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    Understanding 'independence'

    Accountability Corporate Governance Decision Making Effectiveness Research
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    For years, independence has been held up as a desirable—even necessary—attribute of boards; the moot being that independent directors are a prerequisite if boards are to consider information objectively and make high quality decisions. In practice, the listing rules of most stock exchanges state that at least two directors must satisfy independence criteria, and many directors' institutes promote independence as a desirable attribute.
    But does the presence of independent directors actually lead to improved business performance? Notable investor, Warren Buffett, has his doubts.
    Buffett took the opportunity at the annual meeting of Berkshire Hathaway, an investment firm, to question the merit of appointing independent directors. He said that many independent directors cow-tow to the chief executive, an assertion that is tantamount to suggesting that the balance of 'power' and 'control' lies with the chief executive not the board. If this is correct, directors are not acting in the best interests of the company (as the law requires). Thus, independence becomes meaningless. 
    Buffett's solution is to recommend that directors need to have skin in the game. But if they do, what is their motivation likely be? Will the holding of shares lead to directors becoming more effective?
    Long-standing research(*) suggests that, as with other static attributes of boards (board size and the board's  'diversity' quotient are topical examples), structural (or, technical) independence per se provides little if any guarantee that board decisions will be of high quality, much less assurance that the board will be effective or that high performance will be sustained. Much storied cases, such as, HSBC (USA), Mainzeal (New Zealand), Carillion (UK) and CBA (Australia), amongst many others, make the point plain. 
    If the board's role in value creation is not dependent on structural attributes (in any predictable sense), should independence be set aside? Not completely. Independence can be helpful, if directors think critically and  exercise both a strategic mindset and wisdom, as they seek to make sense of incomplete data in a dynamic environment. But even this proposal is limited: independence of thought (also called ‘diversity of thought’) is hardly a silver bullet. Better to pursue cognitive diversity, to ensure a range of different approaches to tackling problems. Context is crucial too: shareholders and boards must be careful not to fall into the trap of thinking about corporate governance or board effectiveness in deterministic or formulaic terms. 
    If boards are to have any chance of exerting influence from the boardroom, directors need to embrace an holistic understanding of how best to work together as they assess information, make decisions and verify whether the desired outcomes of prior decisions are achieved or not. For this, the actions of boards (function) trumps what they look like (form). Emerging research suggests that board effectiveness has three dimensions, namely, the capability of directors (technical expertise, sector knowledge, wisdom, maturity);  what the board does when it meets (determine purpose, strategy and policy, monitor and supervise management, provide an account to shareholders and other stakeholders); and how directors behave (individually and collectively). 
    (*) see Larcker & Tayan (2011) Corporate governance matters, for example. 
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    On boards, wicked problems and social media

    Accountability Corporate Governance Effectiveness Governance Research
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    Over the last twenty years, I have spent countless hours serving on and advising boards, and thinking about governance and the characteristics of effective boards. To have been invited to work with boards around the world as they have sought to realise the full potential of the enterprises they govern has been a real privilege. ​But with such privilege comes responsibility—the importance of standing back from time-to-time to take stock and reflect on learnings cannot be overstated, which is exactly what I have been doing over the last few days. 
    Two things in particular stand out just now. First, boards are increasingly aware that ultimate responsibility for enterprise performance lies with the board itself (not the CEO); and second, social media is starting to get in the way of effective learning.
    That awareness is trending upwards is great news. But the supplementary question of how high performance is achieved and sustained remains problematic. The market is awash with best practice recommendations and supposedly definitive guidance ("five ways to...."), many of which have been implemented diligently. But alas, company failures continue to be blots on the landscape. 
    Directors want reliable guidance, but many directors struggle to sort the wheat from the chaff. They say that the plethora of often discordant information is more a hindrance than it is helpful. Privately, some admit that they have become confused about the purpose of the board, what corporate governance is and how it should be practiced. ​Others have suggested that the question itself (of the board's role in achieving high enterprise performance) is 'wicked', meaning it is easy to describe, but really difficult if not impossible to solve due to incomplete or contradictory information and a highly contextual setting—a moving target camouflaged in a landscape that is far from static.
    The other thing that has become relatively clear in recent times is the role and impact of social media: it seems to be getting in the way of meaningful debate on big questions and wicked problems. Yes, news feeds and the 'like' button can be additive, but self-proclaimed experts offering opinions disguised as 'solutions' generally add little except noise and clutter. If progress is to be made, more reliable guidance is needed to help boards focus on what actually matters—enterprise performance. For this, researchers need to go to the source (the boardroom), to discover, analyse and report what really happens when the board is in session, including what boards do; how decisions are made; and how power is wielded and influence is exerted. Interviews, surveys and the quantitive analysis of large datasets all have their place, but the direct (and ideally, long-term) observation of boards in action is the gold standard. Researchers, advisors and directors need to continue to pursue meaningful dialogue—not sound bites—both with each other and at conferences and other interactive forums (workshops and masterclasses, for example) to explore situations, discover what works (and what doesn't) and, crucially, understand the contextual limitations and nuances of various options. A commitment to read widely and critically is also important.
    Press on we must; the question of how boards influence enterprise performance is far too important to ignore. Tough problems need time and space for critical thought and analysis. Thus my decisions to step away from Twitter and to change my use of LinkedIn—to create more space for critical thinking and analysis. My hope is that what emerges will be of some use to helping boards address something that has remained constant: responsibility for enterprise performance starts—and ends—with the board.
    ​My current thinking on board effectiveness is available here. If you are interested, please read the articles with a critical eye and let me know what you think.
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    Is 'good' governance to be desired?

