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    Health sector seminar: Board governance, a reality check

    Decision Making Ethics Governance Leadership Societal Wellbeing Strategy
    Every day, around the world, leaders in the health sector face a formidable challenge. On one hand, insatiable demands press in as people expect physical and mental health (foundational to our well-being). On the other, resources are limited—providers simply can't do everything. Consequently, tough choices need to be made, to ensure the appropriate services are delivered, efficiently and effectively. The complexity of the problem means 'best practice' answers are few and far between. However, progress should be possible if a clear sense of purpose, appropriate strategy and effective monitoring systems are all in place.
    The England Centre for Practice Development is hosting an interactive seminar on 11 September, to help health and social care sector leaders explore these key issues and challenges. I have been asked to facilitate the seminar, and to share insights from research and experience in boardrooms. Topics to be discussed include:
    • Lessons from the coalface ‘School of hard knocks’
    • Emerging international research
    • Keeping strategy on the agenda
    • Driving (the need for) efficiency and effectiveness
    • Ensuring accountability and performance
    • A pathway forward: An integrated strategy framework for boards
    If you are a board director or an executive of a clinical commissioning group or health provider; a policy maker; a researcher; or, an interested party, I encourage you to join the debate. 
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    The Toshiba case: Is it time to re-think our understanding of corporate governance?

    Accountability Decision Making Ethics Governance Leadership Performance
    These seemingly innocuous statements are telling: Fix the compliance and the problem will be fixed. Yet history (Olympus, HSBC, FIFA, amongst many others) shows otherwise. Neither the 'monitor and comply' conception of corporate governance, nor the 'advise and monitor' variant espoused by many corporate governance codes and directors' institutes have achieved the desired outcomes. Yet, many boards dogmatically pursue such conceptions. 
    The problem seems to be more fundamental. The contemporary conception of corporate governance seems to be flawed. Consider these statements, which highlight the problem:
    How many more failures will it take to realise that additional layers of regulation and compliance-oriented boards that operate as policemen don't actually add value? How many more failures will it take to acknowledge that a new understanding of corporate governance and appropriate board practice might be appropriate? Emerging research seems to suggest that when boards adopt a strategic orientation, and corporate governance is re-conceived as a value-creating mechanism, increased performance is not only possible—it is potentially sustainable. Please get in touch if you'd like to know more.
    The now very public overstatement of profits at Toshiba (approximately US$1.22bn over six years) has led to the downfall of the chief executive, Mr Hisao Tanaka (below), and seven other senior managers, all of whom were also board directors. The share price has taken a 25 per cent hit and the company's reputation is in tatters. What a mess. At least there is a modicum of accountability and remorse, something sadly lacking in many other cases including HSBC and Lombard Finance. 
    Thankfully, people have begun thinking about what needs to change. So far, the response has followed a predictable course: The possibility of appointing independent directors to replace the disgraced directors has been mooted. Will this structural response be enough to fix the problem? Maybe, but I'm not convinced. Compliance responses rarely lead to sustainable change. (The compelling case is Sarbanes–Oxley: created post-Enron, it did little to prevent the GFC.) 
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    On diversity: How many is too many, and does it matter?

    Decision Making Diversity Governance Performance
    Calls in support of appointing women as corporate directors have proliferated in recent years: the stated view being that the presence of women around the board table can improve decision quality and, potentially, business performance. Some legislatures have supported these calls by implementing quota systems. Many (but certainly not all) boards now count at least one female amongst their number.
    Anecdotal commentaries suggest that the level of attendance, engagement and discussion quality improves after a woman is appointed to a board. This is good, but another question lurks around the corner: If one capable women makes an impact and two more so, is an all-female board better still—or can we have too much of a good thing? Might an all-female board be as problematic as a board comprised only of men?
    I've seen some great all-male boards, some great all-female boards and, sadly, some rather ineffective diverse boards in action. That a diverse range of options are explored, independence of thought is displayed and that directors make considered decisions seem to be more important considerations than the physical composition of the board. Thankfully, the rhetoric is starting to mature along these lines. Hopefully director selection processes will soon follow, such that the qualities possessed by directors and the way they work together in the boardroom are the main considerations. Then, the gender (or any other diversity attribute) of directors should matter no more. Might this offer a viable path forward?
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    Success attributed to board: Lessons for all

