Decision Making - Peter Crow | Helping boards govern with impact

Published on: 2 July 2015

Directors: Are you paying attention?

This call might not be popular in some quarters. However, emerging research appears to suggest that attentiveness (by way of active engagement in board practices, and strategic management tasks in particular) is crucial if directors are to have any hope of making a difference to the future prospects of the company they are charged with governing.

If teamwork and effectiveness in the boardroom is important to you, it is likely to be important to your colleagues as well. Does your board have an established protocol on such matters? If not, a good starting point might be to schedule a discussion at an upcoming board meeting.

The board is the ultimate decision-making body in every company—it holds the mandate to optimise company performance in accordance with the wishes of shareholders, and it is the shareholders to whom the board must provide an account for their actions (or inaction). This is a weighty responsibility, especially when you consider the plethora of internal and external factors that can affect company performance.

Yet some directors seem to be more interested in collecting appointments than in adding value. Things can change in the blink of an eye. Consequently, directors need to be attentive (by guarding against distractions, tiredness and having too many irons in the fire especially) if they hope to fulfil the responsibility delegated to them by shareholders.

Published on: 30 June 2015

Is it time to accelerate your company's success?

If any of these questions triggered a thought in your mind, then perhaps we should talk. I will be in the UK in 1–11 September (for speaking engagements including the results of my latest research). If you would like to learn more about board practice, corporate governance, strategy and value creation, please get in touch so we can schedule a discussion. I'd be glad to learn about your business and understand how I can help.

Are you eager to realise the potential of your UK-based business?
Do you have a robust strategy in place to drive the future success of your business?
How is your board of directors performing?
Would you like to see more value from your board?

Published on: 29 June 2015

What makes a CEO succession plan appropriate?

Succession plans are an appropriate tool to mitigate risks associated with the departure of a key executive. However, they are not normally this prescriptive ("chairman...has taken over as CEO in accordance with the company's succession plan"). To name the chairman in the succession plan does not seem to be appropriate. It is hardly in the best interests of the company. What about other executives or an external candidate? While directors filling roles temporarily—and even gaining a permanent appointment—is not without precedent (Ralph Norris at Air New Zealand being one notable case), the decision of the Coalfire board to pre-empt a contestable process seems to be somewhat short-sighted.

An appropriate chief executive succession plan usually outlines the process by which the board will approach the task of filling a vacancy, including how decisions about the appointment of an acting chief executive will be made and how the board will work with the acting chief executive in the interim. However, smart boards go further than this. They work hard to identify potentially suitable candidates from amongst the executive often many months (sometimes years) before the vacancy occurs. The Coalfire case is unusual in that the chairman was named in the succession plan. One presumes this decision was made when the board thought the chairman was the best and most suitable candidate. However, that decision was made at some point in the past. Whether the chairman continues to be the best candidate does not appear to have been tested. I wonder what the shareholders are thinking just now (*).

(*) My condolences to the family and friends of Rick Dakin at this time of his unexpected passing. This muse reflects on the decison-making and succession planning practices of the board both before and after the event of his passing. It is not intended to lessen Dakin's impact on the business nor the magnitude of his loss.

Of all of the roles within a modern corporation, the role of chief executive probably ranks as 'the most important'. Although the board carries the ultimate responsibility for the performance of the company, the chief executive is the standard bearer—they hold and cast the company's vision. The chief executive is also accountable to the board for the implementation of the company's strategy. Consequently, the role is crucial to the long-term performance of the company—an unexpected departure can leave a company floundering while a replacement is sought.

