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    Checking the big picture: Are we still on track?

    Accountability Capitalism Complexity Decision Making Governance Leadership Performance Value Creation
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    The prospect of looking back on the year past at this juncture seems a little odd, even presumptuous, given five weeks remain in 2023. And yet, with the onset of the holiday season (Christmas, Hanukkah, Diwali, as relevant in your cultural setting), I have noticed minds are starting to turn; casual comments in my hearing indicate some people are starting to reflect on the year soon-to-be-gone; others upon what the future might hold.
    As someone called on to think broadly about organisational challenges and opportunities, and to share insights that might be helpful to helping boards govern with impact or realise organisational potential, I too, take time to ponder. To think about what has passed, what lies ahead, and how one can help is not only smart, it is vital—if one is to learn, make adjustments to stay on track and achieve goals and, over time, become a better person.
    Turn now to the person you see in the mirror. What did you set out to achieve in 2023? Did you set specific goals? If so, have you checked progress? Are you still on track? ​Have you taken into account changes in the environment around you and made adjustments, or have you pressed on in spite of changing circumstances? As a leader, you owe it to yourself—and all those you interact with—to check progress periodically and make adjustments if you have veered off track or lost sight of the goal.
    For the record, my goal for 2023 was audacious; to ensure every director and board I had the privilege of serving, globally, derived some benefit from the interaction. The goal was audacious because 'every' set a high bar; essentially, it left no room for slippage! Thankfully, feedback to date suggests I'm doing OK. Hopefully, the feedback still to come is consistent with that received through the year. If it is, I'll wrap up the year contented; tired but contented.
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    (Mis)counting the cost?

    Accountability Complexity Decision Making Effectiveness Integrity Tough Questions
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    Like many people, I've been reading reports of the spread of COVID-19, and the impact it is clearly having on both the health and well-being of communities, and the economy. The number of confirmed cases is growing. Daily reports in New Zealand show confirmed and probable cases (April 3: 772 cases, 96 probable). Globally, the number of deaths attributed to COVID-19 also continues to climb, even though the vast majority of the deceased had comorbidities.
    Stepping beyond the human elements for a moment (anxiety, cabin-fever, ambivalence, physical distancing), aspects of the reportage have confused me (and others as well, I know), to the point I wonder about the underlying motivations of some of the reporters.
    ​Consider the case count: How many people have or have had COVID-19 in New Zealand? The following data lifted from the Ministry of Health website:
     
    Cases
    Probables
    Total
    April 2
    723
    74
    797
    April 3
    772
    96
    868
    The New Zealand media is reporting the total (797, 868) as the number of cases of COVID-19 in New Zealand. But, when the Ministry of Health's criteria is applied (definition of a probable case, here), the actual number of cases is the lower number (723, 772). The WHO, too, is reporting these same official numbers.
    The question that emerges from this analysis is straightforward: Why does the media persist in overstating the case count? Is it ineptitude, bias, or something more sinister?
    Fatalities: Official reports from around the world have been clear: many (most, but perhaps not all) of the patients who have died had comorbidities at the time of death. Was COVID-19 actually the cause of all the reported deaths (as the media has implied), or was it a contributory factor alongside other factors?
    In and of themselves, these misrepresentations by the media are probably of little consequence—until you consider that they may be indicative of a bigger problem that does merit attention.
    If New Zealand is to climb out of the hole it is now in, some bold decisions are needed. Decision-makers need to think strategically, not tactically. There is widespread agreement that the social and economic costs of the measures currently being taken in New Zealand in response to the COVID-19 outbreak are going to be very high. The effects of the community lockdown, widespread economic destabilisation and imposition of high levels of sovereign debt will probably linger for a long time. They may be generational.
    ​The decision to stop was easy; it has been made (although questions remain over whether the border is actually closed). The looming decisions concern when and how to restart. Ultimately, the quality of these decisions will be, to a large extent, dependent on the quality of evidence presented. If the government is to expedite the economic recovery, it needs to set ideology and worst-case models aside, and enlist seasoned, non-partisan critical thinkers to analyse the raw data, draw rational conclusions and present pragmatic recommendations. Without this, the real cost will continue to climb; a winter of discontent indeed.
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    Is corporate governance a framework, or something to be practiced?

