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    Governing at distance: one director's experiences

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    The rapid spread of the COVID-19 virus has shaken communities and commercial activity around the world, to the very core. Since late February, strict restrictions on human movement both between countries and, now, within communities have been imposed, in the hope of containing the virus and, in one case, of eradicating it. The scale of the impact on lives, social structures and economic activity has yet to be measured, but it will be large, I suspect. The scars will remain tender for some time in many cases. 
    Unsurprisingly, many people have been inventive in response to the situation they now find themselves in. Neighbours are meeting at a distance, and internet traffic has grown exponentially as people have taken up online entertainment options and relied heavily on social media to keep in touch with each other. All of this is to be expected; humans are social beings, after all.
    The vacuum left from the pausing of economic activity has been filled by creative thinkers and opportunists offering all manner of webinars, 'best practice' check lists and other forms of guidance to help individuals, groups and businesses reconfigure their lives and businesses. The Internet is now awash with them. Some are well-informed and helpful, but most of the ones I've seen are little more than attention-seeking noise.
    My own work patterns have changed too, mainly as a result of the restrictions on movement now in place. These include using electronic communications tools such as video conferencing in place of in-person board, coaching and other client meetings; and the telephone and email to keep in touch with colleagues and clients. The following points summarise my experiences as I have sought to govern at distance this past month:
    • Online board meetings are hard work. Zoom has become, overnight, 'the' tool of choice for teams and workgroups who need to meet together. I have used zoom many times since the lockdown, including numerous one-on-one interactions, two board meetings, a panel interview and discussions associated with a CEO recruitment. The one-on-one interactions and the panel interview were very productive. But the board meetings were more demanding: one was reasonably productive, the other was hard going. Let me explain:
      • In one board meeting, the chief executive, board secretary and directors all connected in from different locations—no two people we seated together. This meant that everyone was interacting with the computer screen. Also, the participants all know each other well; they are a tight unit, underpinned by high levels of trust and confidence in each other. The meeting was three hours long (a little shorter than the normal in-person meeting). The shorter-than-usual agenda was dominated by matters associated with the crisis, and the chair stopped the meeting every hour so participants could stretch, grab a drink and use the bathroom. These things (everyone connecting remotely, a tight agenda, comfort breaks, trust and confidence) laid a foundation for a focussed discussion and some good decisions. However, looking at a computer screen for three hours was both physically and mentally demanding, especially when using headphones or earbuds. My concentration reserves were exhausted by the end of the meeting. Also, interaction between the chair and board secretary, who normally sit beside each other, required a few conscious interruptions, whereas normally such exchanges did not interrupt discussion at all.
      • In the other meeting, the chair and one of the directors were located remotely from the remainder of the directors and the business manager. Some of the directors had not previously used video-conferencing in a group situation. The directors seated together looked at the computer screen when the chair was speaking, but otherwise they tended to look and interact with each other. Also, the computer screen the group was using was located in an open office space. While no one else was in the room for much of the meeting, three or four people did pop their heads in and, once, a person used the room as a thoroughfare. The two main observations from this experience were that the two directors located away from the others did not engage as fully as they normally do, and that interaction quality was compromised due to both the unfamiliar surroundings and the interruptions. 
    • Technical challenges can get in the way. Brief sound delays or video outages break meeting flow, and people, naturally, loose concentration quickly. If distortion and background noise are to be minimised, good equipment and connections are a 'must'. I've also found that if people place their laptop or tablet (or, worse, their phone) on a table-top, the result can be disconcerting—the view up people's noses makes concentration difficult! It is far better to place the device on top of a box or pile of books to lift the camera to eye level. 
    • ​Most things take (me) longer. I have led three video conference meetings in the last week or so, two of which were scheduled board meetings. Though unintended, my behaviours were a little bit different from that in in-person meetings. Differences included summarising the discussion more often; calling on people by name to draw them out (normally, a visual cue was sufficient); and adopting a more formal approach to meeting protocols, especially moving and putting resolutions. Consequently, meeting flow was impaired somewhat, relative to in-person experiences at least.
    • Business productivity is down, not up. Managers have told me that everyday interactions are proving more difficult as a result of people being in different locations, and that supply chains are not running smoothly because movement is restricted (despite logistics being named as an essential service). Also, operational staff are taking more care as they go about their work; observing distancing (curiously the 2m distance requirement is often closer to 3–4m in practice!) and personal hygiene protocols. Consequently, goods are not arriving when expected and business processes are taking longer than normal, with the follow-on impact on productivity.
    • Most boards will (probably) revert to type. ​The human condition is driven by social interaction—we are not created solitary creatures. Yet the COVID-19 outbreak has forced us apart—social distancing (actually, physical distancing as I noted several days ago). Various correspondents have predicted that working from home will become normal, permanently; and that videoconferencing will supplant in-person exchanges. I am not convinced of either. The human need to be together is too powerful. Also, communication effectiveness is constrained when you can't see another person's eyes or gestures, or have a brief side discussion with a colleague. Almost all of the directors and executives I have spoken with over the past ten days have said they are looking forward to returning to a level of normalcy, which, for them, specifically means in-person interactions.
    One final point. These are my experiences. Some may be familiar, others less so. Regardless, if you have any questions or comments, please get in touch. If you are prepared to add your experiences, as similar or different as they may be, I'd be delighted to hear them and am sure others would be too. Please leave a reply below.
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    Leadership when it matters

