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    The scope of corporate governance: an analogy

    Decision Making Governance
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    It seems a question I posed last week, which asked whether our understanding of corporate governance might be flawed, struck a chord. Many readers replied via email and LinkedIn, and two picked up the phone to discuss the matter further. The general tenor of the feedback was supportive, which is gratifying. However, one person said they were confused by the corporate governance rhetoric. They suggested that an analogy might be useful, to help them (and others) make sense of various claims and counter-claims.
    The best analogy that I know of is parliament (House of Commons, House of Representatives, Congress). When the House in session, Members meet together in the debating chamber to speak, debate and make decisions on various issues. Most people would agree that this is governance in action—parliamentarians working as a collective, presumably with some purpose in mind. But is this the extent of governance, or does the scope reach beyond the debating chamber? Take the following examples. Are these closely related activities governance?
    • The preparation of draft legislation.
    • Officials who enact decisions and statutes. 
    • Parliamentarians meeting outside the House, to promote points of view and test ideas.
    • The election of parliamentarians.
    Few readers would have difficulty in giving these activities their correct names: drafting of statutes, implementation, lobbying and selection. None of these activities are governance. Intuitively, we know that the governance of our country only occurs in one place, the debating chamber, and even then only when the House is in session. ​Assuming the analogy is fair, why is the scope of corporate governance viewed so differently by so many?
    Is this analogy helpful? If you know of another that works well for you, please feel free to share it, so we can all learn from the exchange.
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    Are you onboard or overboard?

    Accountability Decision Making Governance Performance Strategy Tough Questions
    This muse is the second in an occasional series being written over the holiday period entitled Tough questions about boards. The first muse considered the question of board size. This one looks at board commitment, by asking the question:
    • How many directorships is it 'reasonable' for a competent director to hold at any one time?
    The number of concurrent board appointments is a touchy topic for some directors, especially those who think in terms of turning and contributing 'on-the-fly'. How any director can expect to make meaningful a contribution without reading reports and thinking critically about the matters at hand well in advance of the actual board meeting is beyond me. I've written about this before. Then, I suggested that four concurrent directorships (of mid-cap publicly-listed or privately-held companies) was a reasonable upper limit for any director that hoped to make a meaningful contribution to board discussions, decision-making and, ultimately, company performance.
    The feedback at the time suggested the commentary struck a nerve, and that change was coming. Now, two years on, I'm not so sure. A conversation with a colleague earlier this week leads me to believe not much has changed. The colleague recounted a conversation he had with a director who off-handedly said that ten boards was her working maximum. "Beyond that, things get a bit hectic", she apparently said. Imagine that: ten boards! She must have a big brain to hold the details of ten companies, and know something about time management that most of us don't. However, that director is not alone, ​if the stories in this article are any indication. 
    Why do boards and shareholders continue to ask busy people, including so-called celebrity directors, to join their boards when there are literally hundreds of highly competent director candidates (with sufficient space in their diary to learn the business well and make a meaningful contribution) available to choose from? Have they/we lost sight of why boards exist and of their role in value creation? On the evidence above, perhaps we have.
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    On 'corporate governance': Is our understanding flawed?

    Accountability Decision Making Governance Performance Tough Questions
    ​One of the enduring questions of my career as a board advisor and company director is this:
    • When and how did our predeliction for the term 'corporate governance' emerge?
    ​My father was a company director, of a large processor in the dairy sector for fifteen years. He hadn't heard of the term until six months before he retired in 2001, when a young director who had recently joined the board started using the term. To that point, my father thought that directors governed and provided direction, and he was not alone.
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    A search back in time reveals that Eells (a researcher) was the first to use the term—in 1960—to describe the functioning of the polity (the board). Then, silence reigned until 1977 when the term appeared in HBR and subsequently in 1980 in academic journals. Yet since 2000, when the term entered the public's consciousness (perhaps as a result of media reports of hubris, incompetence, moral failures and fraud amongst directors), usage has exploded.
    ​Today, the term's usage has become so commonplace and distorted that a correction is needed.
    ​Corporate governance--the act of steering, guiding and piloting—describes what boards [should] do when in session. It does not describe and is not a proxy for the board itself, nor any other party or activity outside the boardroom. Regulators (to set rules), proxy advisers (lobbyists on behalf of shareholders and other interests), and shareholder meetings (communications) are all important, but none is corporate governance.
    Rob Campbell, your call to address this misunderstanding is both timely and most welcome. Directors institutes, business schools and consultants should take note, lest the expectations of the market, regulators and shareholders—not to mention directors themselves—wander further away from their original purpose, which is to pursue business performance in the best interests of the company and on behalf of shareholders.
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    Strategy without purpose is, actually, just a collection of activities

    Accountability Decision Making Governance Leadership Strategy
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    Do you know why your company exists, it's raison d'etre? Can you provide a clear and succinct response to the question, or does the question leave you somewhat flummoxed? When I ask the question of others (it's usually the first thing I ask when leading a strategy development workshop), the most common response is a description of what the company does. But this does not answer the question! 
    Most people (especially your staff, customers and suppliers) don't care what your company does, they want to know why. You need to be able to tell the story. This article, published by Harvard Business Review sums it up nicely. Here are some questions for your board to consider:
    • Does your company have a single, clearly-stated purpose?
    • Is the purpose consistent with the wishes of shareholders?
    • Is your company's strategy demonstrably linked to achieving the agreed purpose?
    • Has the purpose been communicated throughout the company?
    • Do people (the board, management, staff) buy in to it?
     Directors need to get their collective heads around these questions. It's a matter of leadership, and of accountability. Let me know if you need any assistance with this, I'd be delighted to help.
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    Effective boardroom practices: Dispatches from Singapore

