An interesting article appeared in the Financial Times about a week ago. I've been pondering it for a few days now, because it challenged my perception that Board composition has relatively little bearing on company performance outcomes.
The article reported the results of a comprehensive survey into US company performance in the decade 2000–2009. The results revealed that the prevalence of lawyers on Boards increased from 24% (2000) to 43% (2009)—and that the levels of litigation, malpractice and corporate risk-taking declined markedly—through the decade. The results are not that surprising, given the introduction of Sarbanes-Oxley and other compliance measures in the survey period.
On the surface, this study suggests that the presence of lawyers on Boards does make a difference in some areas (and therefore composition may matter). But what about the big question: Does the presence of lawyers lead to increased company performance? The study enhances the case for lawyers on Boards for their contribution to the risk conversation. However, this should not be misunderstood as providing evidence to link the presence of lawyers with increased company performance. Increased performance is dependent on innovation, the taking of risks and the making strategic decisions—all of which are somewhat of an anathema to many members of the legal community.
So, does Board composition matter when it comes to company performance? On the evidence provided by this study, we still can't tell—but I doubt it.
Thoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention.