Research - Peter Crow | Helping boards govern with impact

Published on: 13 July 2015

Speaking & advisory tour to UK & Eire—programme is filling fast

Wow, that was quick! Six days ago, plans for my Spring speaking and advisory tour to the UK and Ireland were 'starting to come together'. Now the eleven-day tour—to discuss corporate governance, value creation and board practice topics—is nearly full subscribed. Thank you! Three masterclasses, four 'general' speaking engagements, a masters-level lecture and several private meetings are confirmed on the programme. (Details of the 'public' events will be published by the event sponsors in due course.) In addition, two parties have requested planning meetings to discuss future advisory or speaking engagements, to occur in early 2016. If you think you might want to book me but want to talk about it first, that's entirely fine. Just let me know.

As of today, just one full day (2 Sep) and one part-day (7 Sep) remain available to be booked. I'll be in London on both days as you can see. If you are based in London (or the home counties) and you want to book a meeting or speaking engagement, please get in touch soon--before it's too late!

Published on: 13 July 2015

Success attributed to board: Lessons for all

How valuable is a board of directors to the performance of the business it governs? Does it influence business performance; or does it act as a policeman, "simply" monitoring the chief executive; and, do we even know? Many have attempted to answer this question. More often than not, the responses have been based on statistical analyses of secondary data (surveys, questionnaires, public data). Descriptions of what actually occurs in the boardroom typically remain hidden. Insights from direct observations of boards in action or from first-hand interviews are rare, so it pays to take note when they become available—as occurred when Nigel Bamford, chief executive of fireplace manufacturer Escea went on record this week. His comments, reported here, provide some interesting insights for boards to consider:

The Bamford interview provides a much-needed glimpse into the boardroom of a successful company. However, and thankfully, the Escea experience is not unique. The insights are consistent with emerging research about what boards need to do if they are to exert influence on business performance. Consequently, important questions for your own board to consider include:

The Escea board meets monthly, for two hours per meeting. Despite this small amount of time spent together, the board manages to monitor past performance and look ahead. This suggests that the chairman has a disciplined approach to meeting protocol, and that the board has at least one eye on the future success of the business.
The board is comprised of directors with "a whole range of different perspectives and different disciplines". Decision quality appears to have benefited as a consequence.

That the board is comprised of three company founders and two external directors suggests that technical independence (as promoted in many corporate governance codes) is not necessary for board effectiveness including effective decision-making.
The emphasis in Bamford's comments is on debate and diversity of thought. Gender and other forms of observable diversity were not mentioned.
The Chief Executive expects the board to 'add value' by challenging proposals and driving the decision-making process.
A one-size-fits-all approach to board practice and corporate governance is not appropriate.
While the Escea board looks ahead, strategy was not explicitly mentioned. Whether the board works with management on the development of strategy, or critiques strategic options and proposals presented by management is unclear.

Bamford's final comment is perhaps the most telling. "In time, a board is useful for all businesses of reasonable scale and ambition." Two important lessons emerge from it:

Formalised boards and board practices are helpful once ambitious (growth oriented) businesses have achieved reasonable scale, and if attention is focussed on the future.
Formalised board structures and practices are not always necessary (beyond statutory requirements), especially very small businesses where the same person or group of people both own the company shares and manage the business. Meet your statutory requirements but don't burden the business with unnecessary corporate governance and board practices. They are not required.

How might the insights discussed here help your board lift its performance in pursuit of business success and value creation?
Might a discussion at your next board meeting, to consider the appropriateness of your current board practices be useful?

Published on: 10 July 2015

Boardroom diversity: Is the rhetoric finally starting to mature?

These topics, both arguably proxies for the on-going fight for a more equal society, have been the subjects of much research and discussion over the last decade or more. Claims and counter-claims have been asserted—sometimes quite stridently—in both the popular press and in the academic literature. While many commentators have asserted that the presence of women in boardrooms, or diversity amongst directors is causal to increased company performance (and others have jumped on the bandwagon), a small number of bold souls have questioned the analysis, recognising that any linkage is complex and likely to be contextual.

Researchers, consultants and commentators need to build on Turner's comments. If we are to understand how boards work, and how influence is exerted, boards need to be observed in action. Sophisticated analyses, capable of exposing factors that may not be directly observable or consistently applicable, are also required. The resolution of the problem (of explaining how boards influence business performance) is more likely to be found in the subtleties of director qualities and behaviours, and the complexities of how they work together, than in any regular correlation between an observable attribute and subsequent business performance.

Thank you Caroline Turner for recognising this, and for advancing the conversation.

Now, Caroline Turner, a leading commentator appears to have called time on the rather simplistic assertions that have dominated the discourse (click here to read her recent article). Her response to the question of whether gender diversity is good, bad or indifferent is "It depends on which study you read". I agree. Importantly, Turner's conclusion (that "solid research by highly respected organizations, disputed by some, shows a correlation between gender diversity and results") and appeal (for more research) signals a much needed maturing of the rhetoric.

What is it with the women on boards and diversity discourse?