    Accountability Complexity Corporate Governance Decision Making Director Development Language Tough Questions Value Creation
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    English can be a confusing language. The same word can have different meanings in different contexts (by 'bear', do you mean the animal, taking up arms, or putting up with someone; and is a 'ruler' a measuring instrument or a monarch?). Meaning and usage matters. Language evolves, whether by design or in response to an evolutionary development. Some refinements improve our ability to communicate effectively, others to defy logic.

    The understanding and usage of the terms 'governance' and 'corporate governance' are topical cases in point. While the term 'governance' is derived from the Greek root kybernetes meaning to steer, to guide, to pilot (typically a ship), a plethora of usages have emerged over time. Today, many different usages have become commonplace. These include the oversight of managers and what they do; the activities of the board; and the framework within which shareholders exert control and boards operate.  It is also used to describe the board itself ("we'll need to get the governance to make that decision"). ​The term has also been applied in an even broader context, the business ecosystem (i.e., system of governance). The most extreme example I have heard is, "Governance can mean almost anything, it is completely idiosyncratic; different for every organisation".

    Things are made worse when two related but distinct concepts are conflated. Consider the definition of corporate governance and the practice of corporate governance. The former is relatively stable. Eells (1960) coined the term, to describe the structure and functioning of the corporate polity (the board). Later, Sir Adrian Cadbury (1992) added that 'corporate governance' is "the means by which companies are directed and controlled". The fundamental principle here is that corporate governance is a descriptor—the activity of the board. Compare that with the practice of corporate governance—how a board enacts corporate governance when it is in session. The means by which boards consider information and make decisions can and must be fluid depending on the situation at the time.

    The wider context merits a brief comment—the rules under which companies and their boards operate (statutes, codes and regulations), and the consequential impact of the board's decisions. These are necessary, because they define the wider environment; what is allowed and what is not. In recent years, ​I've heard many people include regulations and codes within their understanding of corporate governance. Similarly with the consequential impact of the board's decisions beyond the boardroom. Are either of these corporate governance?

    If you'll allow a sporting analogy, it's important to distinguish between the rules of the game, the game as played, and the final score. All are necessary, but only one is the game. To embrace an all-encompassing understanding suggests that corporate governance is ubiquitous, extending across the entirety of the company's operations and the functions of management, leadership and operations—not to mention the wider system of rules of regulations. This, I am convinced, takes us close to the root of the confusion that besets many directors. Every time I'm asked, I invoke Eells and Cadbury. A framework of laws and regulations is necessary, for these define the operating boundaries. But they are not corporate governance. In asserting that corporate governance is the means by which companies are directed and controlled, Cadbury was saying that corporate governance is the descriptor for the work of the board. And work, straightforwardly, is something to be practiced. Let's not lose sight of these distinctions. The continued 'sloppy' use of language serves only one purpose: to obfuscate (intentionally, or otherwise). 

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    Reading: On Galileo, the spyglass and human endeavour

    Complexity Readings Societal Wellbeing

    I've just read a short, approachable article that reminded me of some rather interesting background reading I did 6–12 months ago.

    Throughout the early stages of my doctoral research, I was encouraged to read about some of the "big names" in scientific endeavour: Galileo, Newton, Einstein, Crick & Watson. While my research is very much positioned in the social science field, my supervisor suggested that reading widely would help me to  understand how great minds went about their work, how they recognised "opportunities", and how they achieved breakthroughs.

    A key learning to emerge from all this background reading is that Galileo, Newton and Einstein all employed an iterative technique of discovery. They cycled around an inductive–deductive loop, inferring a theory and then testing it. They modified existing tools in order to conduct previously unknown tests. And this is what made their work effective.

