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    Governing Apple is nothing like governing a fledgling company

    Accountability Decision Making Governance Performance Research
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    What is it with corporate governance? Thirty years ago, the term hardly rated a mention in business magazines—let alone general conversation. Now, corporate governance is seen by many (tacitly at least) as a panacea for all manner of corporate ills and director recalcitrance. The pursuit of best practice models (the one-size-fits-all approach) has become commonplace, even though the operating context of and challenges faced by small and medium companies are fundamentally different from those of publicly listed corporations. 
    Mak Yuen Teen, an associate professor of the NUS Business School and corporate governance expert thinks the one-size-fits-all approach is myopic and has just gone on record on the matter. Furthermore, many commentators, regulators and serving directors seem to have lost sight of Sir Adrian Cadbury's commentary, that corporate governance is primarily about the performance of the business. My experience, in research and as a serving director bears this out.
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    ECMLG'15: Performance evaluation systems for corporate directors

    Accountability Conferences Governance Management Performance Research
    Demands on boards to ensure desired company performance outcomes are achieved have led to increased scrutiny of directors and director effectiveness in recent years. Performance evaluation systems (PES) have emerged as a tool of choice to assess director performance. However, the influence of such systems on business performance is largely unknown.
    ​Marie-Josée Roy reported the findings of a recent Canadian study that examined PES closely, in an attempt to bridge the knowledge gap. Roy's survey-based study of 89 large Canadian companies identified three distinct types of PES (exemplar, formal, minimalist—definitions of which were provided in her supporting paper). The typology was based on descriptions provided by survey respondents. Her analysis revealed some interesting correlations, including that boards with an exemplar PES were more likely to be involved in important board roles of strategy and monitoring, and were more likely to be effective in these roles.
    While ​Roy's study was helpful in that it provided empirical evidence on board performance evaluation systems, it did not resolve the crucial question of how, in actuality, an effective PES might work. Survey respondents can (and often do) provide answers of convenience. Sadly, knowledge of whether any PES in use is actually useful (or not) for improving director and board performance remains largely unanswered. Other approaches to research, including longitundinal observations of boards in action and (probably) pyschological assessments are likely to be required if tangible progress is to be made. Even then, another even more vexing question—of whether improved board effectiveness leads to improved company performance—lies in wait.
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    The board chair's dilemma: what would you do?

    Accountability Decision Making Ethics Governance Performance
    Each month, Julie Garland McLellan, non-executive director and board consultant, invites several people to respond to a tricky board or governance situation. This month (Oct'15 issue), she crafted a challenging relationship dilemma with an ethical twist, and I was asked to provide a response. Thanks for inviting me to contribute Julie. The dilemma and my response are replicated here:
    The dilemma:
    ​Ximena chairs a government utility business that operates large primary industrial processes and is also involved in construction of new assets. Safety is a key issue and the board have zero appetite for any physical harm to staff, contractors or innocent bystanders. As board Chair Ximena also chairs the remuneration committee and has recently incorporated some nominations work into the charter and activities to better support the government with their desire to involve boards in director succession planning.
    The HR Director recently asked Ximena for a meeting at which she told Ximena that staff were concerned by the CEO’s activities outside of work. Specifically the CEO is involved in White Collar Boxing and the HR director feels this is not appropriate given the culture of the workplace and the visible support the organisation, and many other government companies, has given to anti-domestic violence campaigns. The HR Director also checked the terms of the company’s key man insurance policy and discovered that this would be voided for injuries or death resulting from action sports activities that include boxing. The HR Director has asked that Ximena talk to the CEO about ceasing his involvement with the sport.
    Ximena is concerned but cautious. She knows that the CEO, who was brought in from commercial industry, and the HR Director, a long serving public sector employee, have often differed in their opinions and that, whilst both are professional, there is scant respect and less regard between them. But she has to admit that a boxing CEO might not sit well with the ‘A Fight is Never Right’ campaign the company has just sponsored.
    Is this the CEO’s private business or an issue for the company and its board: What should Ximena do?
    ​
    Peter's response:
    ​Broadly, Ximena has four options:
    1. To ignore the HR Director’s appeal, by pushing back. However, this may see the issue ‘leaked’ to the public domain, especially given the HRD’s lack of respect towards to the CEO. If this were to occur, the board may be faced with a bigger problem - a damage control action. This option also provides tacit endorsement of the CEO’s actions.
    2. A private conversation will enable Ximena to hear the CEO’s perspective, ask questions and make suggestions. The CEO may not see the matter as a problem! Contingent on the quality of the working relationship, the chairman should be able explore options, present the wider perspective and reach an agreement over how best to proceed.
    3. To ask the CEO to meet with a board committee does two things. It signals to the CEO that the board is treating the matter seriously, in pursuit of a workable solution. However, it also sets a precedent whereby staff can approach the board directly. Staff need to take their concerns to the CEO first.
    4. To launch a full (presumably formal) investigation. This is probably an over-reaction.

