Research - Peter Crow | Helping boards govern with impact

Published on: 20 December 2013

Signing off for 2013...

Unless something compelling occurs in the next few days, this blog entry is likely to be my last for 2013. Christmas is upon us, so it is time to pause.

Christmas can mean different things to different people. For some, the deep spiritual significance of remembering the birth of Jesus is almost palpable. For others, Christmas is an opportunity to buy and give gifts, to eat and to catch up with family and friends. Yet others enjoy Christmas because it is "time off"—a holiday. However you spend Christmas this year, may it be a joyful time for you.

Overall, I've had a good year. The opportunity to travel (to speak in Australia, Asia and Europe), to meet some wonderful people, and to spend time pondering some pretty tough questions to do with my research, has been amazing. While there have been several times during the year when I've felt becalmed, it's not until I've stopped in the last few days and looked back that I've realised just how far I've travelled. I hope it's the same for you as you take stock this Christmas season. Thank you for your support and encouragement throughout the year, I appreciate it.

Published on: 19 December 2013

On shareholder primacy, groupthink and hubris

I spent much of the day yesterday in the company of my doctoral supervisor, an outstanding Masters candidate and a very capable governance consultant. The purpose of the meeting was to tackle some interesting—and rather challenging—questions to do with the practices of governance, hubris and groupthink, collective decision-making and cognitive biases. In addition to being topical (read further down this blog), these topics seem to be important building blocks towards gaining a robust understanding of governance in practice. Others appear to be exploring similar topics as well.

We made good progress, but a long list of questions and opportunities to dig deeper remain. While I'm not at liberty to discuss what emerged, several seemingly separate strands of thought, research and practice appear to be coalescing. Normally when I come away from such sessions, I listen to a podcast to clear my mind. However my mind was in overdrive yesterday as I drove home. Could a grand theory of governance, so long ruled out by many, be possible after all?

Published on: 12 December 2013

AUT governance symposium: reflections

I had the privilege of attending a corporate governance symposium in Auckland yesterday. The one-day symposium, hosted by Auckland University of Technology (AUT), was held in the recently opened Sir Paul Reeves Building on the main AUT campus. It's a great facility. Approximately 30 researchers and other experts, including several international speakers, gathered to discuss recent developments in the field of governance. Topics included ethics, performance, diversity, technology and remuneration. There were seven main presentations throughout the day, and twelve supporting papers (presented in two concurrent streams after morning tea and after lunch). Some of the main presentations are summarised below:

Thomas Clarke (University of Technology, Sydney) provided the opening keynote. He spoke about emerging challenges for directors, not the least of which is structural. While the four primary functions of the board are strategy formulation, policy making, monitoring and supervision and accountability (see, R. I. Tricker), most boards spend most of their time monitoring performance, a past-focussed, internal activity. The changing context of business requires that boards embrace change, lest any value that they are able to deliver is lost. This includes the adoption of meaningful (board performance) evaluation processes, embracing a greater level of diversity around the board table, and the gaining of a greater knowledge of the business being governed.
Vincent Naidu (VINCI Law) provided a sobering reflection when he spoke about the duties directors owe to shareholders and to the company, and the consequences of not fulfilling these duties. He suggested that nine out of every ten failures fall into the second category—failures by directors to fulfil their duties to the company. Most of the breaches can be described with one of four summary descriptors: responsibility transference; passing the buck; "it wasn't me, it wasn't me"; and, "it's all about me". Naidu reminded delegates that the word governance is derived the Greek word kubernao ("to steer"). Directors need to keep a watchful eye, and they cannot afford to fall asleep at the wheel. Sadly, many still do.
Julie Cassidy (AUT) summarised proposed changes to the Companies Act, particularly provisions to criminalise breaches of certain duties of directors. The proposed changes are limited to serious breaches of sections 131 (act in good faith) and 135 (reckless trading). In contrast, the scope of the provisions in the Australian statute is much more extensive. Cassidy called for officials and politicians to look at the Australian context more closely, with a view to including a more extensive set of provisions. There is considerable resistance to the addition of any criminal consequences in some quarters (surprise, surprise). However, the disreputable actions of some have tarnished the reputations of the majority (who are well-meaning and hard-working). So, something needs to be done.
Kevin McCaffrey (Effective Governance Consultants) spoke passionately about advisory boards. He asserted that many owners of small-medium enterprises (SMEs) and consultants to SMEs simply don't understand vital differences between boards of directors and advisors to boards. In the eyes of the law, groups of advisors that meet regularly and perform duties similar to those of directors may be deemed to be acting as directors. Consequently, they bear all of the legal responsibilities, accountabilities and consequences of a director, even though they don't realise it. The safest way forward for groups of advisors is to avoid "advisory board" language, and to meet on demand for specific advisory tasks only. McCaffrey's talk provided a welcome and timely wake-up call. SME consultants, business incubators, angel investors and professional bodies all need to take note.

