- Published on
Boards of directors: is form or function more important?
Much has been made in the business press in recent weeks of the possibility of splitting the Board Chair and CEO roles at JP Morgan. Arguments for and against have been made, and now a non-binding shareholder vote is imminent. I can't help but feel disappointed by all this rhetoric, because arguments about Board form (structure) miss the point.
For the last 40 years or more, researchers and practitioners have searched for "the ideal Board structure" through which high performance will occur. Despite considerable effort, attempts to produce an ideal structure, or explain how Boards contribute to business performance, have failed to produce definitive results. If we pause and reflect, this lack of clarity should not be a surprise. Governance is a complex, socially dynamic phenomena, not a predictable closed system or a mass of separable attributes. As such, empirical knowledge (of the past, or of form) cannot be used to credibly predict future performance.
Rather than continue to argue over form (that is, argue over structural variables including Chair/CEO duality, gender diversity, non-executive directors), attention needs to move to the holistic consideration of governance itself, and what Boards do (how they function). Then, and probably only then, will we start to gain a clear understanding of how Boards actually contribute to business performance. But is that asking too much of the JP Morgan Board and other Boards? I guess time will tell.
For the last 40 years or more, researchers and practitioners have searched for "the ideal Board structure" through which high performance will occur. Despite considerable effort, attempts to produce an ideal structure, or explain how Boards contribute to business performance, have failed to produce definitive results. If we pause and reflect, this lack of clarity should not be a surprise. Governance is a complex, socially dynamic phenomena, not a predictable closed system or a mass of separable attributes. As such, empirical knowledge (of the past, or of form) cannot be used to credibly predict future performance.
Rather than continue to argue over form (that is, argue over structural variables including Chair/CEO duality, gender diversity, non-executive directors), attention needs to move to the holistic consideration of governance itself, and what Boards do (how they function). Then, and probably only then, will we start to gain a clear understanding of how Boards actually contribute to business performance. But is that asking too much of the JP Morgan Board and other Boards? I guess time will tell.
1 Comments
I pretty much agree with your points Peter. I think there is plenty of anecdotal if not academic observation that the differences in board effectiveness boil down to behavioural rather than structural variables. Having said that the issue for me in separating the Chair/CEO role is not so much 'structural ' as 'constitutional'. Constitutionally the two roles are fundamentally different and exist in different positions in the chain of command. In particular, the CEO is an employee of the board. A major problem in the US situation is that boards, de facto, have often been the employees of the CEO. Failure when behaviour becomes 'unconstitutional' is practically guaranteed.