    It has been said that a leader without any followers is, in reality, just a person going for a walk. Followers are, by definition, necessary. But the presence of followers is an incomplete measure of a leader's effectiveness. Messages of praise by acolytes and enthralled observers are rarely useful indicators either. 
    The winning of an election by a national politician, civic leader or a company director reveals little about the quality or effectiveness of their subsequent leadership. It simply shows they were more popular than their rivals on the day of the election! Consider the UK Prime Minister's victorious 'peace in our time' utterance in 1938 (which proved to be short-sighted, even deluded); the Watergate scandal (second-term presidential hubris); the Christchurch City Council's consents debacle (leadership ineptitude); and Wells Fargo's mis-selling of accounts (executive-level malfeasance). Chamberlain, Nixon, Parker and Stumpf were all thought to be leading well, but all ultimately stumbled when it mattered. 
    That leadership is a function, not a position, is axiomatic. And like magnetism and gravity, leadership cannot be seen directly; only through its effects. Indicators of leadership effect include the behaviours, decisions and actions of a leader as an overall goal is pursued.
    The past three weeks have produced innumerable examples of leadership behaviours and use of positional power to exert influence or make decisions in response of the COVID-19 outbreak. Here's a few examples:
    • Chinese authorities initially covered up the outbreak.
    • The President of the United States closed the border to travellers from the EU (and subsequently the UK and elsewhere), and claimed that the war on COVID-19 would be won by Easter.
    • The Prime Minister of New Zealand implored to people to stay at home and be kind; and, in relation to locking the country down and implementing border controls, claimed to have acted early and hard.
    • Singaporean and South Korean authorities locked down borders, and quarantined those confirmed or thought to have become infected by COVID-19.
    • The British Prime Minister asked people to go about their business, but subsequently locked down the country, and caught the virus himself.
    An amalgam of factors contribute to any leader's effectiveness. These include (but are not limited to):
    • Providing a clear and credible objective: ​Has the leader clearly articulated an overall vision or end-state to be achieved—and is it realistically achievable?
    • Being visible: ​Is the leader visible, available and on-hand?
    • Being consistent: Are the leader's actions and behaviours consistent, or are they variable depending on the immediate situation?
    • Decisiveness: Does the leader make decisions with the intention of advancing towards the stated objective, using the best-available evidence and advice, or do they dither?
    • Acting with integrity: Is the leader honest, with a strong moral compass, or do they mislead?
    • Fairness and equity: Is the leader impartial?
    Prime Minister of New Zealand, Jacinda Ardern, has been lauded for her handling of the COVID-19 outbreak. She is widely regarded as being a great and empathetic communicator, which should not be surprising given her training is in public relations and communications. The form is good, but what of the substance of her messages? Is Ms Ardern actually providing strong leadership, as many have opined? The factors listed above is one means of considering these questions:
    • The Prime Minister has been highly visible during the COVID-19 crisis. She has attended press briefings, frequently appearing at the daily press update alongside the Director-General of Health and others to deliver news and answer questions. Her empathy with the plight of many is palpable.
    • The stated objective, currently, is to eliminate COVID-19. New Zealand is the only country to have taken up this lofty goal. If it can be achieved, that would be wonderful. But don't think for a minute that it will be easy. It will require complete isolation at the border for an extended period. Is such strict isolation feasible given New Zealand is an international trading nation within a global economy? And what of the longer-term economic outlook? The credibility of the objective is dependent in no small measure on the exit path—how to restart the economy. As yet, nothing has been announced.
    • The State of Emergency and enforced lockdown that New Zealand is enduring has stopped much economic activity. While the primary, logistics, healthcare and grocery sectors are operating, most retail stores and all non-essential businesses have been closed. Outdoor sports and fitness pursuits including team sports, surfing, mountain biking and many other types of outdoor exercise have been banned. Waiting times to enter supermarkets now exceed one hour in many places. The Police have been empowered to detain people flouting the rules, and individuals have been detained. Yet amongst this, the Minister of Health has seen it fit to ride his mountain bike and go to the beach. Of themselves, these actions by the Minister are not inherently unsafe. But they do set a poor example; a high degree of arrogance from a Minister who should have known far better. That the Prime Minister did not sack the Minister of Health immediately upon learning of his actions, or accept his resignation (which was offered), raises questions about the Prime Minister's performance, especially in relation to equity, consistency and decisiveness.
    • Calls to close the border and implement strict quarantine measures were first made at the end of February. In the days that followed, a bevy of academics, researchers and some self-styled experts published predictions about the large number of people who would die to COVID-19 infections. Some suggested 10,000, others 80,000. These numbers have been repeated by the Prime Minister on several occasions, which has the effect of endorsing them. The Prime Minister also said that as many as 4000 people may become infected before the 'curve is flattened', a number that is less than the predicted number of deaths! All of this, despite the Director-General of Health, an exemplar of stability and consistency, saying that he expected the curve to flatten in 10–12 days (from the date of the lockdown) and that that the case count would rise to about 1000–1400 by then. And it has. Why the Prime Minister did not heed the advice of her top health sector official is not known. Dire predictions (and several at that) and worse-case scenarios are of little help when the likelihood of them occurring is, essentially, nil. Meanwhile, the border has remained porous, despite claims of acting early and hard, allowing infected travellers to not only return, but disperse around the country.
    The picture that emerges here is one of a communicator who is endearing, building esprit de corps. But oratory without substance is not sufficient. Leaders need to set out a credible goal, clearly; be decisive and consistent;  and insist that decisions are acted on, in full.
    ​Calls for the Prime Minister to move beyond both empathetic sound bites and measures that would not look entirely out of place in a socialist regime are gaining traction. The time to consider the future is now; to forge the pathway towards economic recovery and the restoration of civil liberties within a functional civil society, is a matter of great urgency. And that is where the extent, quality and effectiveness of the Prime Minister's leadership will be laid bare. Leadership when it matters. 
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    (Mis)counting the cost?

