Tags

  • Published on

    EURAM'15: So, what about outside directors?

    Conferences Governance Leadership Performance Research
    I had the pleasure of chairing a corporate governance topic session at EURAM this year, in which three papers on outside directors were presented. Each of the studies were fascinating. The first one explored director motivations, and the other two added emerging market contexts (China and India):
    • Axel Walther, Germany, presented a very interesting paper about the motivations of non-executive directors and board effectiveness. While many board researchers limit their investigations to a limited range of established board–management interactions theory (including most often agency theory), Walther and his colleagues incorporated organisational behaviour and psychology literature and theory in an effort to understand director motivations. This inter-discipline approach offers exciting possibilities for board research. While the results of the case research are preliminary, they did demonstrate that the motivational drivers of non-executive directors are complex, and that a straightforward split between intrinsic and extrinsic factors is somewhat simplistic. A more subtle differentiation is needed. The team has identified some possibilities. More analysis is now underway, to try to dig deeper into the data to try to isolate triggers to various motivations. From there, it may be possible to re-approach the original question, of the relationship between director motivations and board effectiveness.
    • Wenxuan Hou Hou, a Chinese national living and studying at University of Edinburgh, has been investigating non-executive directors in Chinese firms. Prior studies of director behaviours have reported mixed results. Wen decided to extend the research into an unstudied area—behaviour relating to dissenting director decisions. In China, voting in public company boardrooms must be made public. Thus any dissenting votes should be identifiable. Interestingly, the analysis conducted by Wen showed that a tiny percentage of the decisions made by Chinese boards included any dissenting votes, suggesting the voting tended to be unanimous. Wen concluded that it was unlikely that all directors agreed with proposals all of the time, but that other factors including 'power' and 'cultural norms' were likely to be moderating the decision preferences of directors. This raised the question of alignment. Were directors just following the leader (the chairman or the chief executive), or were they genuinely in agreement in proposals requiring decisions. Wen couldn't answer that question. However, he did say that further (qualitative) research might reveal what is actually going on. I suspect direct observations within Chinese boardrooms will be required, but that prove to be a difficult challenge!
    • Tara Shankar Shaw reported the findings of his quantitative study of data collective from Indian companies on the Bombay Stock Exchange (BSE500). Shaw wanted to find out whether institutional theory might offer explanatory support for any relationship between non-executive directors and firm performance. The audience pricked up their ears, because it sounded as though Shaw might be going to reveal a cause-and-effect relationship from the data. However, and to Shaw's credit, causality was not claimed (straightforward causality is rare in natural science and unheard of in social science). Rather, he reported mixed results (as would be expected in a quantitative study of this type). Shaw study was helpful, in that it added to the growing list of studies that challenge suggestions that any given board structure or composition is conducive, let alone causal, to firm performance.
    Perhaps the strongest message from this session was one that wasn't explicitly stated: that statistical analyses of quantitative data can only ever reveal correlations between variables (attributes) of interest—because variable measure change, not reasons. My hope is that researchers start to move beyond simply counting things, and soon. Precious research time would be far better spent collecting primary data, ideally from inside boardrooms, to understand what boards actually do, and then to draw conclusions from there.
  • Published on

    EURAM'15 Keynote: "I am a revolutionist!"

    Accountability Conferences Governance Societal Wellbeing
    Wałęsa continued by looking to the future. He challenged—hard—both the communist system that dominated the Eastern bloc and the capitalist system that dominates the West. He asserted that to replace one form of evil with another was not good. Rather, European unity should be the goal, but that requires people to get together to talk and to listen. Wałęsa stressed the importance of values as a crucial foundation to enduring peace.
     Wałęsa's talk was inspirational, to the extent that the impact of his contributions on the lives of ordinary Polish people and the wider Eastern bloc has been huge. However,  Wałęsa's rhetoric, while eloquent, strayed a little at times. Some of his comments were thinly-veiled political statements that, in another context, could have been interpreted as calls to action. Notwithstanding this, one of his calls, for a new generation of leaders to rise up to continue to fight to freedom and unity was clear and unambiguous. It's a pity that more business leaders and company directors were not present to hear it! Although unstated, the implication of Wałęsa's call was clear: leaders need to know when to lead and when to let go.
    Wałęsa started with the claim "I am a revolutionist!" He regaled the largely academic audience with stories of 'great divisions'; of 200 men who fought for change against 200,000 Soviet soldiers with little success; and, of the tipping point provided by a papal appointment and subsequent visit. Within a year of Pope John Paul II's appointment, Wałęsa had gathered over two million supporters. Change became possible. "I want you to believe." Soviet soldiers watched the rallies as the people cheered for their Polish Pope. They even made the sign of the cross across their chests, something that surprised Wałęsa but gave him hope that change might be possible. Indeed it was, and indeed is happened.
    Delegates at the European Academy of Management conference were treated to an inspirational keynote speech by Lech Wałęsa, co-founder of Solidarity, Nobel Peace Prize winner and former President of Poland. His comments, in Polish, were translated by a very impressive translator.
    After speaking for 45 minutes, Wałęsa answered audience questions for another 45 minutes (he skilfully avoided answering any provocative questions, including one about Vladimir Putin). All too soon, the allotted 90 minutes was up. Wałęsa needed to catch a plane. He remains in demand as an international speaker on politics and history.
  • Published on

