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    What is "corporate governance culture", and how is it relevant?

    Governance Leadership Performance Strategy
    Ah, culture, an oft misunderstood and sometimes misrepresented word. In the last few decades, a lot has been said about culture in business. Drucker's comment, that culture eats strategy for breakfast, is widely quoted. Given the importance of strategy to the achievement of objectives, culture must be really important! 

    Many of us know about culture, but what is it? You might like to read what others think culture is before you read on, because I have just come across a rather troubling variation: corporate governance culture. Yes, that's right. Corporate governance culture. It's mentioned here. Craft makes some good points in his article, but this term seems to imply that boards have their own culture, which leaves open the possibility that the rest of the company has a different one. That doesn't sound right.

    Craft suggests that the vital relationship between culture, strategy and performance is at the heart of good governance. We nearly agree. I suggest that the vital relationship between culture, strategy and boards is at the heart of effective performance. Same elements—different arrangement. But then Craft moves on, and in so doing he loses me:
    The only way in which a company is able to ensure that it is delivering the right type of business growth is through performance analysis and appraisal.
    Really? Performance analysis and appraisal are both rearward facing activities. How does looking backward only ("the only way...") help if you want to go forward? Bob Garratt's book, The Fish Rots from the Head, tells us most of what we need to know. Culture starts at the top, in the boardroom, and it pervades outwards from there. If boards expect to influence the achievement of company performance outcomes, they need to engender a company-wide culture and wrestle directly with strategy (which is "the art of command" after all). So, let's leave cute terms like "corporate governance culture" where they belong—on the cutting room floor.
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    The case for diversity in boardrooms

    Governance Performance Phd Research
    Over the past few years, I have read many articles propounding the benefits of diversity in the corporate boardroom. Much research has been conducted by well-regarded scholars and consultancy firms, and some great results have been achieved. Many correlations between a diversity variable (gender, race, religion, socio-economic, other) and some aspect of board or company performance have been identified. However, most of the articles also claim—either directly, or, more often, tacitly—that improved outcomes occur because the board is diverse.

    To say that company performance improves because there is a woman on the board (for example) is akin to claiming that red cars go faster because they are red. Such claims stretch things a bit far. They are also patronising to women. There is a world of difference between a correlation and causality. The debate needs to move from talking about the correlation between diversity and performance (most but not all research supports this linkage), to investigating why and how diversity is helpful to improved performance.

    One of the most coherent arguments for diversity that I have read in a long time was made by Andrew Leigh, Australian Federal MP, recently. A copy of his speech, delivered at a Progressive Policy Institute meeting in Washington, D.C., is available here. Leigh says that diversity opens hearts and minds to possibilities—a wide breadth of experience and thought is what is important, if high quality outcomes are the goal. In essence, Leigh's thesis is that better outcomes occur when diverse experiences and thought are brought to bear, not because some flavour of diversity is present. I agree. The challenge now is to apply Leigh's argument to board research, to discover what underlying mechanisms are necessary to effective governance and improved business performance.
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    Boards: talking with shareholders is not optional

    Governance Leadership Management Performance Readings
    I've been on vacation this week, in Perth, Western Australia, with my wife. One of the things that we enjoy while away is to read newspapers that we wouldn't normally see at home, especially the local newspaper. This routine gives us a different perspective on what's going on in the world at large, which serves to broaden our horizons. I try to get my hands on a print copy of the The Australian when in Australia, and often read online versions of the New York Times and The Times as well. 

    The commentary pieces and investigative articles published in major newspapers are often quite thought-provoking—particularly when one is relaxing over a coffee and a muesli breakfast. For example, this article, published in the New York Times today, caught my eye. It highlights the difficulties that investors are having in talking with the boards of the companies they own (or, more correctly, part-own). I was stunned. Why would any director who is serious about their contribution not talk to the people to whom they are responsible and accountable? It smacks of hubris. More importantly, what can be done to remedy this problem?
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    Boards and performance: Just how far have we come in 15 years?

    Governance Leadership Performance
    I was fascinated to read this post on CorpGov.net today. James McRitchie looks back at corporate governance, boards and company performance outcomes over the last 15 years. His summary provides some great insights into how far we have travelled as directors, researchers and consultants. Unsurprisingly, some contemporary topics were not discussed to any great extent in the past: diversity, technology and strategy, for example. Sadly, many of the issues that pressed in on boards in the past are still alive and well today. These include fraud, compliance, reputation, shareholder issues, and a propensity to look backwards, amongst others.