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    Like many people, I've been reading reports of the spread of COVID-19, and the impact it is clearly having on both the health and well-being of communities, and the economy. The number of confirmed cases is growing. Daily reports in New Zealand show confirmed and probable cases (April 3: 772 cases, 96 probable). Globally, the number of deaths attributed to COVID-19 also continues to climb, even though the vast majority of the deceased had comorbidities.
    Stepping beyond the human elements for a moment (anxiety, cabin-fever, ambivalence, physical distancing), aspects of the reportage have confused me (and others as well, I know), to the point I wonder about the underlying motivations of some of the reporters.
    ​Consider the case count: How many people have or have had COVID-19 in New Zealand? The following data lifted from the Ministry of Health website:
     
    Cases
    Probables
    Total
    April 2
    723
    74
    797
    April 3
    772
    96
    868
    The New Zealand media is reporting the total (797, 868) as the number of cases of COVID-19 in New Zealand. But, when the Ministry of Health's criteria is applied (definition of a probable case, here), the actual number of cases is the lower number (723, 772). The WHO, too, is reporting these same official numbers.
    The question that emerges from this analysis is straightforward: Why does the media persist in overstating the case count? Is it ineptitude, bias, or something more sinister?
    Fatalities: Official reports from around the world have been clear: many (most, but perhaps not all) of the patients who have died had comorbidities at the time of death. Was COVID-19 actually the cause of all the reported deaths (as the media has implied), or was it a contributory factor alongside other factors?
    In and of themselves, these misrepresentations by the media are probably of little consequence—until you consider that they may be indicative of a bigger problem that does merit attention.
    If New Zealand is to climb out of the hole it is now in, some bold decisions are needed. Decision-makers need to think strategically, not tactically. There is widespread agreement that the social and economic costs of the measures currently being taken in New Zealand in response to the COVID-19 outbreak are going to be very high. The effects of the community lockdown, widespread economic destabilisation and imposition of high levels of sovereign debt will probably linger for a long time. They may be generational.
    The decision to stop was easy; it has been made (although questions remain over whether the border is actually closed). The looming decisions concern when and how to restart. Ultimately, the quality of these decisions will be, to a large extent, dependent on the quality of evidence presented. If the government is to expedite the economic recovery, it needs to set ideology and worst-case models aside, and enlist seasoned, non-partisan critical thinkers to analyse the raw data, draw rational conclusions and present pragmatic recommendations. Without this, the real cost will continue to climb; a winter of discontent indeed.
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    Sunlight, and the insolvency line