    The most tenable option is probably the private conversation. While legal private activities are not and should not be the concern of the company, activities that may be considered to be incompatible with the company’s purposes, values or culture, or may call the company’s reputation into question or bring it into disrepute need to be curbed - particularly as the CEO is a highly visible role. Through their actions, they set the cultural tone of the organisation.
    Notwithstanding which option is eventually selected, the tension between the CEO and the HRD is a problem that needs to be resolved. The scant respect and regard is a harbinger of low trust, empathy and teamwork; thus rendering the working relationship difficult, at best. Whether the two parties are able to work together productively in the future is probably moot, especially as the HRD went around the CEO to the chairman directly. The HR Director probably needs to consider her tenure with the business.
    If you want to understand more about these options, or if you think you might need assistance with a challenging board situation, please get in touch.
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    New VW CEO wants a new strategy. Why?

    Accountability Decision Making Governance Leadership Performance Strategy
    An interesting development hit the press today: Matthias Mueller, the incoming chief executive of Volkswagen AG, reportedly wants to embrace a new strategy for the beleaguered group. That an incoming chief executive wants to put his mark on the business is not particularly newsworthy, it is commonplace.
    The interesting piece is the board's response. Will it entertain a new strategy, or will it assert its authority as the top-most decision-making authority? The challenge for the VW board is to decide whether the existing strategy is satisfactory and well-implemented (notwithstanding the scandal relating to the US market emission standards), or whether the company's strategy is flawed.
    Given the strong financial performance over recent years, the more likely of the two options is that the strategy is OK. If this is correct, the board's decision becomes a straightforward assessment of power. Who is in control, the board or the chief executive?
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    Stepping beyond the summer of (boardroom) malaise. But how?

    Accountability Decision Making Governance Performance Research Strategy
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    In recent months, news of another round of corporate scandals (Mintzberg thinks 'syndrome' is a better descriptor) have dominated our newspapers and Internet news feeds. All seem to be failures of corporate governance: HSBC, FIFA, Toshiba and, most recently, Volkswagen. While failure is nothing new, why have these failures occurred and why now? What's happening (or, more probably, not happening) in our corporate boardrooms at the moment?
    While each case is to some extent unique, an interesting pattern starts to emerge if we stand back a little and take a holistic view of several failures together: a well-regarded business, with both a strong trading record over an extended period and great brand equity commensurate with its public reputation, hits turbulence leading to failure or scandal. Questions are asked, investigations follow, significant irregularities are exposed and fingers are pointed. Eventually the spotlight is turned onto the board. All roads lead to Rome, after all.
    The seemingly steady flow of failures has seen a great malaise descend over the business and investor community during the northern summer. Measures developed to reduce the incidence of failure (including the OECD corporate governance principles and various in-country codes) have not had the intended effect. Indeed, they have rung hollow. To the casual observer, the situation seems to be bad, possibly hopeless. However, glimmers of hope are starting to appear.
    In the past six weeks, I have asked all of the director groups that I have spent time with for their opinion—as a litmus test of sorts. A strong majority of the 350+ directors across several countries (England, Eire, USA, New Zealand and Australia) say things need to change. Most think that current conceptions of board practice and corporate governance are not helpful if the goal of business is value creation; and that strategy needs to feature more prominently on the board's agenda. While most of the commentary is anecdotal, it is consistent with emerging research.
    Could this small sample of emerging and established directors of mid-size businesses be the vanguard of change? I've begun exploring ideas with several boards—on the assumption that the answer is yes. However, this is a case of the more the merrier so please get in touch if you want to 'join the party'.
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    Volkswagen emissions debacle: portent of a bigger problem?

    Accountability Decision Making Governance Leadership Management Research Strategy
    News that Volkswagen AG has been systematically pulling the wool over the eyes of its customers, regulators and the stock market has resulted in a predictable and rightful backlash this week. The stock price has plummeted, the brand reputation is in tatters and the chief executive is gone (albeit with a stellar severance package and not before attempting to deflect blame towards others).
    The crisis raises all manner of issues, and many different levels. That the board apparently knew nothing of the problem is a bitter pill to swallow. Why not? Was the board asleep at the wheel, or was something else amiss? That it then made all manner of comments heightened the concern.
    Once the emission cloud settles and people gather to understand the root cause, the folk at Volkswagen could do far worse than to look in the mirror—and specifically at how corporate governance is practised. That the two-layer board structure lacked knowledge suggests either ignorance (the board was asleep) or collusion. Neither option covers the boards in glory.
    Might this sad case take us closer to a tipping point, of finally admitting the extant conception of corporate governance (a compliance framework of processes and controls, predominantly) is conducive to neither long-term business performance nor value creation? And, if so, will action be taken to embrace new conceptions of corporate governance, board practice and value creation? For the good of all stakeholders and society more generally, I hope the answer is yes.
    Are you troubled by the Volkswagen experience? If you want to explore new conceptions of corporate governance that are informed by robust research and real-world experience, and test their applicability in your boardroom, please get in touch. I stand ready to help.