Performance - Peter Crow | Helping boards govern with impact

Published on: 4 April 2013

Integrated Reporting: the new normal?

I was privileged to receive a preview (under the Chatham House Rule) of the proposed Integrated Reporting framework at a Business Leaders Forum hosted by Grant Thornton yesterday. Integrated reporting (or <IR> as I discovered) has the potential to become the "new normal" in terms of reporting company performance and prospects.

<IR> is an initiative aimed at improving how companies communicate with shareholders, stakeholders and the wider community. Essentially, <IR> is about moving from compliance-based reporting, to "a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term" (direct quote from the IIRC website).

This business-led initiative was music to my ears. While I can work my way through a set of financial reports, I am no accountant. The trend in recent years towards longer, and more complex, reports has made understanding increasingly difficult. Any move towards a more straightforward explanation of performance (not to mention a more sustainable model of capitalism) can only be helpful.

The initiative has garnered the support of many global brands and investor groups scattered all around the globe. If you are a business leader (particularly a Board Chair, Finance Committee Chair, CEO or CFO), I recommend you take the time to familiarise yourself with the proposal, and make comment during the upcoming consultation period.

Published on: 3 April 2013

Women on Boards: what is the real goal?

Interest in gender diversity in boardrooms and C-suites has been increasing over the last 12-18 months. In that time, many commentators have expounded the virtues of having women alongside men on Boards and in C-suites, in both the academic and practitioner literature. Lobby groups have been established and conferences convened, with good effect.

While such efforts are laudable, the suggestion that the presence of women (on Boards) leads to increased company performance—as has been asserted in the rhetoric—is a big call. I agree that a relationship appears to exist, however I am yet to see any robust evidence that supports the assertion that the presence of women on boards per se improves company performance.

Before you launch volleys in my direction, please read on. Governance is a complex, open system, and many inputs affect the operation of Boards and the outputs they produce. A single-minded focus on one structural variable—as has been the case with gender—is far too simplistic. Rather, attention needs to move away from bidding up the percentage of seats occupied by women (and expecting performance will reliably improve as a result), towards the holistic consideration of governance as a system, and to the causative factors that affect performance. Preliminary research efforts suggest that behavioural factors; high levels of engagement; vigorous debate; an involvement in the development of strategy; and, the making of strategic decisions, are far more likely casual mechanisms than gender or any other structural variable.

So, to my question. What is the real objective of placing women on Boards? Participation or performance? If it's the latter (and I hope it is), then the focus needs to move beyond counting the number of women around the table, to discovering what Boards actually do as they go about their work, and to how that contributes to performance (or not).

Published on: 24 March 2013

Twelve months on: living the dream

Today is an auspicious day (well for me anyway). Musings was created twelve months ago today. At that time, I wanted (needed?) an outlet through which new ideas, thoughts and reflections could be expressed as I began to grapple with the demands of a PhD.

When I set out, the goal was entirely personal: Musings was a vehicle to share my thoughts and ideas about governance, strategy and societal wellbeing. I had no idea whether Musings would make it beyond a few months (or a few entries for that matter!), or whether anyone would read the entries. I wasn't really bothered either. To my surprise, my motivation to share ideas remains intact, somewhere between 50 and 200 visitors view the site each day (that number is slowly growing over time), and quite a few people have either posted comments or contacted me directly.

Looking ahead, I plan to continue writing, because the process helps me refine my (doctoral) thoughts. The focus will probably narrow slightly (to strategy, decision-making and governance), as these topics start to dominate my thinking time (I've discovered doctoral research does that to you). One twist though: I'm going to move from writing for my sake, to trying to provide "value" to readers. To do this, I'd appreciate some feedback. Are there some topics or themes that you'd like to read about in the coming months? If so, please post a comment! In the meantime, postings will continue at the pace of 2-3 postings each fortnight.

Published on: 4 March 2013

Perhaps Board composition does matter after all?

An interesting article appeared in the Financial Times about a week ago. I've been pondering it for a few days now, because it challenged my perception that Board composition has relatively little bearing on company performance outcomes.

The article reported the results of a comprehensive survey into US company performance in the decade 2000–2009. The results revealed that the prevalence of lawyers on Boards increased from 24% (2000) to 43% (2009)—and that the levels of litigation, malpractice and corporate risk-taking declined markedly—through the decade. The results are not that surprising, given the introduction of Sarbanes-Oxley and other compliance measures in the survey period.

On the surface, this study suggests that the presence of lawyers on Boards does make a difference in some areas (and therefore composition may matter). But what about the big question: Does the presence of lawyers lead to increased company performance? The study enhances the case for lawyers on Boards for their contribution to the risk conversation. However, this should not be misunderstood as providing evidence to link the presence of lawyers with increased company performance. Increased performance is dependent on innovation, the taking of risks and the making strategic decisions—all of which are somewhat of an anathema to many members of the legal community.

So, does Board composition matter when it comes to company performance? On the evidence provided by this study, we still can't tell—but I doubt it.

Published on: 17 February 2013

Can the domino effect be avoided?

Every time a major company fails, smaller suppliers and associated companies are at risk of the domino effect—of becoming a statistic themselves. It's through not fault of their own, save choosing to do business in good faith with the failed company. This was highlighted in fairly stark terms in the last week, when companies either sub-contracted to, or associated with, New Zealand's third largest construction company, Mainzeal, started suffering.

The domino effect has major implications on economic performance and the wellbeing of communities. When major companies succeed and grow strongly, many smaller and associated companies also gain considerable benefit. Sadly, the domino effect also applies when major companies struggle or, worse still, fail.

While suppliers are generally very happy to benefit from upswings, downsides are something to be avoided. But can the downside of the domino effect be avoided? Thankfully, suppliers do have options. Here's two for starters:

Diversify their customer base, so that they are not reliant any one customer for a major portion of their business.
Negotiate more favourable commercial terms, which may well include fortnightly invoicing and payment cycles (although this can be very difficult to achieve).

What other "defence" mechanisms can put in place to avoid the domino effect?

Published on: 9 February 2013

ICMLG Conference: Post-conference summary

I've just arrived home after a demanding but highly enjoyable trip to attend the ICMLG Conference in Bangkok. On the long flight back to New Zealand I found myself reflecting on the conference overall. Here's a selection of what I wrote down in my notebook:

While diverse in topic, research methodology and scope, the general calibre of papers and presentations was impressive. ACI did a great job pulling together and running the conference.
Input-output research designs and quantitive data sets continue to dominate the research landscape, despite qualitative data and empirical data being more well suited to understanding and explaining social dynamic phenomena (like governance).
The case study approach appears to be gaining ground as a credible methodology for governance and leadership research.
Those researchers who are using qualitative methods are attempting to move from purely descriptive (exploratory) studies towards explanatory studies. (One of my objectives in attending ICMLG was to gain a better understanding of contemporary research methodologies.)
Relatively few researchers are investigating the link between governance and company performance.
I met some wonderful people! The conference was a melting pot of cultures. People from many different nations, religions and cultures were in attendance—a true "global village".

Overall, I learnt a lot and the investment was well worthwhile. ICMLG 2014 will be at Babson College in Boston, Mass. On the strength of this year's conference, expect to see me in Boston in 2014!

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