Published on: 7 July 2015

Spring speaking and advisory tour: Reserve your space now

Plans for my next trip to Great Britain and Ireland—a speaking and advisory tour to share insights from my latest research and practical experience in boardrooms—are starting to come together. My schedule is filling up—only a third of the available slots are still available. Thank you to everyone who has already reserved space. The dates and times you have requested are secure.

If you are based in London (or the home counties), Leeds (or elsewhere in Yorkshire) or Dublin; and you want me to address your board or executive team, discuss a future speaking or advisory engagement, or chat privately about a difficult challenge, please get in touch soon to avoid disappointment. I look forward to hearing from you, and then to discussing any aspect of board practice, corporate governance, strategic management, value creation or business performance that is of interest to you.

Published on: 6 July 2015

REDUX: Towards a 'strategic board'

Many commentators—academics and practitioners—agree that corporate governance is complex and difficult to get right. In the context of maximising business performance, boards must satisfy many demanding (and competing) priorities including shareholder expectations; legal and compliance requirements; the management of risk; the determination of future direction; and, the hiring (and sometimes firing) of the chief executive. Directing is a busy job, and it is one that takes time and commitment to do well. The steady stream of boardroom 'fails' in recent years (HSBC and Christchurch City Council amongst many others) and indiscretions (FIFA) suggests many boards are not doing their job as well as they need to. Why is this?

Are director's schedules too full to give each board the necessary time and effort?
Are boards defaulting to the arguably 'easier' task of performance monitoring, and disregarding strategy and future value?
Are directors simply not asking the right questions?
Is the safety of consensus thinking suppressing the debating of diverse options?

Many aspects of boards and board practice have been studied in recent decades including structure, composition and boardroom behaviour in an effort to understand how boards work and how they might contribute to performance. Independent directors have been held up as being crucial to boards maintaining distance from the chief executive and to the effective oversight of performance. Gender (and other) diversity has been promoted heavily in many quarters. The forming of a strong team through high levels of engagement and desirable behaviours has also been explored. As yet, none of the research has exposed any conclusive results in terms of increased company performance and value creation.

Imagine what board meetings might be like if the focus changed. They'd probably last longer. Directors would read their papers before meetings, and they would be actively engaged. There may be heated discussions. Necessarily, directors would sit on fewer boards. But perhaps, if boards were bold enough to change their focus, they might become more effective. Perhaps. Here's hoping.

The original version of this muse, posted in December 2012, is available here.

The prevailing theory of board–management interaction (agency theory) that underpins much of the current understanding of how boards work (or should work) appears to be flawed. It assumes that management is opportunistic and cannot be trusted and, therefore, needs to be closely monitored. Yet none of the structural provisions based on the theory (independence, incentives, various structures) have been causative to increased performance, despite considerable effort over many years.

Rather than continue to dogmatically pursue a flawed model, we need to move on. The goal posts need to be shifted—from a focus on compliance, structure and composition to a focus on value creation. The notion of a strategic board suggests a focus on future performance and strategy; on high levels of engagement to understand the business and the market; on critical thinking and an independence of thought; and, on robust debates which explore a wide range of strategic options (diversity of thought being considered crucial to avoid consensus thinking).

Published on: 29 June 2015

Corporate governance: Is it time to return to first principles?

Thirty years ago, the term 'corporate governance' rarely rated a mention. However, an awareness of boards and corporate governance has grown in the minds of the general populace as a steady stream of reports—of corporate failures, scandals, moral failures, hubris, incompetence, judicial investigations and sanctions—have been published in the popular press. In fact, the term has entered the lexicon to such an extent that it is routinely mentioned and all manner of faults are attributed to it, even though it is rarely defined. FIFA, HSBC and now Renault F1 are recent examples. Further, the systemic response to each 'wave' of corporate failures has become quite predictable: The introduction of hard law (statutory regulation) and, in the case of publicly traded companies, stricter codes of compliance. The goal of such measures is to prevent reoccurrences.

While well-intentioned, the costly actions of legislators and code writers have not led to any discernible improvements in corporate behaviour or performance. Consequently, some groups have become quite vocal; the reputation of boards and business more generally have become tarnished as a result. Worse still, the research community, which has been studying boards for forty years or more, has yet to propose any credible explanations of how boards could or should work. That this much effort has been expended without 'success' (excepting a raft of spurious correlations) is a travesty of justice. It also points to a deeper problem. Our underlying assumptions could be wrong.

The evidence suggests that less is known about boards, board practice, director behaviour and corporate governance than what most of us have assumed to be the case. This is not good! However, all is not lost, for two pathways to knowledge seem to be available. One option is to continue to use existing tools and techniques in pursuit of a deterministic 'truth' about boards (assumption: on the right path, just not there yet). The other option is to take stock, on the chance that the contemporary understanding of ownership, shareholding and control; and popular conceptions of board practice and corporate governance are actually founded on a less-than-firm footing. But that would mean putting popular models and ideas to one side, which could be a bitter pill to swallow. Which is the best option then? Might a return to first principles be necessary? I'm starting to think so. What do you think?

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