The 14th edition of the Corporate Governance Workshop convened by the European Institute of Advanced Studies in Management (EIASM) was held in Brussels, Belgium this week. A summary of the key insights from the first day follows below (click here to read the day two summary).
  • Laura Georg (Norwegian University of Science and Technology) provided the opening keynote, speaking on "Governance of Cybersecurity". After presenting some historical context, Georg laid out some current realities for all to see. First, she noted a tension between technological advancement (what is possible) and societal expectation (what is acceptable). Second, most (91 per cent) board members do not know how to read, much less interpret) cybersecurity reports provided by management. Third, the impact of a successful cyber attack, on the value of intangible assets in particular (often 60 per cent of the value of the balance sheet), is poorly understood. The takeout is stark: there is a real disconnect between those involved with the technicalities and the board of directors. More specifically, most management teams are not reporting to their boards effectively, [reporting and risk] standards are yet to emerge and, tellingly, the impact of a cyber event on firm performance is not being adequately discussed much less addressed. These factors need to be resolved, with urgency, if boards are to ensure the sustainable performance of the company.
  • Michael Hilb's (University of Fribourg, Switzerland) presentation, on the "Governance of Digitalisation" raised some interesting questions for boards, the most pressing of which is "How should boards keep up to date, respond and act in response to the seemingly incessant bow wave that is 'digitalisation'?" Whereas many boards understand business performance primarily in financial terms and measured approaches to risk, the advancement of digitalisation (ed. whatever that means) demands that boards extend their purview. Greater foresight (to see into the future, event to the point of prediction) and strategic competence (to make sense of options, leading to informed and appropriate decisions) is needed. Further, the ubiquity of reach provided by the Internet renders traditional national boundaries mute, enabling a 'winner-take-all' mindset. Though his focus was specifically on the board's response to digitalisation, the conclusions drawn by Hilb were eerily similar to those within the strategic governance framework that emerged from my doctoral research.
  • Martin Bugeja (University of Technology, Sydney) provided an update on the Australian shareholder 'say on pay' regulations introduced a few years ago. The framework, designed to enable shareholders to exert some influence over executive remuneration, requires shareholders to vote on executive remuneration at the annual meeting. Depending on the result, shareholders have the power to censure the board and, potentially, remove the board. If 25 per cent of the shareholding opposes the remuneration proposal, then a 'strike' is registered and the board is required to take action. If the proposal is opposed again the following year, a second 'strike' is registered and a 'spill' vote is taken, whereby the shareholders may remove the board of directors. Bugeja reported that approximately seven per cent of remuneration proposals receive a strike each year. However, some interesting (and perhaps unintended) consequences are starting to play out. Whereas behaviours change and adjustments are made following a first strike, the board's typical response to a second strike is to take no action—preferring instead to await a spill vote and to 'expect' to be returned by major shareholders. Though this smacks of hubris, the reality is that only one board has 'suffered' the ignomy of a spill vote since the regulation was introduced. Bugeja concluded that the intent of the Australian 'say on pay' framework is good but it does not seem to be working as intended in practice. 
  • Hilde Fjellvaer (Trondheim Business School, Norway) and Cathrine Seierstad (Queen Mary University, London) spoke on progress towards female membership of company boards a decade on from the introduction of the 40 per cent quota (females on the boards of publicly listed firms) in Norway in 2007. They reported that firms complied with the quota as required but did little no more. With hindsight, this should not have been surprising; the pool of suitable female director candidates was small. Indeed, a small group of females received many appointments, some individuals holding nine or more concurrent appointments. Subsequently, the average number of concurrent appointments has dropped (to below four) as the pool of potentially suitable female director candidates has enlarged. Notwithstanding this, the percentage of females on the boards of publicly-held firms has stalled at 40–41 per cent. The  percentage of females on the boards of privately-held firms has remained low as well—15 per cent a decade ago and 17 per cent now. Fjellvaer and Seierstad noted that while the observable expression of diversity has stalled, boardroom behaviours are changing. Directors say they explore a wider range of options before making strategic decisions, and higher levels of teamwork are apparent than in the past. However, and importantly, any link to increased firm performance attributable to the presence of female directors remains elusive.