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    What is it with IT governance? 

    Governance Leadership Management Performance
    I got a bit frustrated yesterday. Three messages arrived from people promoting IT governance—heavily. The problem wasn't so much the topic per se, but rather the brow-beating that accompanied it. According to the messages, companies need IT governance, and it is important for CIOs to be appointed to boards. Really? The board's responsibility is to think about the company as a whole—to set strategy; to make decisions; and, to monitor strategy implementation to ensure goals are achieved. I couldn't find a credible explanation as to why IT governance was crucial, so decided to ask the question:
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    To my surprise, the question was retweeted to tens of thousands of others. Several influential people replied privately to say they were puzzled. @ToGovern replied publicly, as you can see. As I've thought about it some more, I've found myself wondering why people find it necessary to grab concepts, re-name them and re-apply them, often inappropriately. For example:
    • Why isn't the process of managing the implementation of a major technology system called 'project management' any more? Surely the board would be more interested if the Project Manager provided a straightforward report to each board meeting, to enable it to monitor and verify the implementation of its earlier decision to approve the project investment?
    • If technology looms large within a strategic priority, or has the prospect of becoming a disruptive influence on the company's business model, why wouldn't a board co-opt a specialist advisor (or several, if the topic is sufficiently complex) for a period, to help it work through the issues and reach an informed decision?

    The board's interest in the first example is verification, and strategic decision–making in the second—both of which are important parts of the corporate governance remit. The information feeds to inform these matters are just that, information feeds. If IT professionals want boards to understand what they do; what they want to do; and, what the emerging trends are, they need to think and speak like boards do. Proposals need to be in the context of approved strategy. Project and management reports both need to demonstrate progress towards agreed corporate goals. Market reports needs to demonstrate relevance to, or impact on, the corporate strategy. If managers write their board reports and provide information in this way, and advisors provide sound advice, directors should have no problem asking appropriate questions in order to understand the issues. If this happens, technology-related topics can be handled by boards in the same way as any other major agenda item, can't they? 
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    Congrats IoD—now others need to take heed

    Governance Leadership Performance Societal Wellbeing
    The Institute of Directors has just played a wonderful hand, and in so doing may have started an important transition—from being perceived as being a nice club for well-to-do directors, to being a forthright influencer in the commercial world. In recent years, most professional bodies seem to have concentrated their efforts on recruitment, membership services and education. Some, including the Institute of Directors in New Zealand, have established a chartered director programme, in an effort to raise the level of professionalism across the director community. However, one important element has been missing, or at least not apparent, until now: lobbying.

    The Institute seems to have emerged from the shadows however, by taking this tough stance on executive remuneration. While the move may not win many friends amongst those who frequent the top echelons of corporate power, it signals a return to the principles of the royal charter under which the organisation was formed. It also signals intent: to hold directors accountable and, hopefully, to commence an active lobbying initiative. That standards of professionalism be raised, lawmakers be influenced and directors be held to account bodes well for shareholders seeking to wrest back control of the companies that they own. It also bodes well for the community, because high company performance is an important contributor to economic growth and societal well-being. 

    Congratulations are due to the Institute. Simon Walker and his colleagues have made a bold move. Now we need to see more of this type of behaviour—from the Institute, and from the institutes in New Zealand, USA, Australia and elsewhere.
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    On entrepreneurs, boards and influence

    Governance Leadership Management Performance
    Since Robin Williams' passing earlier this week, I've been pondering the gifted–troubled tension that many highly capable people struggle with. Williams was a gifted actor, yet he had a troubled private life. He wasn't unique in that regard: Alan Turing, John Nash (A Beautiful Mind) and many others were similarly afflicted.

    As I pondered this, something dawned on me: many entrepreneurs face the same tension. They are great optimists, yet they often harbour a darker side. They have more ideas than most of us have hot breakfasts. However, many don't listen or take guidance well. They are happy in public, but some, privately, actually lack confidence and self-esteem. Consequently, the oversight of companies led by entrepreneurs can be a big challenge for boards: one of influence. How does a board get the most out of the entrepreneur, without suppressing their optimism? How about motivation? Zach Cutler's insightful summary, of five things that happy entrepreneurs take the time to do, provides a really good starting point for boards:
    • Give money
    • Treat everyone with respect
    • Don't sweat the small stuff
    • Try to utilise the company platform to help the community
    • Display gratitude

    If boards can find ways of supporting these things that motivate entrepreneurs, then they may find it easier to focus their enthusiasm and optimism—onto the things that actually matter for the growth and development of the company, not just those things that grab the entrepreneur's attention today.
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    On capitalism, stock markets and wealth creation

    Governance Leadership Performance
    The steady stream of new listings on the New Zealand Stock Exchange in recent months has been fascinating to watch; the behaviours of the participants especially so. Stock markets are, by their very nature, bastions of capitalism; a central place for sellers and buyers to trade stocks in the pursuit of personal or corporate wealth. The New Zealand market is no exception.