    EURAM'15: Corporate governance, firms and boards of directors

    Accountability Conferences Decision Making Governance Leadership Performance
    Two interesting papers, that explored various aspects of chairman effectiveness and CEO succession, were presented during the late-morning session of the first day of EURAM2015:
    • Tien Nguyen, a doctoral candidate from the University of Sydney, presented preliminary results of her research on the influence of board chairman on firm performance. She suspected that share ownership was material to any influence, so designed a quantitative study to analyse some industry data. The preliminary analysis (which considers share ownership, tenure, prior industry experience and intra-industry networks) suggests the prior industry experience and share ownership are crucial to firm performance. However, Nguyen qualified her comments that the analysis is incomplete and that the results will be limited to correlations not explanations. For that a new [qualitative] study will be required, to look at 'how' and 'why' influence in exerted by the chairman, and the conditions under which such influence might be effective.
    • Ljiljana Erakovic, Associate Professor at the University of Auckland, described the findings of a recent case study which explored CEO succession at New Zealand's flagship airline, Air New Zealand. She and her team interviewed all of the directors that have served over a twelve year period, to understand how CEO succession was handled and to provide guidance to boards. The analysis of the interview data identified that a clearly defined and agreed recruitment process; and strong cultural fit between the candidate and the company; and, the early on-boarding of prospective external candidates into senior roles (almost as a try-before-you-buy) appeared to be crucial to the successful appointments and tenures of CEO's Sir Ralph Norris, Rob Fyfe and, most recently, Christopher Luxon. Erakovic suggested that the learning from this case is that chances of successful CEO appointments are enhanced if boards focus their attention on a few key things, including starting into the succession and recruitment process early, as early as eighteen months before the outgoing CEO leaves the company.
  • Published on

    EURAM'15: Is it time for a new paradigm?

    Accountability Conferences Governance Research Societal Wellbeing
    Professor Thomas Clarke, of UTS Sydney, opened the corporate governance track of the European Academy of Management 2015 conference by discussing both the history and the future of board research. In so doing, he asked the question as to whether boards and board research were on the cusp of a paradigm shift. 
    Looking back 83 years, Clarke called on the memory of Berle and Means, and their oft-cited work that explored the separation of ownership and control. Berle and Mean envisaged a collective and collaborative approach (between shareholders, boards and managers) to the achievement of various business goals. The article has been accorded seminal status by many researchers, yet it has been largely usurped in more recent times by agency theory (one of the most debilitating ideologies of moderns time, according to Clarke), a contribution that conceives an individual and separatist view where shareholder primacy is the primary (even only) goal. 
    In looking ahead, Clarke asserted that new a model is required because the world is on the cusp of a massive disruption caused by climate change. A continuation of the extant approaches will simply accelerate the demise of many economies. In calling for a zero-emission post-carbon economy, Clarke said that boards of directors have a key role to play. However, they need to be farsighted, determined and courageous. He called out Chandler (1967) and Stout (2012) as highly influential thinkers in this regard, and contrasted their theses with that of the more commonly cited Jensen and Meckling (1976) (who promoted agency theory). 
    The challenge for boards in the future is to return to the ideas of Berle and Means, for history suggests that their ideas were largely correct. Whereas the 19th Century was characterised by production and the 20th Century by marketing and consumption; the 21st Century will, more than likely be characterised by sustainability. Boards need to embrace this if they are to oversee the fundamental changes needed to make the transition. Whether boards will be prepared to look inwards, to re-invent themselves and the way they work is the first challenge to be surmounted. Clarke's thesis suggests that failure to act on this initial point may consign boards and the very companies they oversee to the very place they wish to avoid—the scrapheap.
  • Published on