    Accountability Corporate Governance Decision Making Governance Language Performance Research
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    I'm in London for the weekend, an interlude between inter alia commitments hosted by the Institute of Public Administration (a masterclass for board chairs, in Dublin); Lagercrantz Associates (a workshop, in Stockholm); and the Baltic Institute of Corporate Governance (a masterclass and the BICG conference keynote, in Vilnius). 
    To work with people across cultures, countries and contexts is a great privilege. Discussions reveal differences in perspective and approach. Yet, some things are consistent, transcending borders and cultures. One example is 'good governance'. Directors everywhere want to know how to achieve good governance.
    This is a tough request. The problem is that 'good' is a moral qualifier, implying someone or something is morally excellent, virtuous or even righteous. But that is not all it means. A quick check in any dictionary reveals at least 39 other definitions! Which one does a person have in mind they ask for help to achieve 'good governance' or 'good corporate governance'? And what about other directors around the table. Do they have the same understanding or not?
    It's little wonder that directors have become confused about the role and purpose of the board.
    Pragmatically, corporate governance is the means by which companies are directed and controlled (Cadbury, 1992), that is, it describes the work of the board. The objective is to produce an agreed level of performance (however measured). 'Effectiveness' is a more appropriate qualifier than goodness. If something is effective it is adequate to accomplish a purpose; producing an intended result. 
    Returning to the question of how to achieve good governance. After reminding the enquirer that so-called best practices offer little guarantee of success (which one is best anyway), I usually steer the discussion away from goodness towards effectiveness (performance), and suggest that Bob Garratt's Learning Board matrix, and the Strategic Governance Framework are useful starting points for a lively discussion at the board table.
    Once directors acknowledge that high company performance is the appropriate goal, and that success is a function of effectiveness more so than goodness, they start to ask more relevant questions, such as, "What actually matters?" and, "How do I as a director and we as a board become more effective?"
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    The important role of company secretary: Changing times?

    Accountability Corporate Governance Decision Making Effectiveness
    The company secretary, a role defined in law in most jurisdictions, is an important actor in company boardrooms; a servant of the board with a mandate to ensure the smooth running of the board and its activities. Specific tasks include supporting the chair and chief executive in assembling board documentation; ensuring effective communications between key actors and external parties; recording and publishing minutes of meetings; and providing process support to the board as and when needed. Such a role seems clear.
    But in recent times, company secretaries have assumed greater roles including speaking at meetings; exerting influence over decision-making processes, even to the point of presenting papers; and speaking for the board in the market square. This has been encouraged by associations representing company secretaries with the term 'governance professional'. Times are changing, for sure, but are these developments sound? Most of the contributions listed here come dangerously close to the secretary acting, or being seen to act, as a director. 
    But the company secretary is not a director.
    Rightly understood, the role of board secretary should—indeed must—remain one of servant to the board, not part of the board. If governance is a profession (a debatable point, given almost anyone can be a director and professional standards are not enforced), then it is directors not secretaries who are the rightful claimants of the title 'governance professional'. Some other questions boards may wish to consider are:
    • ​The company secretary's modus operandi needs to founded on service, discretion and trust, not power. Is this reasonable, or do you disagree? 
    • How does your board secretary actually operate? How should they?​​
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    Governance: An act of leadership or service, or both?

