Diversity - Peter Crow | Helping boards govern with impact

Published on: 17 July 2016

Governance evolution and trends: Brisbane, May 2016

Recently, I had the privilege of addressing several groups of directors and executives in Brisbane, Australia on the topic of emerging governance trends. Over 200 directors of family and privately-held companies attended breakfast and dinner events hosted by TCB Solutions, Hanrick Curran and AMPLiFi Governance. The talks and the panel discussion that followed provided a candid summary of some of the challenges boards face and offered suggestions to guide boards intent on achieving high performance and good returns to shareholders.

The dinner event was recorded. Clips of my talk (in two parts) and the panel discussion (in three parts) that followed are now available:

If you have a question or a comment arising from these clips, or want to discuss the possibility of me speaking at an event or sharing ideas directly with your board, please get in touch. I'd be delighted to hear from you.

Published on: 21 June 2016

On diversity in the boardroom: A brief update

The matter of diversity in corporate boardrooms has been the topic of much debate in recent years. Some people have claimed that the die is cast: that the presence of women (or some other group) in the boardroom leads to increased business performance. Others are less convinced. I have contributed to the debate on a few occasions, both as a panelist and in print. You can read some of my comments here and here, or use the search box to find other articles on diversity.

While the debate goes on in the trenches, some commentators have begun to stand back, to offer a more holistic perspective. Jeff Jacoby, for example, has just written this article, published in the The Boston Globe. His balanced summary highlights various aspects of the debate. Two sentences stand out:

"The evidence that more female board members means higher corporate profits is murky at best."

"Either way, what no study has managed to nail down is causation."

With these comments and others in the article, Jacoby has put his finger on the core of the issue. Board effectiveness (especially any relationship between board attributes and subsequent firm performance) is a complex issue. No one structure, composition or set of behaviours fits all situations (much less all companies).

Looking ahead, the challenge is two-fold. First, everyone who is interested and capable of making an effective contribution in the boardroom needs to be encouraged to offer themselves as a serious director candidate. Shareholders (or their nomination committees) need to work hard to find and appoint the best candidates—regardless of any physical attribute or notional diversity variable. The ability to govern well in the team environment must be the compelling basis of assessment. Second, the rhetoric needs to continue to mature, beyond the blunt instrument of observable characteristics to focus the subtleties of what actually matters—the capabilities of directors (individually and collectively) and the quality of boardroom interaction and debate as boards consider options; make strategic decisions; and, pursue performance goals in the context of the agreed purpose of the company.

Published on: 25 May 2016

Selecting company directors: The board is not Noah's Ark

Is the diversity discourse that has pervaded board and shareholder discussions in recent years showing signs of maturing? It seems to be. Thankfully, most correspondents have moved past blunt claims—including that the presence of <diversity variable> leads directly (i.e., causative) to increased firm performance. While researchers have demonstrated that the presence of women on boards, for example, has been associated with more civil language and higher levels of engagement and critical thought, direct links to firm performance remain elusive. The reality is far more subtle: many underlying factors affect performance—some occurring inside the boardroom and some outside.

While progress is being made, concerns over the motivations of 'diversity' proponents remain. Is the goal to achieve increased board effectiveness (however that might be measured), or is a political or social agenda being played out? The challenge of selecting the 'best' company directors is far too important to be left in the hands of those with political or social agendas. I know several white male directors (all of known are highly qualified and eminently suitable as company directors) who have been told they do not meet notional diversity criteria.

How should directors be selected? One option might be to base your decision on guidance provided by Warren Buffett (see Berkshire Hathaway's 2006 Annual Report):

In selecting a new director, we were guided by our long-standing criteria, which are that board members be owner-oriented, business-savvy, interested and truly independent. I say “truly” because many directors who are now deemed independent by various authorities and observers are far from that, relying heavily as they do on directors’ fees to maintain their standard of living.

Charlie and I believe our four criteria are essential if directors are to do their job—which, by law, is to faithfully represent owners. Yet these criteria are usually ignored. Instead, consultants and CEOs seeking board candidates will often say, “We’re looking for a woman,” or “a Hispanic,” or “someone from abroad,” or what have you. Over the years I’ve been queried many times about potential directors and have yet to hear anyone ask, “Does he think like an intelligent owner?”

Enough said, don't you think?

Published on: 6 May 2016

Looking forward to looking forward with some great Australian leaders

I'm looking forward to looking forward with some great Australian leaders in Brisbane, QLD on Thu 19 May.