    Conferences Decision Making Diversity Leadership Performance Research Speaking Engagements Strategy
    ​Nearly fifty chairmen, directors and company secretaries from around South-east Asia, the Middle East and Northern Africa gathered at the Ritz–Carlton Millenia Hotel in Singapore this week for The Boardroom Agenda conference. Delegates received presentations, shared stories and debated issues over two days (23–24 November), under the Chatham House rule. I had the honour of contributing to the discussion on the second day. Here are some of the takeouts:
    • Neal Cross, Managing Director and Chief Innovation Officer at DBS Bank provided a stirring keynote presentation to kick off the day. Disarmingly frank in delivery, his topic Fostering innovation in the boardroom was both challenging and well-received. Cross asserted that banks simply must innovate, and radically so, lest their market collapses around them as fintechs and large technology companies (read: Google, Amazon, Apple, others) eat the bank's lunch. He then outlined the DBS approach to innovation, which includes a three-day 'hackathon', whereby teams of staff are set up to create new product ideas. The resultant ideas are pitched to the board, and funding is provided to commercialise the best ones—entrepreneurship in action.
    • Raoul Chiesa, Board Member on the Italian Association of Critical Infrastructures delivered a wake-up call to delegates. Speaking straight off a flight from Europe, Chiesa, an expert of information security matters, summarised the history of hacking and the crucial need for boards to take information security seriously—all with some powerful (and quite alarming) case studies and real-world examples. Delegates were amazed at the scale of the problem and the material risk to commerce that 'the bad guys' present. The cyberthreat is widespread and poorly understood, especially in boardrooms. The message was clear: boards need to get up to speed, by receiving presentations and updates from experts; asking probing questions; taking a strategic view of risk; and, empowering the CEO to act.
    • The pre-lunch session took the form of a panel discussion and dialogue with delegates. I joined Ralph Ward at the front of the room. A wide range of topics were explored including the merit of codes of conduct; diversity in the boardroom;  the conundrum of balancing conformance and performance; confidentiality; conflict management; the conduct of effective board evaluations; and, the difference between so-called independent directors and independence of thinking. Delegates seemed to appreciate the candid responses from panelists, including recognition that no one-answer-fits-all; best practice often isn't; and that the work of the board can be messy.
    • After lunch, delegates attended one of two streams. I chaired the Board Insiders one. Dr Lim Lan Yuan, a Singapore-based business and law scholar and company director spoke first. He managed to squeeze forty years of experience into a thirty-minute talk. It was a sight to behold. Delegates were enthralled with his summary of how boards should work; how they actually work (or don't); the importance of a clear division of responsibility between board work and management activity; the importance of the board undertanding the business of the business, strategy and market trends; boardroom dynamics; and, anecdotes of associates that messed up (badly) and went to jail. That Dr Lim was able to move seamlessly between theoretical concepts, practical recommendations and real-life stories as he spoke helped the delegates gain considerable value from the talk. The only person who struggled with his commentary was me: Dr Lim covered off several of the points that I was going to discuss in the following slot. Consequently, a few on-the-fly adjustments were needed to extend the discussion to related areas of interest (see pic below). That the delegates heard similar stories and recommendations from two different speakers with different cultural and business backgrounds was hopefully encouraging—and supportive of the notion that 'good practice' is good practice almost anywhere.
    • The final session of the day was a 'deep dive', whereby delegates gathered around one of two tables to consider a table-question and to share experiences. One table was asked to identify factors that contribute to both good and bad dynamics in a boardroom, and the other was asked to discuss how a board should function in the event of a major crisis. The groups had 30 minutes or so to wrestle with the assigned question and then report back. The insights shared were great, and the good-natured banter demonstrated that the delegates had built a good rapport with each other. Thank you to Dr Lim and Curtis Chin who moderated the table discussions. You made my job of session chair very straightforward.
    • The conference was organised by marcusevans. Their people did a great job, both in the weeks leading up to the conference and at the venue itself. If you get the chance to work with them, take it.
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    ​I've come away from the conference with the impression that the quality of corporate governance and board practice in Asian and Middle Eastern economies is rapidly improving. Overall, the hunger to improve board effectiveness was plain to see, as was the desire to learn from those with experience gained elsewhere (if the many conversations, requests to return and business cards in my satchel are any indication). However, care must be taken to ensure that models and frameworks in use in the Anglosphere are not blindly implemented in this region. Such colonialism is unwarranted and patronising, and it may be culturally demeaning as well.
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    Governing Apple is nothing like governing a fledgling company

    Accountability Decision Making Governance Performance Research
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    What is it with corporate governance? Thirty years ago, the term hardly rated a mention in business magazines—let alone general conversation. Now, corporate governance is seen by many (tacitly at least) as a panacea for all manner of corporate ills and director recalcitrance. The pursuit of best practice models (the one-size-fits-all approach) has become commonplace, even though the operating context of and challenges faced by small and medium companies are fundamentally different from those of publicly listed corporations. 
    Mak Yuen Teen, an associate professor of the NUS Business School and corporate governance expert thinks the one-size-fits-all approach is myopic and has just gone on record on the matter. Furthermore, many commentators, regulators and serving directors seem to have lost sight of Sir Adrian Cadbury's commentary, that corporate governance is primarily about the performance of the business. My experience, in research and as a serving director bears this out.