Archive - Peter Crow | Helping boards govern with impact

Published on: 5 November 2017

Emergent corporate governance thinking

I've arrived in Brussels, having travelled directly from New Zealand via London Heathrow (thanks Air New Zealand) and the the Eurostar, to attend a two-day conference on corporate governance and board practice. The conference is run under the aegis of EIASM, the European Institute of Advanced Studies in Management, of which I'm a member. My name is on two of the papers to be presented (links are posted on the Research page).

Approximately 50 delegates have gathered from around the world (24 countries?) for two days of discussions and presentations. Most of the delegates are leading academics in the fields of board and governance research, although there were a few (including me) who span the so-called academy–practice divide. This was my third attendance at this event. Previously, I went to the twelfth edition (Brussels) and the thirteenth edition (Milan), where my paper received the best paper award.

The core theme of the fourteen edition is digitalisation and, specifically, the emergent impact of the so-called digital economy on boards and effective practice. A triumvirate of leading thinkers (Lee Howell, World Economic Forum; Tom Donaldson, Wharton Business School; and, Bob Garratt, Fidelio Partners UK) will lead a keynote session on the second morning. Other topics to feature on the programme include updates on board diversity research, shareholder relations, board responses to crises, strategic control and a direct challenge to the way board research is conducted.

I'll post summaries of the key learnings. Stay tuned for end-of-day updates.

Published on: 20 October 2017

The pursuit of high board performance

Plans and preparations for my next set of international commitments are coming together well. I'll be on the road for two-thirds of November to fulfil five speaking engagements; attend two conferences; lead a one-day learning workshop; fulfil two advisory commitments; and, attend a miscellany of meetings. The key dates are:

Sydney (1st & 2nd)
Wellington (3rd)
Brussels (5th to 7th)
London (8th to 10th, and 14th)
Rochester (13th)
Vienna (15th to 18th)

A common theme runs through these commitments: the pursuit of high board performance.

The talks will explore several aspects of board practice including the board's role in strategy; emerging trends; the mechanism of corporate governance; and, the defining characteristics of an effective director and board. The learning workshop (entitled The effective director) is part of the Governance Institute of Australia's new capability development programme. The conferences are the European Institute of Advanced Studies in Management, in Brussels (I'm presenting a paper), and the Global Peter Drucker Forum, in Vienna.

In case you are wondering, there are still a few gaps in the schedule in each location for additional meetings. Please contact me if you would like to arrange a meeting while I'm in your area.

If you'd like to know more about any of contributions, please get in touch. (Note: As is my normal practice, conference summaries will be posted on this blog soon after each event, so do check back if you are interested).

Published on: 18 October 2017

Hitting the nail, squarely, on the head

Bob Tricker just did it again.

Long the doyen of corporate governance (Sir Adrian Cadbury used the term "father of corporate governance"), Tricker has just posted this article, a stinging critique of several emergent ideas that, through repetitive use, have permeated thinking and are becoming accepted as conventional wisdom. Risk, culture and diversity are singled out as populist memes. Yet robust evidence to support the notion that any of these memes are directly contributory to effective governance—let alone company performance—in any predictable manner is yet to emerge. Tricker's timing is, once again, exemplary.

Thankfully, Tricker offers far more than a straightforward critique. He reminds readers that the purpose of the board of directors is to govern:

The governance of a company includes overseeing the formulation of its strategy and policy making, supervision of executive performance, and ensuring corporate accountability.

The purpose of a profit-oriented company is also made clear (a point famously made by Friedman):

To create wealth, by providing employment, offering opportunities to suppliers, satisfying customers , and meeting shareholders' expectations.

In calling out this matter, Tricker has hit the nail on the head—the effect of which is to place those motivated by the promulgation of unfounded memes in a rather awkward position. I am with Tricker; our understanding of corporate governance needs to be reset. Rather than pursue new memes (a perfectly adequate definition was established over fifty years ago), boards need to discover how to practice corporate governance effectively. Tricker (Corporate governance: Principles, policies and practices), Garratt (The fish rots from the head) and a few others provide excellent guidance as to how this might be achieved.

(Disclosure: The two books named in this article are the ones that I refer to most often when working with boards. I commend them to you.)

