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    IGW'15: Opening Keynote

    Conferences Ethics Governance Leadership Management Performance Research Strategy
    The second International Governance Workshop got underway at Toulouse Business School, Barcelona Campus on Thursday 11 June 2015. Professor Morten Huse, an esteemed corporate governance scholar from Norway, provided the opening day keynote. Huse has been studying boards for a long time—the mid 1970s—so when he speaks, people tend to listen. Here's four of the points from his talk:
    Huse's talk set the scene for a lively debate through the balance of the conference. It will be very interesting to see how this develops.
    • The dominant logic of modern boards—independence and opportunism—has not delivered any significant value to shareholders over time. Rather, it has driven short-termism, strong norms of privacy and mis-trust.
    • The conception of corporate governance as a set of rules and regulations to keep management honest needs to be replaced. Instead, boards need to think and behave in terms of becoming value-creating teams.
    • A fundamental shift is starting to occur, if you look closely: Evidence is starting to emerge to suggest that boards that lead, seek to create value and are involved in the strategic management process are more likely to make positive and meaningful contributions. However, this is not guaranteed, as boards are comprised of people and complex interactions, and external forces exert influence as well.
    • Huse suggested that a common language is required. Too often, a speaker says 'X' only to find that other directors hear 'X', 'Y' or even 'Z'. He went on to overlay a common language and important board tasks over the value creation process (the value chain, if you will).
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    International Governance Workshop: starts tomorrow

    Conferences Management Performance Phd Research
    The annual International Governance Workshop, hosted by the Toulouse Business School, starts tomorrow in Barcelona. Although only in its second year, this conference is an important gathering because it has attracted many of the world's leading corporate governance and board researchers. To be in the same room as these people, to hear them present and debate the results of emergent research is truly an honour. In contrast to the scale of the ICGN annual conference, the IGW is more intimate and more focussed. However, the programme of topics to be explored is no less significant. 
    Session summaries will be posted here, as usual, so you can keep up to date. My paper will be delivered on Thursday afternoon. 
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    On strategy: "A palette of plans"

    Accountability Governance Leadership Strategy
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    Every now and then, a great article crosses my desk—one that seems to lift itself off the page, as if to command attention. This is one such article. Writing in The Economist, Schumpter comments on an idea promoted by Boston Consulting Group: that dexterity is increasingly important in today's fast-paced world. The assertion is that modern companies need to be adept at skipping nimbly between strategies or types of strategies (or to commit to multiple strategies simultaneously). Five types of strategy are identified, as follows:
    • Classical: find a niche and develop a plan to achieve dominance
    • Adaptive: try many things and back those that work
    • Visionary: the 'blue-ocean' approach of creating a new market based on a compelling idea
    • Shaping: partnering with others to achieve both scale and reach
    • Renewal: whole reshaping of the business (often to defend against pending failure)
    The article makes plan the challenge moving between strategies, especially with management reputations and careers on the line. One option to resolve this challenge might be for boards to focus directly on leadership and strategy because the task of developing strategy has become so important to business success. A return to the historical conception of strategy--strategos, the art of command—is appropriate. (Many business academics and boards of directors consider strategy to be an important task of the chief executive.) If boards become more strategic, by contributing expertise and challenging strategic options, then 'ownership' of both strategy and the outcomes that flow is likely to move to where it actually belongs--in the boardroom.
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    Reflections: International Corporate Governance Network conference

    Conferences Governance Research
    The twentieth annual conference should be recorded in the annals of the International Corporate Governance Network as being a successful conference. From small beginnings twenty years ago, when 49 hardy souls met, the ICGN annual conference has grown ten-fold. Nearly 500 delegates assembled (from close to 50 countries) at the Guildhall in London to listen, share and, importantly, to exchange experiences.
    • While all of the speakers and panel members were of a high calibre, Alderman Alan Yarrow, Bob Monks and Martin Wolf stood out. Drawing on their vast experience, each of these gentlemen offered perspectives and insight that many of the younger delegates are unlikely to have considered previously.
    • The unspoken conception of corporate governance that seems to pervade the conference (as something that helps investors get what they want) surprised me. My understanding of corporate governance concerns the way boards of directors work, both in oversight of management and in pursuit of desired outcomes. This surprise may simply have been one of perspective—many of the delegates and speakers are members of the investor community, whereas much of my experience is from within the boardroom.
    • Another surprise was the disparity between who I thought might attend this conference and who actually did. The delegate list was dominated by institutional investor and industry body representatives, advisors and lawyers with some academics to boot. However, there were precious few serving company directors in attendance. Serving directors are a (the?) crucial cog in the corporate governance ecosystem. Perhaps the organisers might wish to consider how to redress this imbalance at future conferences.
    • The matters of trust (between directors on a board, and between shareholders and the board) and reputation were visible throughout the conference, and rightly so. That big business suffers a troublesome reputation amongst the general populace was noted publicly and it was discussed further over the tea-cups—although whether any remedial actions are forthcoming remains to be seen.
    • The conference was well-organised and well-run, and the venue was, simply, stunning.
    • The organisation (which prefers to think of itself as a network actually, it's less hierarchical) appears to be in good health. Kerrie Waring is a capable leader. She and her team clearly have the best interests of the organisation, and its goal of lifting the standard of corporate governance, at heart.
    • More personally, I met some amazing people (including some that, to this point, had been but names or acronyms on social media exchanges) and had some very helpful discussions. My intention was to watch and to take it in. That others saw it fit to invite me to join their discussions was humbling indeed.
    Was the conference worthwhile? If the quality of the insight, discussions and relationships are any indication, the answer must be 'yes'! Consequently, the 21st edition is already marked my diary.
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    ICGN'15: On sustainable market reform—what needs to be done?