    So, how far have we actually come in 15 years? We have travelled some distance for sure, but not as far as many of us would like to think, I suspect. The compliance requirements today are greater than in the past. Directors seem to have a greater awareness of their responsibilities and commitment to their work now. However, many directors and boards are still grasping at straws—protecting their reputations, focussing on compliance, keeping management honest—rather than looking forward, to the things that actually make a difference to performance and wealth creation. Clearly, corporate governance remains a work in progress.

    What will boards and corporate governance look like in 15 years time? Who knows. However, if we can work out how boards influence performance and if we can work out how to motivate directors to concentrate on the things that matter, then there's a chance that value-creating boards might even become commonplace. Is that worth striving for?
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    If the CEO sets the vision, what value does the board add?

    Governance Leadership Performance Strategy
    Over the last three years, I have been banging a drum: that boards of directors need to lift their game. They need to get serious about their contribution to company success. Boards hold the delegated responsibility for the overall performance of the company, in accordance with the wishes of the shareholders. Therefore, important tasks of the board would appear to include setting vision (having understood the shareholders' wishes); determining strategy; and, oversight of management to ensure that the strategy is implemented effectively. Increasingly, directors are starting to think along these lines. For example, most of the delegates on each Institute of Directors Company Directors Course that I facilitate say that the board needs to set the vision and be involved in the setting of company strategy. However, when I watch boards in action, those that spend quality time on vision and strategy seem to be in the minority.

    A case in point is Microsoft. I was interested to read that Satya Nadella, the recently appointed CEO, has shared his first vision—an outline of Microsoft's direction under his leadership. His comments provide some early signals of where Microsoft wishes to head. Such guidance is helpful for staff, customers and investors. However, the article ascribes ownership of the vision to Nadella. There is no reference to the board, which is odd because the research suggests that there is a link between boards that set vision and get involved in the strategy development process, and improved company performance outcomes. This begs a rather obvious question: If Nadella and his managers are setting vision and strategy, what role is the Microsoft board performing (apart from adding cost)? Microsoft has a long and proud history of innovation, yet the very group charged with realising the wishes of the shareholders—the board—appears to be silent and adding no value. Could this be the case? I hope my assessment is wrong.
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    And so the journey of discovery continues...

    Governance Phd Research
    My doctoral journey, to discover how boards influence company performance outcomes, has turned into a pilgrimage of a kind. I have been journeying, full-time, for three years so far (if you include the six months spent doing pre-requisite work). Some days have been diamonds, some have been stone. The journey has become all-consuming, however the end seems to be in sight! The data collection is done, the analysis is well advanced, and the writing of the thesis document is underway. At this stage, I'm hopeful of reaching a major milestone in December: the submission of the thesis for examination. Here's a snapshot of how I have been allocating my time in recent weeks:
    • About one-quarter of my time has been spent analysing data (over 6GB of sound recording files, 650MB of board papers and 1000 pages of related documentation), to try to make sense of what's really going on beneath the surface, because there is more to it than what can be seen.
    • Another quarter of my time is spent writing. The thesis document is starting to take shape. A couple of chapters are now completed to a "solid draft" stage, and the rest are starting to take shape. I have also written three conference papers and reviewed several others this year.
    • Another quarter is spent in board meetings (I have one directorship at present) or facilitating the Institute of Directors' professional development courses.
    • The remainder of my time is spent thinking. Well, that's what I call it anyway—reading articles and journals, debating the merits of various concepts and pondering ideas. Most of the pondering happens when I am out on my bike, so it's not all bad!

    Looking ahead, the main priority is to draw everything together. Writing will start to dominate, particularly as the analysis effort winds down. In fact, apart from preparing two presentations—for my talks at the British Academy of Management (Belfast, Northern Ireland, 9–11 Sep) and at the European Conference on Management, Leadership and Governance (Zagreb, Croatia, 13–14 Nov)—the focus is writing.

    And so the journey continues. There is plenty to keep me busy over the next few months, but at least the journey is more downhill than up now! Thank you to the many folk who have offered encouragement and support along the way, I appreciate it. If you have any questions, comments or suggestions, either about the research or the way I'm tackling things, please get in touch.