    Accountability Conferences Corporate Governance Director Development Performance
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    I have just returned home from a busy but most invigorating week on the East Coast of the United States. The purpose of the trip was two-fold. First, to invest in myself by attending a course; and second, to participate in a series of meetings and discussions to explore matters relating to boards, board effectiveness and how high performance might be achieved.
    The following paragraphs summarise some of my learnings. If you want to know more, please get in touch.
    • The Boards that lead programme at Wharton Business School attracted 49 serving and aspirational directors from ten countries. Professors Michael Useem and Ram Charan and their colleague Dennis Carey led the course incredibly well; a highly interactive exploration of when boards should lead, when they should follow and when, simply, they should get out of the way. The insights and commentaries from both the course leaders and several highly-esteemed company chairs, activists and academics during 'fireside chats' provided great assurance that it is possible to make a difference. A notable theme was that directors cannot afford to be aloof in their role. If [strategic] decisions are to be informed and value is to be created, directors need to ensure they understand the business of the business well—and that takes time. 
    • Many boards in the United States are still caught in the 'compliance' trap—the protection of personal and professional reputation continues to be a more pressing priority for many directors (than the achievement of performance goals). As a consequence, boards are not paying sufficient attention to the strategic future of the companies they govern. While compliance matters are by no means discretionary, boards need to get more courageous with their time allocation, and also demand better reporting, to ensure compliance matters do not dominate the agenda. 
    • Several directors lamented—some at length—that the promotion of ESG in recent years has been counter-productive. Rather than focussing boards on performance dimensions beyond money (the intention), boards have in practice become more concerned about adherence to prescribed 'best practice' frameworks. The directors I spoke with said that 'G' (governance) element in particular is problematic—adding little in terms of focussing boards on the creation of value over the longer-term. The alternative that sits more comfortably with directors I spoke with is SEE (social, environmental, economic).
    • The value of purpose reared its head in several discussions—director awareness of the need for clarity in relation to why the companies they govern exist is increasing. However, more needs to be done, to ensure a collective understanding is achieved. Time spent explicitly sharing thoughts and assumptions, with the intention of reaching agreement on a single, stated purpose is crucial: A North Star for decision-making.
    • The diversity discourse continues to evolve. Thankfully, a growing cohort of directors are realising that physical attributes of boards (number of directors, ethnic or racial heritage, or gender diversity, for example) provide little assurance of board performance let alone company performance. A more sophisticated understanding is crucial. My colleague, James Lockhart, has been vocal on this point for some time.
    • I was asked on several occasions to explain the Strategic Governance Framework, a key finding to emerge from my doctoral research completed in 2016. Both individual directors and boards were fascinated to learn that a framework for better board effectiveness (one informed by actual board observations) is now available for consideration and deployment. This was most gratifying. Boards interested in exploring this framework further should contact me directly for a private discussion.
    • Capping off the week, I spent 36 hours in Washington DC, taking in the sights and sounds of the National Mall, and visiting a couple of two of the Smithsonian Institution's fine museums. Returning to the hotel, the last eighteen words of Lincoln's address at Gettysburg rang in my ears. If companies are to prosper in the future, boards need to embrace a strong sense of purpose and service—to the company and legitimate stakeholders. Anything less is not only selfish, it is unsustainable.
    • Finally, and more personally: to the many unnamed folk I met through the week, thank you for your generosity. If the high level of interest throughout the week is any indication, the likelihood of me spending more time in the United States, to wrestle with both the opportunities and challenges of rethinking board effectiveness, and concentrate on company performance more so than compliance tasks (although such tasks cannot be neglected), is high.
    If you would like to discuss any aspect of this summary, challenge my observations, or explore implications for your board, please get in touch, I'd be delighted to hear from you..
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    Will board effectiveness improve in 2019?

    Accountability Corporate Governance Decision Making Effectiveness Governance Leadership Performance Value Creation
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    With 2018 consigned to history and holiday season break all but over, most business leaders and boards of directors are turning their attention to what the year ahead (and beyond) holds. Even a cursory glance reveals a plethora of issues that may have an impact on business continuity and, potentially, continuance. 
    Consider these indicators:
    • ​Rampant economies that have powered much of the global growth over the last decade may be running out of steam. Many Asian 'tiger' economies are growing less rapidly than before, Apple and other tech giants have issued warnings, indicating that a correction may be just around the corner.
    • Populism and nationalism are no longer words heard only in political and academic hallways.
    • The climate is changing.
    • Medical and social developments are impacting the lives of untold millions around the world.
    • Disruptive technologies and business models are fundamentally changing commerce.
    • Weaponising of biological 'forces' to reshape nations, economies and mindsets.
    • March 29, 2019 is shaping as a watershed date for Britons and Europeans in particular, but also others.
    • The US-China trade war and disquiet in the Middle East have the potential to disrupt international trade.
    • The emergence and potential impact of identity politics and various lobby movements (#MeToo and #GilletsJaune are two examples amongst many).
    • In several countries, general and/or local government elections are occupying the minds of many.
    And that's just the start.
    As is usual at this time of the year, business and governance commentators have stuck their collective necks out, promulgating a variety of predictions given the indicators (as real or imagined as each indicator may be); each behaving as if they possess levels of predictive insight beyond what a reasonably educated person might be able determine by tossing a coin. But do they? They cannot all be correct—in fact, none may be. 
    The challenge for boards, of course, is working out how to respond well. 
    What is becoming increasingly clear is that boards have become confused by what's going on around them. Increasing numbers have grown quite tired of 'conventional wisdoms' and so-called 'best practices' (plurals intentional). Some have responded by taking defensive positions, and others are boldly trying things without first understanding the contextual relevance.
    My response to enquiries from boards is straightforward: open your eyes to the possibilities, think and act strategically, but don't be impetuous. Check the current context, because things change, often in unexpected ways. Helping boards respond well typically involves sharing insights from research and practice; facilitating discussions; and providing contextually-relevant and evidence-based guidance. If you want to discuss options to respond well to a changing world around you, or lift the effectiveness of your board, please get in touch.