    Accountability Conferences Governance Performance
    Day 3 of the ICGN annual conference opened with a lively panel discussion on the subject of sustainability reform. From the title of the session, I thought the conversation would explore ways and means of reforming the capital market in the fight against short-termismthe goal being longer-term corporate value and sustainable economic growth. However, the conversation was actually about the ESG (environmental, sustainability, governance) agenda.
    The starting point for the conversation what that shareholders need to change their mindset, away from short-termism and quarterly results, towards the long term prospects of the company, for the good of the economy and the well-being of society. Regulation was identified as being important (and probably necessary) if the desired behaviour change was to occur. However, there was little appetite for a new regulatory regime to expedite change. Rather, the panel thought professionalism was a far better vehicle—on the basis that professionalism well implemented should reduce the need for prescriptive regulation.
    Notwithstanding this, a reasonably significant shift in behaviour is likely to be required (amongst shareholders and the board) if companies are to respond positively to the sustainability expectations of customers, suppliers and the general public. Institutional investors probably need to step up and become part of the conversation, both to move their focus beyond the ninety day cycle and to pressure management into embracing sustainable business practices. 
    The panel was asked how this move towards professionalism could be effected. One popular and readily implementable option was to use the AGM as a forum to raise questions. If institutional investors were to speak publicly (at the AGM) on matters of climate change, sustainable business practices and responsible business practice (for example), and do so in a firm but fair manner, then others (including the press and smaller investors) would notice. In so doing, astute directors and managers would respond by adjusting various priorities.
    Much of the conversation was focussed on structural responses to identified problems. However, the ante was raised somewhat towards the end of the session, when an audience question shifted the conversation. Panel members were asked for their thoughts on how to drive desirable (sustainability) behaviours in the boardroom. After some um-ing and ah-ing, the following three items were proposed:
    • Think in terms of the purpose of the business
    • Demarginalise ESG: Make it prominent on the agenda
    • Respect SME suppliers—they are not equipping to fund the working capital of larger companies!
    This seemingly 'thin' response exposed another problem: that investors may not think about what goes on in the boardroom as much as some might think or hope. This probably needs to change.
    Standing back a little, the session explored a different question from the one I expected to be tackled. However, the discussion was very helpful because it demonstrated that change is possible if the right sort of pressure and catalyst is brought to bear. The power of the AGM as a suitable forum to raise questions and exert pressure on the board and management of companies should not be underestimated for example.
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    Martin Wolf at ICGN'15: "Let a hundred flowers bloom"

    Accountability Ethics Governance Leadership Management Performance Societal Wellbeing
    Martin Wolf CBE, Associate Editor and Chief Economics Commentator at the Financial Times, delivered a rousing keynote talk to wrap up the final day of the ICGN annual conference. After observing that the limited liability, joint-owned corporation had been the cause and consequence of almost all economic activity over the last two hundred years, Wolf posed and commented on four questions. He qualified his comments by saying that he expected they might raise some profound questions. Indeed, some of Wolf's comments were controversial—the evidence being the questions asked by some members of the audience after he finished speaking.
    What is a limited liability corporation? They are a semi-permanent entity designed to outlast small-medium enterprises (because founders retire—the corner store conundrum) and markets, and they are a construct for the consolidation of relational and implicit contracts. Their genius is the importation of older hierarchical forms (to get things done) into the market system. With scale comes efficiency, endurance and effectiveness (but not always!).
    What is their purpose? The apparent purpose of the LLC is to generate economic value. However, this is insufficient. Wolf asserted that LLCs should also pursue a wider remit, by seeking to 'add value' in social terms (through the provision of payments for services rendered—wages and salaries—for example).
    What is their operational goal? The oft-quoted goal, of maximising shareholder returns, is far too simplistic, according to Wolf. It is selfish and can only lead to failure elsewhere in society. Rather, the operational goal of LLCs needs to include ethical constraints to protect all participants and in so doing ensure the good of society (at no point did Wolf pursue or even imply any form of Marxist agenda).
    Who should control them? Economically, shareholders bear residual risks following corporate activity and, therefore, shareholders should possess control rights. Wolf challenged this commonly-held view as folly because shareholders are unable to exert full control over the affairs of the corporation. Managers may manipulate the affairs of the company, sometimes to the detriment of shareholders and other stakeholders. Short-term incentives, implemented to motivate managers towards the maximisation of shareholder returns, rarely position the company for longer-term success.
    Wolf concluded by saying that LLCs are a wonderful construct. However, he went on to say that the two associated doctrines (of shareholder control and value maximisation) are unhelpful because they are too short-sighted. He told the shareholders in the room that "it is in your interest not to control the corporation completely". Other parties—large bondholders, for example—also bear residual risks. Why would they not have decision rights?
    Wolf's comments were demonstrably controversial (amongst some of the audience at least). However, the poor reputation of big business amongst the general populace suggest Wolf's comments might be closer to the 'truth' than what many in the audience might care to admit. 
    Wolf closed with this demanding challenge: A better approach might be "to let a hundred flowers bloom", so that the best [control] model might rise up and be applied for a given situation—the beneficiary being society at large.