    Accountability Decision Making Governance Leadership Research Strategy
    How valuable is a board of directors to the performance of the business it governs? Does it influence business performance; or does it act as a policeman, "simply" monitoring the chief executive; and, do we even know? Many have attempted to answer this question. More often than not, the responses have been based on statistical analyses of secondary data (surveys, questionnaires, public data). Descriptions of what actually occurs in the boardroom typically remain hidden. Insights from direct observations of boards in action or from first-hand interviews are rare, so it pays to take note when they become available—as occurred when Nigel Bamford, chief executive of fireplace manufacturer Escea went on record this week. His comments, reported here, provide some interesting insights for boards to consider:
    The Bamford interview provides a much-needed glimpse into the boardroom of a successful company. However, and thankfully, the Escea experience is not unique. The insights are consistent with emerging research about what boards need to do if they are to exert influence on business performance. Consequently, important questions for your own board to consider include:
    • The Escea board meets monthly, for two hours per meeting. Despite this small amount of time spent together, the board manages to monitor past performance and look ahead. This suggests that the chairman has a disciplined approach to meeting protocol, and that the board has at least one eye on the future success of the business.
    • The board is comprised of directors with "a whole range of different perspectives and different disciplines". Decision quality appears to have benefited as a consequence.
    • That the board is comprised of three company founders and two external directors suggests that technical independence (as promoted in many corporate governance codes) is not necessary for board effectiveness including effective decision-making.
    • The emphasis in Bamford's comments is on debate and diversity of thought. Gender and other forms of observable diversity were not mentioned.
    • The Chief Executive expects the board to 'add value' by challenging proposals and driving the decision-making process.
    • A one-size-fits-all approach to board practice and corporate governance is not appropriate.
    • While the Escea board looks ahead, strategy was not explicitly mentioned. Whether the board works with management on the development of strategy, or critiques strategic options and proposals presented by management is unclear.
    Bamford's final comment is perhaps the most telling. "In time, a board is useful for all businesses of reasonable scale and ambition." Two important lessons emerge from it:
    • Formalised boards and board practices are helpful once ambitious (growth oriented) businesses have achieved reasonable scale, and if attention is focussed on the future.
    • Formalised board structures and practices are not always necessary (beyond statutory requirements), especially very small businesses where the same person or group of people both own the company shares and manage the business. Meet your statutory requirements but don't burden the business with unnecessary corporate governance and board practices. They are not required.
    • How might the insights discussed here help your board lift its performance in pursuit of business success and value creation?
    • Might a discussion at your next board meeting, to consider the appropriateness of your current board practices be useful? 
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    Big ideas and goals are insufficient, strategy needs to a purpose

    Decision Making Governance Performance Strategy
    The seemingly innocuous statement, that business success is predicated on creating an effective strategy to achieve a goal, seems to have a fairly broad following amongst company leaders and directors. However, the reality (of what is needed to achieve business success) is somewhat different, as Ken Favaro points out here. Favaro's commentary is helpful, but only to a point. His suggestion that a 'big idea' is necessary to success is not particularly reassuring. What of all the other successful companies out there? How did they succeed if they didn't have a singular 'big idea', or even several 'medium ideas' for that matter? There's got to be something else that drives success.
    The consistent theme that I've observed amongst companies that have enjoyed long-term success is that they have had a clear sense of why they exist—a purpose. This is because people get behind causes, not things. Sinek's 'golden circles' thesis is the best annunciation of this that I have seen.
    Boards and management teams grappling with strategy and the future of their business should watch Sinek and use his ideas to re-think their business. Those that do so have told me it's the best 18 minutes they have invested for a long time, far better than any search for a 'big idea'.
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    An interesting twist in the Hanover Finance case

    Accountability Decision Making Governance Performance
    The demarcation between the responsibilities of directors and promoters and those of shareholders was made plain in the Hanover Finance case today. The Financial Markets Authority filed a civil suit against six named parties (five directors and one shareholder), following the collapse of the business several years ago, and a decision by the Serious Fraud Office to abandon criminal charges. The FMA has been pursuing the parties for a couple of years. Now, today, an $18M out of court settlement has been announced. However, there is a catch.
    Five of the six parties (the directors, excluding the named shareholder) were named. The sixth party, well-known businessman Eric Watson, refused to admit he was a promoter of the company (as claimed by the FMA). Consequently, he has avoided being named as a party to the settlement. Thus, the decision demonstrates the distinction between the responsibilities of directors (to make decisions and bear consequences) and those of shareholders (liability is limited to loss of equity).
    One final point. The response of the directors was interesting, to say the least. The directors continue to deny any liability for wrong-doing—even though they agreed to the settlement. Huh? A company has failed. The directors knowingly made major decisions including the issuance of prospectus documentation and they promoted the prospectus. Agreement to settle (funded by insurers, no doubt) implies culpability at some level you would think. Yet liability is denied. Doesn't that sound a bit odd?