The symposium delivered great value to attendees—if the many complementary comments overheard during drinks at the end of the day is any indicator. Dr Coral Ingley's vision, and hard work to breathe life into it, needs to be acknowledged and applauded. Well done Coral. I hope the AUT corporate governance symposium becomes an annual event, to bring researchers, experts and (importantly) practitioners together to share and test ideas, in order to improve governance in this part of the world. It would fill a gaping void.

Published on: 12 December 2013

ANZAM'13: final reflections

A couple of correspondents have noticed (and commented!) that my dispatches from the ANZAM conference, held in Hobart 4-6 Dec, appeared to be incomplete because the last dispatch posted covered the keynote at the beginning of the second day. Indeed, this is correct. Most of the leadership and governance papers that I was interested in were presented on the first day. I spent much of the second day in one-on-one discussions with other researchers, exploring ideas that had been presented earlier in the conference, and testing a few ideas of my own. This proved to be a very valuable albeit more private time for me, because I was able to correct a few assumptions and misunderstandings, and get some additional clarity on some concepts that I didn't grasp well when they were first presented.

One session that proved to be very interesting was the interactive session on management education and the rise of MOOCs (massively open online courses). This new concept, of an entire course of material delivered online has caught the attention of many. The concept sounds great on paper, particularly to extend reach. However, the delivery model is not without its challenges (no opportunity to interact with others to thrash out ideas on a whiteboard, for example), and the financial model needs work (currently, access is free). Notwithstanding these points, the concept has merit as a delivery model alongside others. MOOCs should not be regarded as a panacea to replace the traditional (though high-cost) classroom learning model, as some have suggested.

Overall, the conference met my expectations. It was well-organised, with plenty of opportunity to interact with other delegates. However, the quality of the papers was lower than I expected. Some described some simply outstanding pieces of research, but, many others were straightforward reports of statistical analyses of readily available data. Papers in this category lacked any insightful commentary to assist future research, or help managers improve their performance in the field. In my opinion, some of these papers should have been rejected at the review stage. A smaller collection of higher quality papers makes for a better conference. If this shortcoming can be addressed, then the appeal, relevance and usefulness of ANZAM—to researchers and managers alike—will be enhanced I'm sure.

Published on: 10 December 2013

Does better governance lead to better company performance?

It's been said that better boards usually lead to better business performance. Such claims have been widely reported—in the press; in classrooms; amongst consultants; and, during informal chatter amongst business executives—however they are potentially misleading.

I am amongst those who would like to think that better leads to better performance. However, I'm not sure what "better" means, nor that any direct link exists between governance and performance. Does "better" mean more active, more experienced, more diverse, more engaged, or more something-else? We need to find out, so we know what we are talking about. To the second point, we don't know how boards influence performance. Several researchers have postulated a relationship between governance and performance but, as yet, conclusive explanations have remained elusive. Thus, my doctoral research.

If you have grappled with these questions, I'd love to hear from you, with a view to sharing some ideas and testing a few theories that are starting to form in my mind.

Published on: 5 December 2013

ANZAM'13: Keynote presentation, day2

The keynote to open the second day of the ANZAM conference was delivered by Prof Jonathan West, of University of Tasmania. His talk, Are innovation theory and practice oxymoronic? Tasmania as Exemplar, provided a breath of fresh air and a reality check for those involved in innovation research and entrepreneurial activities.

West noted that, despite the best intentions of researchers, very little innovation research has any meaningful impact on practice. He suggested that this is because most research and practice is based on the myths that innovation is necessarily based on high-technology, and that "we (Tasmanians) punch above our weight". He then proceeded to dispel the myths and offer an alternative approach. Millions of dollars are spent every year, on strategies and innovations efforts that have no real chance of providing a material return. Rather than ignore existing successful industries (in Tasmania's case: wine, horticulture, aquaculture, others) and try to create whole new replacement industries (high-tech, biotech, nanotech), West asserted that stronger innovation outcomes (and the follow on economic and societal benefits) would be far more likely if innovation efforts were focussed on improving existing strong industries and sectors.

West used the example of the wine industry, and suggested that if the size of the industry was doubled—through investment and genetic, product, production and distribution innovations—then the level of unemployment and a host of other negative indicators would plummet. The natural assets of the state and the demand for premium wine suggest such growth is readily achievable. However, two serious stumbling blocks exist: belief in the myths noted above are so deeply held, and innovating within an existing successful industry simply isn't "sexy". Consequently, governments and industry are reluctant to invest for the common good, and, in many cases, innovation efforts are subverted by incumbent companies for fear of increased competition emerging. The promise of the holy grail (biotech, nanotech and information technology) is simply too compelling, even though the chance of achieving a strong return is slim, at best.

West's remit was refreshing, for it tackled what is clearly a delicate topic head on. Such candour needs to be encouraged.

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