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    The global onset of the COVID-19 virus has precipitated a wide range of reactions in the community, from ambivalence to anxiety. Many governments have stepped in to support their citizens. Some have imposed community-wide lockdowns and social distancing protocols in an effort to break the spread of the contagion; others have implemented rigorous testing and quarantine regimes to identify and isolate those affected.
    Business leaders have been considering their options too. Working from home has become a 'thing', as has the use of video conferencing and other online tools. Amongst the many responses, one in particular caught my eye this week: proposals by the directors' institutes of several countries—notably AustraliaNew Zealand and Britain, and Germany and others as well—to temporarily suspend director liability in the case of insolvency.
    Superficially, this sounds like a reasonable idea. When a force majeure event strikes, the impact on sales, working capital and jobs may be very significant. The effect may be immediate, especially if the company is prevented from trading due to a lockdown. If the affected company cannot restructure its cost base, draw on financial reserves or secure finance quickly, business continuity will be at risk. Insolvency may follow, and all jobs will be lost. Thus goes the argument. But on the flip side (there always is one), the suspension of director liability and allowance to trade whilst insolvent may open the door for abuse, despite the honourable intention of keeping the economy functioning. 
    Insolvency has always been a red line for boards and companies. This proposal makes it porous, by absolving directors of responsibility for trading while insolvent. Some questions worth considering as lawmakers assess the proposal:
    • What is an acceptable level of insolvency, both in financial terms and time?
    • How will the suspension of liability provisions be monitored and policed?
    • How will any suspected abuses be detected and dealt with?
    • How will the judiciary distinguish between a crisis-induced insolvency, and one resulting from recklessness?
    • When the COVID-19 scare has run its course and a level of normalcy is reached again, will the proposed provision be removed, promptly and in full? Or will a further period of grace be allowed?
    ​While a force majeure event can catch even the most well-run companies out, those with strong balance sheets and highly-engaged boards are better placed to respond well. They probably do not need the protection of the proposed provision, because they are more likely to have a robust risk assessment and mitigation framework in place, and strategic risks will have been assessed at most board meetings. But those companies being run close to the wire, or with inadequately engaged boards or weaker systems, may be caught flat footed. And if they are, what then? Should directors be protected, or be held to account? 
    Lawmakers need to tackle these types of questions, and resolve ambiguities thoroughly. If they don't, expect scurrilous directors to exploit the inevitable loopholes—to defend against other, board-induced, problems such as ineptitude, incompetence, negligence or malfeasance, for example. 
    Enquiry is appropriate, regardless of the catalyst, because sunlight, as they say, is a great disinfectant.
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    Governing well, in the face of a crisis

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    Information (and mis-information) about the spread of COVID-19 around the world is clogging our airwaves, inboxes and social media feeds as quickly as the virus itself is spreading. But amongst it all, there are some things we can hold as self-evident. Many people are suffering, some are dying. New phrases are entering the lexicon, such as, social distancing (should be physical distancing, I think) and self isolation. Governments are responding with a variety of controls to limit movement. Borders have been closed, and lockdowns are being imposed in some areas. Airlines have reduced capacity, grounding fleets. Many businesses, especially SMEs, are in turmoil. People are on edge—lives have been put on hold.
    While COVID-19 has spooked many people, not to mention the stock markets and wider economy, life must go on—and it will, albeit with some adjustments, of course.
    The challenge for those who direct the affairs of companies—boards—is one of governing well in the face of what is, patently, a very different environment from that which existed even two weeks ago.
    Businesses face continuity and safety risks every day. Routinely, staff and managers spot, assess, prioritise and respond to operational risks every day; that is their job. But when risks have strategic implications (i.e., an occurrence is likely to have a major effect on strategy execution, future business success or even company viability), the board must become involved. COVID-19 is one such risk. The board needs to understand the potential short- and longer-term impact (using information from credible sources and tools such as scenario planning, for example), consider various options and make informed decisions.
    Some practical questions that the board may wish to consider include:
    • Has management made changes to the work environment (including remote working options, physical barriers, closing sites, etc.) to ensure the safety of all staff, customers, suppliers and any visitors?
    • What additional financial resources need to be released to support continued business operations, and how will they be provided?
    • What is the likely impact on short- and longer-term income, and do any adjustments need to be made to reduce operating expenses (including, potentially, suspending or releasing staff) to maintain viability?
    • What capital projects can be deferred to release funds to support working capital demands?
    • ​Should the board itself use on-line meeting or video conferencing tools instead of meeting in person?
    • Should the board meet more frequently, rolling its sleeves up in support of management and for more timely decision-making?
    One final point. COVID-19 is no longer a strategic risk. It is upon us. Boards everywhere need to deal with it as well as they can, given the most reliable information available, with the best interests of the company to the fore. That means providing close support to management; more so if big decisions are needed, such as releasing staff or partial closures. However, and most importantly, boards should not panic. Neither should the board react to suggestions being advanced by some that an event such as the COVID-19 outbreak should be seen as a catalyst to redefine corporate governance. Corporate governance remains corporate governance—the means by which the company is directed and controlled. What might be appropriate though is a review, to consider how the board practices corporate governance. But that should wait until the current crisis in in hand. Fix the problem first, then learn from it.
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    Hiding in plain sight