    The New Zealand market is operated by NZX Limited, itself a publicly traded stock. Yesterday, when NZX reported its six-month result ($7m profit on $31.2m revenue), the CEO touted for more listings. This should not be surprising, as more participants means more revenues. High company performance is generally recognised as being good, because important economic and societal benefits flow from high company performance—as long as the profits stay in the system. Yet when one looks under the covers, a large portion of the profits being generated by NZX may actually be leaving the system.

    The largest NZX shareholder (39%) is New Zealand Central Securities Nominees Limited, a trading company owned by the Reserve Bank of New Zealand. This means nearly 40% of all dividends paid by NZX go to the government; they leave the system. Is this good? Rather than an exchange that generates large profits—much of which end up in the governments coffers—wouldn't the market be better served by one that operates on a cost-recovery basis, whereby all participants pay a recovery levy to play? Given NZX's inherent efficiency, fees could be reduced by 22% without difficulty. This would leave more money in the hands of the participating companies—where it is most needed to grow and develop the economy. Such an approach seems to be more conducive to capitalist ideals and, importantly, improved societal wellbeing don't you think?
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    The inside/independent director tension: are we there yet?

    Governance Leadership Performance Research
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    Harking back to your childhood, do you remember asking "Are we there yet?" while travelling with your parents? I do, and sense my parents' negotiation skills and patience were tested each time one of their four sons opened their mouth.

    Fast forward to 2014. I want to ask the question again, although in a different context: the debate over the value and contribution of inside and independent directors. The debate has been simmering away for years. On the current evidence, it shows no sign of abating or of being resolved. Two recently published articles highlight the problem. The case for independent directors made by Larry Putterman, and the suggestion that independent directors destroy shareholder value, have stimulated a fair bit of discussion. Which one is right? They both can't be, or can they? The tension is palpable.

    Many corporate governance researchers—and practising directors and other commentators—seem to have a love affair with counting things and with finding a single "truth" about the way to achieve a desired result. Boards are made up of people who make choices, and they change their mind based on the circumstances before them. Therefore, every board is, to some extent at least, unique. What I can't understand is why we continue to think that a specific structure or composition might make one iota of difference to performance. Surely studies of boardroom behaviours, interactions and activities are more likely to lead us to a credible answer to the conundrum?
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    Advisory boards and deemed directors: redux

    Governance Leadership Management Performance
    I've been asked to several times over the last month to explain or expand my views on advisory boards. It seems that some of the comments I've made in meetings and on this blog have set people thinking. That's not a bad thing in my view, but because boards are complex, things change, and the popular answer is not always the best answer (although it can be). The most recent discussion took place on a domestic flight last week. I happened to be seated next to a professional acquaintance. We struck up a good conversation on a range of topics. After a lull, he asked "So what have you got against advisory boards?" We had a good chat. Rather than replay that conversation here, I thought it might be helpful if I pulled up the following short piece to ponder. It was written in December 2013:
    The matter of advisory boards has become topical in recent years, particularly amongst emerging companies seeking additional help. Advisory boards are established in many cases to provide advice and oversight on some sort of ongoing basis—the motivation being to access advice without forfeiting control or passing responsibility.

    However, vital differences between boards of directors and advisors to boards are not well understood, such that advisors may be deemed to be directors (or officers) anyway. Kevin McCaffrey made this point at a symposium earlier this month (see point #4). The matter has also been discussed on the Institute of Directors' discussion page on LinkedIn.

    As a further illustration, the Employment Relations Authority has reportedly imposed maximum penalties against a business owner and her advisor in relation to an employment matter. While this case appears to involve malpractice, it highlights the point of this post—that advisors can be (and increasingly are) deemed to be accountable in the eyes of the law. Caveat emptor.
    My view on advisory boards is "be careful, be very careful". If you want advice on a specific matter, buy it. However, if you want on-going assistance to set the direction of the company, spread the decision-making risk and to drive performance, then a board can be a helpful construct. But please, don't get advisory services confused with corporate governance.