Published on: 22 June 2015

ICGN, IGW, EURAM : Post-conference reflections

All of the host organisations rang great conferences. Thanks ICGN, Toulouse Business School and Kozminski University! That you attracted and hosted delegates from around the world, and stage-managed them to the correct venues and activities at the correct time, and fed and watered them, and attracted great speakers like Bob Monks, Martin Wolf and Lech Wałęsa to speak is a testament to the quality and reputation of your organisations.
The 20th ICGN annual conference was a lavish affair with close to five hundred delegates in attendance. Of the three conferences, this was the most commercially focussed one. Most of the delegates were active in the institutional investor community. Serving company directors and academic researchers were very much in the minority. While this conference has a well-established constituency, I could not help but think that the quality of the conversation, and the impact on board practice and business performance, would be enhanced if more serving company directors and board researchers were in attendance, both to speak and to participate in the debate.
The International Governance Workshop, in Barcelona, was the smallest of the three conferences—by a long way. Fewer than thirty board research scholars assembled to discuss emergent themes. Yet, the quality of the discussion was outstanding. That the conference has managed to attract such a strong cohort of esteemed scholars is amazing, especially when the cost of getting to conferences and the plethora of choices is taken into consideration. This workshop is on my 'must attend' list.
EURAM is a good forum within which to exchange management ideas. I overheard many enthusiastic discussions in hallways and over coffee and food. It's a pity that the conference only attracts academics (which is perhaps not surprising, as EURAM is an academy after all). Notwithstanding this, the EURAM executive may wish to take steps to bridge the academy–practice divide by inviting more business people, to address the conference and to participate as delegates.
A concern about EURAM? Membership is steady at about 1200 members. About 1300 papers were submitted, of which 650 were accepted onto the programme after the review process (the corporate governance special interest group received 60 papers, of which 46 were accepted). These numbers make good reading, until the surface is scratched. It turns out that EURAM experiences a 70 per cent turnover in membership each year (yes, seventy per cent)! That EURAM experiences this level of churn should be ringing alarm bells. Something about the organisation is broken, or are academics simply being mercenary (buying a membership only for those years that they attend the conference)?

The last three weeks have been great, although progress towards 'effective corporate governance' remains torturously slow. Notwithstanding this, I met some amazing people and learnt a lot. The challenge now is to assimilate the newfound knowledge, and to incorporate it into my advisory work and research, so that directors and boards can gain benefits as well. If you wish to know more, or arrange for me to speak with your board, please contact me directly.

The annual European Academy of Management conference is done for another year. Consequently, my commitments in the UK and Europe are also done. As I make way home (my favourite destination!) and reflect on both EURAM and the two preceding conferences (International Corporate Governance Network and International Governance Workshop), the following ideas and observations come to mind:

Published on: 20 June 2015

EURAM'15: Governance in social enterprises

If you were to look across the board research landscape, the view would be dominated by studies of large, publicly-listed (and typically Anglo–American) corporations. Small-medium enterprises, family-owned businesses and businesses in emerging economies have received far less attention (although this is starting to change), and social enterprises even less so.

Saskia Crucke, of Ghent University in Belgium, is interested in social enterprises and, more specifically, in the governance function. She reported the preliminary results of a study that is considering governance in a category of social enterprise called Work Integration Social Enterprise (WISE). WISEs help disadvantaged or disabled people enter or return to the workforce.

Crucke is using an organisational behaviour construct called 'faultlines' to try to understand why some WISEs perform better than others. She used a two-stage questionnaire (the first to ask the chairman and CEO about the WISE, and the second to ask all board members questions about decision-making and performance) to collect data from several dozen Belgian WISEs for analysis. Her preliminary findings show that where faultlines exist, decision-making is impaired and organisational performance is weaker.

While this result may sound self-evident to some, it does provide a useful platform for further (qualitative) research, to discover how and why decision-making is compromised, and to inform board member recruitment. If faultlines can be minimised, then higher levels of organisational performance may be possible on an on-going bass. For a sector that is typically cash-strapped, that would be a very good outcome.

Published on: 19 June 2015

EURAM'15: Corporate governance, firms and boards of directors

Two interesting papers, that explored various aspects of chairman effectiveness and CEO succession, were presented during the late-morning session of the first day of EURAM2015:

Tien Nguyen, a doctoral candidate from the University of Sydney, presented preliminary results of her research on the influence of board chairman on firm performance. She suspected that share ownership was material to any influence, so designed a quantitative study to analyse some industry data. The preliminary analysis (which considers share ownership, tenure, prior industry experience and intra-industry networks) suggests the prior industry experience and share ownership are crucial to firm performance. However, Nguyen qualified her comments that the analysis is incomplete and that the results will be limited to correlations not explanations. For that a new [qualitative] study will be required, to look at 'how' and 'why' influence in exerted by the chairman, and the conditions under which such influence might be effective.
Ljiljana Erakovic, Associate Professor at the University of Auckland, described the findings of a recent case study which explored CEO succession at New Zealand's flagship airline, Air New Zealand. She and her team interviewed all of the directors that have served over a twelve year period, to understand how CEO succession was handled and to provide guidance to boards. The analysis of the interview data identified that a clearly defined and agreed recruitment process; and strong cultural fit between the candidate and the company; and, the early on-boarding of prospective external candidates into senior roles (almost as a try-before-you-buy) appeared to be crucial to the successful appointments and tenures of CEO's Sir Ralph Norris, Rob Fyfe and, most recently, Christopher Luxon. Erakovic suggested that the learning from this case is that chances of successful CEO appointments are enhanced if boards focus their attention on a few key things, including starting into the succession and recruitment process early, as early as eighteen months before the outgoing CEO leaves the company.

Tags