    A kerfuffle has broken out on the East Coast of the US, between Lucian Bebchuk, an esteemed professor at Harvard University, and Martin Lipton, partner at New York law firm Wachell, Lipton, Rosen & Katz. Specifically, Lipton has mounted a strong attack on an article published by Bebchuk (a critical examination of 'stakeholder governance'). That Lipton has objected should not be surprising. After all, he is a lawyer with vested interests and he has a long record of promoting stakeholder governance.
    This is what Bebchuk asserted:
    Stakeholderism, we demonstrate, would not benefit stakeholders as its supporters claim. To examine the expected consequences of stakeholderism, we analyze the incentives of corporate leaders, empirically investigate whether they have in the past used their discretion to protect stakeholders, and examine whether recent commitments to adopt stakeholderism can be expected to bring about a meaningful change. Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off. 

    Furthermore, we show that embracing stakeholderism could well impose substantial costs on shareholders, stakeholders, and society at large. Stakeholderism would increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance. In addition, by raising illusory hopes that corporate leaders would on their own provide substantial protection to stakeholders, stakeholderism would impede or delay reforms that could bring meaningful protection to stakeholders. Stakeholderism would therefore be contrary to the interests of the stakeholders it purports to serve and should be opposed by those who take stakeholder interests seriously.

    Lipton's counter to these assertions was strident:
    We reject Professor Bebchuk's economic, empirical and conceptual arguments. They are ill-conceived and ignore real-world challenges companies and directors face today.

    As we have discussed, new laws—such as federal legislation of the type proposed by Elizabeth Warren—are likely to sweep far too broadly and risk substantial destruction of corporate value. They are also unnecessary if companies and investors embrace stakeholder capitalism as contemplated by The New Paradigm and as adumbrated by the actions Professor Bebchuk condemns.

    We recommend that companies and boards monitor and review their stakeholder and ESG profiles as a matter of increasing priority, and engage regularly with their major investors on these issues.
    This debate exposes something awkward—that when partisans announce their views people react, especially if they denounce other perspectives. This tactic may well pique interest and sell column inches, but it rarely results in viable outcomes that can be sustained over time. 
    My own research, and experience both as an advisor and serving company director, suggests that either-or argumentation, a characteristic of determinism, is deeply flawed. To pursue profit as an exclusive goal inevitably results in selfishness and inequity. Similarly, the pursuit of priorities espoused by ESG proponents introduces a another, and not insignificant, risk—of exposing the companies and the economy more generally to an 'Icarus moment'. 
    Larry Fink, Chairman and CEO of Blackrock, summed things up well in his January 2019 letter:
    Profits are in no way inconsistent with purpose—in fact, profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time—not only shareholders, but also employees, customers, and communities. Similarly, when a company truly understands andexpresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability. Purpose unifies management, employees, and communities. It drives ethical behaviour and creates an essential check on actions that go against the best interests of stakeholders.
    Fink's position highlights that a balanced perspective is probably 'best'. But how might it be achieved? The pathway may be hiding in plain sight. If the board is to fulfil its duty to ensure value is created over time, it needs to look well beyond selfish interests and motivations. This means considering the wider context within which the company operates, creating a viable strategydetermining appropriate 'performance' measures and only then governing accordingly. 
    Bebchuk was brave to call out the messianic assertions of the stakeholder capitalism camp. Perhaps Lipton might take stock, and meet with Bebchuk—the purpose being to explore the nuances of each other's views, in search of a more balanced understanding of the purpose of companies and role of the board.