    As we approach Christmas, and look at the night sky, we can thank Galileo for recognising the spyglass might be useful to understand the heavenly bodies. And I thank my supervisor for helping me recognise the inductive–deductive loop, a technique I've adopted for my own research.

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    What is your Christmas #corpgov wish?

    Change Complexity Diversity Governance Research Societal Wellbeing

    Thanksgiving marks the beginning of the Holiday Season in the US. Sinter Klaas is not far away for Western Europeans (5 Dec). Indeed, today marks one month until Christmas Day. With the cooling of the weather in the Northern Hemisphere, and its warming in the Southern, many people start reflecting on the year past, and the year ahead. On their hopes and dreams, and on the giving and receiving of gifts.

    In the spirit of the season, and the general theme of this blog, what might your corporate governance wish be this year?

    • more diversity on Boards?
    • better alignment between pay and performance?
    • less corruption and fraud?
    • directors taking more responsibility and accountability?
    • something completely different?

    I'd like to think that 2013 will herald a sea-change for governance; the year in which the boardroom troubles of recent years were consigned history; the year in which Boards got on with the business of growing companies, making them strong and improving societal wellbeing as a result. Gosh, that sounds grand. Is this too much to wish for, or is this something worth striving for?

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    Towards a "strategic board"

    Complexity Governance Management Research Risk Strategy

    Many commentators—academics and practitioners alike—have suggested that corporate governance is an complex task. I agree. In the context of maximising company performance, Boards must satisfy many demanding (and often competing) priorities: the legal and compliance requirements of their jurisdiction; monitoring of company performance; management of risk; future directions (strategy); hiring (and sometimes firing) of the CEO. It's a busy job, and it's one that takes time and commitment to do well.

    Many commentators—academics and practitioners alike—have suggested that corporate governance is an complex task. I agree. In the context of maximising company performance, Boards must satisfy many demanding (and often competing) priorities: the legal and compliance requirements of their jurisdiction; monitoring of company performance; management of risk; future directions (strategy); hiring (and sometimes firing) of the CEO. It's a busy job, and it's one that takes time and commitment to do well.

    The steady stream of corporate failures in recent years, and board indiscretions, suggests many Boards are simply not doing their job well however. Why is this?

    • Are director's schedules too full to give each Board the necessary time and effort?
    • Are Boards defaulting to the arguably "easier" task of risk management and performance monitoring, and taking their eye of strategy and future value?
    • Are directors simply not asking the right questions?
    • Is the safety of groupthink dominating the challenge of debating diverse options?

    Researchers have investigated many aspects of governance, including structure, composition and boardroom behaviour, in an effort to understand how boards work and how they contribute to performance. Independent directors have been held up as crucial to maintaining distance from the CEO and overseeing performance effectively. Gender (and other) diversity has been promoted heavily in many quarters. The forming of a strong team through high levels of engagement and "desirable" behaviours has also been explored. As yet, none of the research has exposed any conclusive results in terms of increased company performance.

    In my view, the prevailing theory of governance (agency theory), which underpins most governance frameworks today, is flawed. It is an adversarial model that assumes management cannot be trusted and needs to be closely monitored. This theory (and various incarnations arising from it) has not delivered the results the original proponents expected—despite many decades of trying.

    Rather than continue to dogmatically pursue a flawed model, we need to move on. The goal posts need to be moved—from a focus on compliance, structure, composition and behaviour, to a focus on strategy and value. The notion of a strategic board suggests a focus on future performance and value maximisation; on engaging with management and other stakeholders to develop strategy (together, not in isolation); on high levels of engagement, to understand the business and the market; on critical thinking and an independence of thought; and, on robust debates which explore a wide range of strategic options (diversity to avoid groupthink). 

    Imagine what Board meetings might be like if the focus changed. They'd probably last longer. There may be heated discussions. Directors would be read their papers before meetings, and they would be engaged. Necessarily, directors would sit on fewer Boards, because they'd be spending more time (making better decisions) on each one. But perhaps, if Boards were bold enough to change their focus, they might become more effective. Perhaps. Here's hoping.