    International Governance Workshop: Reflections

    Conferences Decision Making Ethics Governance Leadership Research
    The second annual International Governance Workshop is complete. A small(ish) group of leading thinkers assembled at the Toulouse Business School in Barcelona to discuss and debate emergent research and to ask the "So what?" question. Overall, the presentations and papers were of a high standard, as was the discussion and debate that followed each paper. Also:
    • The organisers did a great job. Barcelona in June is like Goldilocks—not too hot and not too cold. The venues, both at TBS and those used for extra-curricular dinners, were conducive to good interaction between the delegates.
    • The highlight of the workshop (for me) was Silke Machold's keynote talk. She challenged much of the conventional thinking, and called both researchers and practitioners to re-think boards, board-practice and corporate governance expectations.
    • The discussion over wine in tapas bars and restaurants was something to be savoured. Even while socialising, delegates continued to think about the challenges facing companies and boards, and to explore options and scenarios to move from corporate governance towards the notion of a value-creating board.
    • The main theme (actually, challenge might be a better descriptor) that emerged from the workshop was 'change'. The nature of board research needs to change, from investigating isolated and observable attributes of boards and corporate governance activity, to studying boards themselves, both in situ and holistically. This presents a huge challenge for researchers, because it means that straightforward statistical analyses probably need to be replaced by more sophisticated techniques not unlike those used in sociology, psychology, behavioural economics and related fields.
    • The dominant logic of companies—maximisation of shareholder returns—probably needs to be reassessed in the light of wider stakeholder issues. This is not a call for Marxist or socialist-style interventions, but rather a recognition that shareholder maximisation to the exclusion of other logics is unlikely to be sustainable in the longer-term.
    While this conference was amongst the smallest (in terms of delegates) that I have attended in recent years, the quality of the discussion and debate was amongst the highest that I have experienced anywhere. Senior academics openly interacted less experienced researchers and other attendees in the discussions, to the extent that it was hard to tell who was who unless you looked at the titles on name tags.
    From small beginnings in 2014, the TBS team has a clear vision of what they want to achieve. This second workshop built on the first workshop (I am told, I did not attend the first one), which augers well for the future. I commend this workshop to all academics, consultants, advisors and serving directors with an interest in board practice and business performance.
  • Published on

    IGW'15: Overcoming barriers to deploying complex technologies

    Conferences Decision Making Governance Leadership Performance Research
    The deployment of complex technologies can be a demanding problem in modern societies, especially when various interest groups support or oppose such deployments. The magnitude of the challenge was not lost on Alfred A. Marcus (Carlson School of Management, University of Minnesota). 
    Using the example of implementing wind turbine systems as a source of renewable energy generation, Marcus compared the approaches taken in Texas and Minnesota. Both states have the high and relatively consistent wind runs considered to be a necessity for large farms of wind turbines. However, renewable technologies such are wind turbine farms are not universally supported. Some like the romanticism of the blades gently turning in the breeze; others assert they are a blight on rural vistas; and, yet others both like the idea but oppose local deployment (the pejorative NIMBY). 
    Marcus observed that Texas' approach to decision-making and deployment was more top-down in nature, whereas the Minnesota experience was more bottom-up (and highly politicised). In considering this, he suggested that charisma without supporting regulation can lead to short-lived benefits. In effect, some ideas and decision processes need top-down 'support' to gain traction. Drawing on the work of Wilson (hierarchical decision-making) and Ostrom (collective action), Marcus proposed four 'rules' that can help, as follows:
    • Boundary rules
    • Allocation rules
    • Conflict management rules
    • Rules for changing the rules (!)
    In effect, Marcus' proposal was that a combined approach—incorporating hierarchical governance structures and decision-making processes and collectivism—was probably necessary if the not inconsiderable barriers to the deployment of complex and somewhat contentious technologies (like wind farms) are to be overcome.
    Although he did not explicitly extrapolate his comments, Marcus' suggestions are relevant and applicable to boards of commercial businesses. Many decisions, especially strategic decisions, fail to gain traction in implementation because a suitable framework for both decision-making and monitoring and verifying implementation is not established. Perhaps boards might like to consider Marcus' proposal, and see how it might apply. I suspect the answer in many cases will be 'well'—so long as a shared commitment to a common and singular purpose was in place.