [metaphorically, on the governance horizon] were apparent. Whether these are serious problems, or just differences of opinion, they strike me as being worthy of discussion. I’d be delighted if you would ponder the following situations, and share your thoughts to help me understand why boards, more often than not, erode value.
  • Confusion over what governance is:​ A meeting with a sixty-something director, with over two decades of experience, set me on my backside. He explained that “most of my colleagues understand that corporate governance and compliance are, essentially, interchangeable words”. He went on to say that board directors don’t spend enough time thinking about the future (agreed), and that the solution is to give governance a radical overhaul. When I asked, he said that governance needs to be redefined, “because the expectation is unrealistic.” He suggested advisory boards have a significant role to play, for directors cannot hope to keep up with the pace of change, and someone needs to advise the CEO anyway. I opined that everything he suggested was, in fact, within the remit of governance (to steer, to guide, to pilot), but he wasn’t having a bar of it. Governance, in his mind, is compliance; and the board’s job is to keep the CEO “safe”.
  • Regulating one’s way to performance: A meeting in Sydney, with three people familiar with regulatory frameworks—all of whom are professionally trained as lawyers—caught me on the hop. All three agreed that the imposition of codes and regulatory frameworks was necessary, because “statutes don’t go far enough.” The implication was that rules drive compliance, and that compliance with rules equates to performance. In other words, follow the rules and the organisation will thrive. I was shocked. Rules are, I think, boundaries—nothing more. How can one possibly thrive if the extent of their contribution is merely to ensure they live within the rules?
These examples demonstrate, to me anyway, that questions of what corporate governance is, the role of the board and how governance might be practiced are far from resolved. Directors and their advisors seem to be their own worst enemies. Flawed understandings of what governance is (the provision of steerage and guidance, to achieve an agreed strategic aim), and how it might be practiced, remain serious barriers to boards fulfilling their mandate, which is to ensure the enduring performance of the company. Why do some directors’ institutes, advisory and consulting firms, regulators, academics, and media commentators continue to discuss “best practice” and promote various matters that have little if any direct impact on achieving sustainably high levels of organisational performance? Surely attention needs to be on helping directors and boards do their job well, n’cest ce-pas? I have a few ideas to crack this problem, but I’m keen to hear what you think.
2 Comments
Kamla Rampersad de Silva link
22/7/2023 00:36:21

Dear Peter, this was an excellent eye opening reminder to all of us who love governance that there is much work to do. I am not shocked by what you encountered.

These directors (both the lawyers and the director with 2 decades of experience) underscore what Prof Garratt has been saying for a while. Directors need to be trained to understand their role and functions. Many are appointed and immediately think they are imbued with the knowledge and skill to carry out the job without even the basic understanding of what Governance is.

If I remember correctly he terms it the Great Social Silence because many directors are aware of this but refuse to speak openly.

We encounter it in the Caribbean region too.
As Prof Garratt says, would you allow someone to operate who is not a surgeon, or an audit by someone not trained in financials? Yet we allow persons to sit and govern organisations who have no clue what it really means to be a director.

We have much work to do!
Kamla

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Ceronne Bayley
22/7/2023 09:08:30

Your post is spot on.

Your experiences, regretfully, are not unique. Many Board Directors adopt a quick check box-ticking approach to governance as if to just “get it out of the way” so they can get back to their business of making money.

But such is short term thinking. I want to make money too, but I want to make LASTING money. I want to build legacy and we simply cannot do that without effecting sound governance practices.

How can we build using a tool we know nothing about? The sad part is that many directors don’t know that they don’t know. Your director with over 20 years experience doesn’t know that he doesn’t know that compliance is but a small fraction of governance. No learning, no growth, no change.

Keep doing what you’re doing in your corner of the world as it only takes a spark to get a fire burning.

Ceronne

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Dr. ​Peter Crow, CMInstD
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