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    Boards: a timely call for courage

    Governance Leadership Management Performance Strategy
    I had the pleasure of working with 24 outstanding business leaders and company directors yesterday—delegates on the IoD Company Director's Course. The topic of the day was strategy, as it always is on the second day of the course. My task was to lead the day and provoke discussion and debate, as part of the learning experience. The entire course is run under The Chatham House Rule, so delegates can speak freely and use real-world examples without fear of sensitive information being made public. However, some of the themes and conclusions that emerged from the discussion can be mentioned:
    • Boards need to be involved in the development of strategy, in some way.
    • A standard lexicon is crucial, so that everyone knows and understands what is meant when certain words are used. (We had a lengthy discussion on the question, "What is strategy?")
    • Boards owe a duty of care to ask probing questions of management, to satisfy themselves as to what is really going on.
    • Business is complex and strategy development is not straightforward. Things change, and sometimes tough choices need to be made, often without complete information.

    As we worked through the day, it became clear that the delegates had a realistic view of how boards and business actually work, and they recognised that there is often a gap between [tidy] theory and [somewhat messy] practice. The separation of governance and management, first espoused by Berle and Means in 1932 and now accepted dogma for companies in the Anglosphere, may not be the best model, for example. The discussion reminded me of a timely call made in an article that appeared in The Conference Board Review recently:
    Unfortunately, despite the theory on how boards are supposed to work, the reality is considerably messier. Reinvigorating boards with curiosity and courage would be a very good place to start fixing what is broken.
    Hopefully, delegates are able take away something from the course to ponder and challenge their status quo and some of the accepted maxims of governance. Boards cannot afford to remain as "parsley on fish—decorative but useless" (Irving Olds, Chairman, US Steel 1940–1952). If the behaviours and comments of the CDC delegates this week are any indication, curiosity and courage may be about to re-enter our boardrooms.
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    NACD Commission on strategy: An increased role for the board?

    Governance Leadership Performance Strategy
    The National Association of Corporate Directors (NACD) has announced the establishment of a commission to make recommendations about the "board's role in recalibrating the enterprise's corporate strategy in response to market forces". The decision, to consider the topic and present guidance, is a positive step towards more effective governance in the USA.

    For some time now, researchers have suggested that strategy needs to be part of the board's remit, although a consistent interpretation of what that means remains unclear. Some directors and consultants think boards should be actively involved in the process. Others disagree. Clearly, there are several options to be considered, along a spectrum:
    • Management drives the entire strategy development process, and the board, at best,  rubber-stamps the result.
    • The board simply approves strategy developed by management. This is the default option for many companies today.
    • The board speaks into the strategy development process, but it remains largely controlled by management.
    • The board is an active participant in the development of strategy, together with management.
    • The board drives the strategy development process, albeit with considerable input from management.
    • The board imposes strategy on management.

    Irrespective of the recommendations that Commission presents later in the year, boards are responsible and accountable for business performance, and board contributions need to be recalibrated accordingly. I await the outcome of the NACD process with interest.
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    Invitation to submit a paper to #corpgov conference in Croatia

    Conferences Governance Performance Research
    A few days ago, I was invited to submit a paper to the 10th European Conference on Management Leadership and Governance (ECMLG). The 2014 edition is being hosted in Zagreb, Croatia. I'm humbled by the opportunity to offer a contribution.

    The deadline for paper submission is mid-June. My topic will 'access'. Simply stated, the paper will suggest that governance research needs to move on from its predilection with typically quantitative secondary data, to study what actually occurs in the boardroom. It is my view that first-hand observations are crucial if we want to truly understand how boards work, and to make credible suggestions about how they contribute to business performance. You can read the preliminary abstract here. 
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    CEO salaries are supposedly out of control. So what?

    Governance Leadership Performance Societal Wellbeing
    A blog entry on the Reuters page today makes interesting reading. "Supersize" CEO salaries have caught the attention of legislators, in California at least, with proposals to apply a punitive tax regime. It seems some people have had enough, or is this a case of a legislature seeing a revenue gathering opportunity?

    CEO salaries have been steadily climbing ahead of inflation and most other economic measures for years, particularly so in the US in the last decade. Market forces seem to have been at work, whereby reputations are on the line, and boards have offered increasingly large deals, to attract new CEOs and to retain good ones. No doubt some high-performing CEOs have seen this and demanded big numbers as well. For example, Mark Adamson, CEO of Fletcher Building, seems to be demanding more. Not all CEOs have the same outlook however. In the same article, Mark Powell, CEO of The Warehouse, a very successful retailer in New Zealand, seems to be somewhat embarrassed by his salary package.

    The topic of supersize salaries is an easy target for journalists, mates having a drink, the unions, and others. However, when all is said and done, does it actually matter? If a company is socially responsible and the CEO is creating considerable shareholder value, then probably not. However, if the company is flagrantly abusing its staff, suppliers or customers, then it probably does matter. My preference is to let the invisible hand of market forces determine the outcome. If a gross imbalance or inequity occurs, a correction will follow, sooner or later. Hopefully it won't be so late that the society collapses though.
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    On boardrooms, digital mongrels and company performance

    Governance Leadership Performance Strategy
    Mike O'Donnell is a business manager, company director, family man and self-confessed techno-geek who writes a weekly column for the Dominion Post. Mike's comments can be provocative, cynical, irreverent and highly insightful—sometimes in the same column. Almost always though, his comments are entertaining and relevant. His latest contribution, which recounts a speech he delivered at the recent Institute of Directors annual conference, fits in the inspired and relevant category. Here's a piece from the column:
    I see the role of directors as being threefold. First, to select and appoint the right CEO for the company. Second, to provide meaningful governance on issues like solvency, risk, remuneration and health and safety. Third, to help set a strategic direction that will deliver growth and help monitor its implementation.
    In three points, Mike summed up the role of the board really well. However, I would alter the sequence, because the third point needs to come first. Without purpose and strategy, there is not much for the CEO to do, or the board to govern.