Just over twelve months ago (6 January 2016 to be exact), I wrote this muse, a reflection on both the state of corporate governance and the usage of the term. At that time, confusion over the use of the term 'corporate governance' was common, and the profession of director was shadowed somewhat by several high profile failures and missteps. The blog post seemed to hit a nerve, triggering tens of thousands of page views and searches within Musings; many hundreds of comments, questions, debates and challenges (including some from people who took personal offence that the questions were even asked); and, speaking requests from around the world. That many people were asking whether corporate governance had hit troubled waters and were searching for answers to improve board effectiveness was reassuring.
That was twelve months ago. How much progress has been made since?
At the macro level, seismic geo-political decisions; the rise of populism and the diversity agenda; and, risks of many types, especially terrorism and cyber-risk have altered the landscape. Also, new governance codes and regulations have been introduced to provide boundaries and guidance to boards. Yet amongst the changing landscape something has remained remarkably constant: the list of corporate failures or significant missteps emanating, seemingly, from the boardroom continues to grow unabated. Wynyard Group and Wells Fargo are two recent additions; there are many others.
Sadly, companies and their boards continue to fail despite good practice recommendations in the form of governance codes and (supposedly) increasing levels of awareness of what constitutes good practice. This is a serious problem: it suggests that, despite the best efforts of many, progress has been limited. Clearly, ideas and recommendations are not in short supply, but what of their efficacy—do they address root causes or only the symptoms? And what of the behaviours and motivations of directors themselves, and the board's commitment to value creation (cf. value protection or, worse still, reputation protection)?
That the business landscape is and will continue to be both complex and ever-changing is axiomatic. If progress is to be made, shareholders need to see tangible results (a reasonable expectation, don't you think?), for which the board is responsible. If the board is to provide effective steerage and guidance, it needs to be discerning, pursuing good governance practices over spurious recommendations that address symptoms or populist ideals. How might this be achieved?
An important priority for boards embarking on this journey towards effectiveness and good governance is to reach agreement on terminology, culture, the purpose of the company and the board's role in achieving the agreed purpose. If agreement can be reached, at least then the board will have a solid foundation upon which to assess options, make strategic decisions and, ultimately, pursue performance.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.