Published on: 13 October 2017

Building director capability: observations from the field

The opportunity to work with new and aspiring directors to build capability is something I find most gratifying. Regardless of whether the task is to facilitate an established course (Institute of Directors' Company Directors Course), pilot a new one (Governance Institute of Australia's The Effective Director Course) or run a private workshop with a board, the sense of fulfilment amongst directors as they grapple with situations, gain new insights from their colleagues and learn more about the role of the director is often quite palpable. However, the learning experience is by no means a one-way street. I also expect to (and do!) gain new insights. Here are some of the themes that have been apparent in the sessions I've led this year:

The importance of a learning mindset is increasingly accepted. While the concept of governance is both straightforward and stable (the root word is kybernetes, meaning to steer, to guide, to pilot), the practice of governance (i.e., what boards do and how directors behave) is inherently complex and quite dynamic—even more so when the incessant march of new ideas and technologies is added to the mix. Directors need to commit to a programme of continuous learning if they are to remain current and make relevant contributions. Anecdotal comments shared in workshops this year indicate that some directors now allocate as many as five hours outside the boardroom for every hour in board meetings. In addition to reading and understanding board papers, these directors say they read widely about emerging ideas, trends, technologies and good board practice recommendations, to ensure a sufficiency of knowledge about the market/sector the company they govern operates in and new opportunities.
Traditional models of board–management interaction based on separation are breaking down. Historically, the board was conceived as a proxy, positioned between absentee shareholders and managers. The underlying assumption (agency theory) was that managers had different priorities from shareholders, so the board had an important role to keep potentially miscreant managers in check. In practice, a clear separation between the functions of corporate governance and management, including the appointment of independent directors were thought to be important for more objective decision-making. However, these recommendations are increasingly being questioned by both directors and emerging research. Proximity may actually be more conducive to effective contributions and higher quality decisions than separation and distance.
Compliance demands continue to dominate the agenda. Regardless of emergent calls for boards to intentionally contribute to strategic management in pursuit of future goals (purpose), the dominant focus of many boards remains one of compliance—to interrogate historical business performance (last month's management and finance reports, sound familiar?) and check that regulatory requirements are being met. While the task of monitoring and supervision should by no means be ignored, the protection of professional and personal reputation continues to be a more important consideration for many directors than company performance.
Composition remains a priority for many boards and shareholders. Many boards and shareholders continue to be enthralled by board composition, in search of the 'best' configuration. The number of directors, independence and diversity have all been argued to be important at various times. However, none of these (or any other observable factors) are directly predictive of better performance outcomes. Rather, effective directorship is function of board activity and director behaviour.

For more information about these or related topics, or to discuss implications for practice, please get in touch.

Published on: 8 September 2017

Developing capable directors, in Sydney, Australia

The effectiveness of company boards has become a hot topic in recent years, especially as the general public has become aware of various failures, missteps, poor practice, hubris and ineptitude, but also as attention has increasingly moved from the chief executive to the boardroom in search of high company performance.

The role of the company director is not for the faint-hearted. Market forces, technical innovations and human factors all contribute to a complex and dynamic operating environment. Directors need to consider and make sense of information from multiple sources, and make informed decisions in the best interests of the company. It goes without saying that directors and boards need to maintain a continuous learning mindset if they are to keep up to date and contribute effectively.

In a few days, I'll be in Sydney, Australia (18–20 September), to work with directors committed to the ideal of high performance. While the main objective of the visit is to present the first day of a new three-day course entitled "The effective director", I have time available to attend other meetings to share ideas and discuss emerging trends in corporate governance, strategic management and related topics of interest.

If you'd like to get together while I'm in Sydney, please let me know. I have some free time and would be delighted to meet informally over coffee, or in a boardroom setting with you and your director colleagues.

Published on: 7 September 2017

Understanding Friedman, 47 years on

In September 1970, The New York Times Magazine published an article that subsequently became a catalyst, a touchpaper even, for a step change in the understanding of the purpose of business and, as a consequence, the priorities of managers and boards of directors. Milton Friedman, an economist and Nobel laureate, argued that the doctrine of 'shareholder primacy' should prevail over that of 'social responsibility'.

The article garnered much attention (becoming seminal along the way) especially amongst those shareholders, directors and managers for whom the maximisation of profit was of primary (read: exclusive), interest. The statement most commonly used to justify the profit maximisation doctrine is right at the end of the article:

"There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits"

Superficially, this statement is pretty clear: the purpose of business is profit and nothing else matters. But this statement is incomplete, a portion of a longer sentence. To stop reading at 'increase profits' is to read Friedman out of context. The complete sentence is as follows:

"There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud."

Friedman was clear. He argued that the maximisation of profit is an important priority of companies, and he argued that this is not, and cannot be, an unbounded endeavour—much less an exclusive one. The proviso followed without as much as a comma—the pursuit of profit needs to occur within the context of prevailing law and regulation (rules of the game), competition and fair play. That Friedman's guidance was so clear begs a rather awkward question: Why has it been misinterpreted by so many shareholders and boards?

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