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    Ten #corpgov musings that generated the most discussion in 2015

    Governance Performance Readings Research
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    The topic of corporate governance—that is, the functioning of the board—has generated much interest in the business community and beyond in 2015. From failures and successes, to emerging ideas and beyond, corporate governance has been front of mind for many throughout the year. Looking back, over 150 articles on corporate governance were added to Musings during the year. Here's a list of ten musings that generated the most discussion in 2015, in no particular order.
    The top ten #strategy list will be posted on Dec 26.
    If you want to discuss any of these postings (or ask a question about a related topic or request assistance), please get in touch. 
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    When is the best time for a board to ask probing questions? Now.

    Accountability Decision Making Governance Performance
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    As a director, where does 'risk' feature in your considerations? Is risk something that gets close attention only when a major proposal is being considered around the board table or when a significant and unforeseen problem occurs? Away from major events, is risk something associated with a register of items (that receives cursory attention)? And whose job is it to identify and manage risk in a company, anyway?
    Should boards rely on management to report both accurately and well, or do boards need to probe? If boards wait on management, as happened at the Christchurch Council a few years ago, the board is entirely dependent on the propensity of management to report risks both accurately and in a timely manner. If they do, well and good. If not, the consequences can be dire.
    Boards have a duty of care to ensure resources are applied well and that expected results are achieved. Verification is a crucial—to ensure projects are on track, that expected outcomes are being achieved, that material risks are being identified and that satisfactory mitigations are established. ​To monitor is insufficient.
    To remain silent and to rely on management reporting (only) is to abdicate one's responsibility. Take this current case, a project that has been allowed to run 100 per cent over budget. What got in the road of objective scrutiny? Hubris, ineptitude, incompetence or something more sinister? Might this problem have been avoided if hard questions were asked early on? Directors need to remember their fiduciary duty. The priority is to serve the company, not self. 
    Directors need to be as cunning as foxes, checking and probing from several angles, in case a problem lies in wait. The best time to ask probing questions is 'now', before it's too late.
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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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    The 'perfect' board size??

    Accountability Governance Leadership Performance
    What is the 'perfect' size for a board of directors? The debate has waxed and waned for years. Shareholders, nominating committees, researchers and boards themselves have asked a range of questions as they have tried to address the conundrum:
    • ​How many directors are required to get the work of the board done?
    • What is the ideal balance between quality and quantity?
    • At what point does cost become a burden (vs. value)?​
    Answers to these questions have proved to be elusive. The reason? Context. Every situation that boards need to consider is, to some extent at least, unique. Consequently, a broad range of skills and expertise is needed in the boardroom, to address different issues that come up at different times. A configuration that works well for one situation may not work well elsewhere. Consider these vignettes:
    • What about a small board of three or four directors? One small board that I was on (four directors) was great at making decisions quickly, which was helpful for the fast-moving context within which the high-growth company operated. However, we really struggled when one director was absent. On several occasions, we found ourselves reaching for external help because vital skills were not present at the table. The board discussed the matter at length. A decision was made to petition the shareholders for a larger director's fees pool, a cheaper and more effective option that paying external advisors for assistance. Sadly, the petition was never presented: the company was acquired soon thereafter.
    • What about a bigger board, to deal with a range of complex issues? Last year, I was asked to evaluate a board with eighteen (yes, eighteen) directors. When they were asked about board meetings and board practices, the directors said that meetings "took forever", that group dynamics were "overly complex" and that several directors were "passengers": clues that something was wrong. After further discussion, including the desire to move in a new direction (purpose and strategy were MIA), one of the recommendations to emerge was to ask shareholders to consider reducing the board size to nine directors, via a 24-month transition period of fourteen directors. The recommendation was accepted, and both board effectiveness and company performance improved as a result.
    These two cases demonstrate some of the typical challenges faced by small and large boards. While the best answer to the title question is 'it depends', a sweet spot does exist. Boards with between six and nine directors is about right—as Tracy Hickman reports—because board effectiveness seems to peak somewhere in this range. My research suggests bears this out. Boards with fewer than six directors have great dynamics and decisions are generally made quickly. However, small boards often struggle to deal with an array of strategic options, decisions and monitoring tasks. In contrast, group dynamics start to become unwieldy when the board size reaches double digits. Big boards are also expensive to run and the risk of passenger-directors increases markedly!
    ​If you'd like to know more about how to improve board effectiveness, or want to schedule a board review, please get in touch.
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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.