I'll be talking about emerging trends including the board's role in value creation; the importance of setting a clear purpose for the business; board involvement in strategy; how to drive performance through the chief executive, in reality; and, telling a few stories along the way. Look forward to seeing you there!

Two events have been scheduled on Thu 19 May: breakfast and dinner. The breakfast event is almost booked out. However, some seats at the dinner event are still available. If you want to hear about emerging trends in governance and board practice, and their application in a family business context, click here to read more information and to register.

Published on: 19 February 2016

Board size and composition: the Goldilocks effect

Board diversity and board size are common topics of conversation in governance circles these days. Hardly a week goes by without one or both topics being mentioned. Most commonly people ask about board diversity and the relationship with firm performance, and the 'perfect' board size. Typically, my responses have been "Yes, diversity is good" and "No, there is no such thing as a perfect board size". Beyond that, context kicks in because every board, governance situation and even every decision is, to some extent at least, unique.

I have happily shared these responses and offered other supporting commentaries to all who ask—until now. What's changed? This article has set me thinking. Here are some insights that bear further consideration:

On team (read, board) size: Many boards of directors have five to fifteen members (the largest board I have advised had eighteen members—what group dynamics disaster). Contrast that with the research cited in the article and elsewhere, which suggests that six is pretty close to optimal. Beyond six, cliques emerge and the likelihood of free riding increases. Have you seen any of these characteristics? It might be time to review the size of your board.
On diversity: Diversity has been heavily promoted amongst the governance community in recent years. While diversity can be great for ideation, it can also be bad for cohesion. That's because the board needs to operate as a team. The research suggests that some similarity is good (i.e., shared understandings not same physical attributes) because it enhances effectiveness in performing complex and unpredictable tasks (like board decisions!). The point here is that sameness is good in some ways (operating basis and purpose) and diversity is better in others (ideation and debate). Striking the balance takes maturity.

So, food for thought. The article was published by the Wharton School at the University of Pennsylvania—not by some backyard consultant or agency trying to sell services. This means we can rely on the commentary. While it may or may not be 'right', it certainly has substance. I would love to hear what you think about these matters after you have read the article and pondered the ideas and suggestions.

Published on: 11 January 2016

Is it time to think about a Young People Board?

Guest blog: Guy Le Péchon (Gouvernance & Structures, France)

Board rejuvenation is often considered and discussed, but statistics on boards member ages show little progress. The general public thinks a board of directors is a set of relatively old people. Common sense and corporate governance approaches lead one to think that the introduction of new ideas from younger generations would surely be a company asset.

Age diversity within a board is unquestionably desirable, but will one or two younger directors be enough? Probably not. In fact, except in exceptional cases (mainly in new technology fields), board members will probably be least 35 years old—hardly 'young' any more—by the time they have acquired the experience needed to be a skilled board director. Also, younger leaders often have full-time jobs, so will there be sufficient candidates available anyway? Recruitment of younger directors may be difficult and generally will not be enough to ensure that potential contribution from truly young people will be brought to the boards. How then to proceed ?

One approach to solving this problem might to be create a Young People Board, under the leadership of the official board—a 'shadow cabinet' of sorts. With slightly different goals, some municipalities use this approach. A Young People Board could be composed of 18 to 25 year old volunteers—a similar number of members as the official board. Recruitment could be for three-year terms (with renewal of one third every year). The aim would be to achieve multi-faceted diversity.

Periodically (say three times per year), the company board would invite the Young People Board to consider a topic discussed by the official board. The Young People Board would meet to debate the topic and develop proposals. Many ideas would emerge as young people naturally consider new technologies; social networks; data protection; ecology; ethics; and, international perspectives. Each year, a half-day meeting would be scheduled with the official board, to receive presentations and debate the topics studies by the Young People Board .

The Young People Board formula would be light, without any significant expenses or time commitment from the official board members. However, the process would enable official board members to be positively confronted with new ideas coming from truly young people. They may even retain some ideas for implementation!

Members of the Young People Board and, indirectly, their friends and relatives, would derive benefits including learning about the company activities, its executives and, importantly, the 'corporate governance' world. Through the process, the company may identify young talents for later hiring. The company could use this approach to improve its image, especially among young people.

Many speeches and writings advocate innovation. As one dwells on this, the realisation that innovation applies not only within technology areas, but also in organizational processes and the social domain. The Young People Board is a concrete example of this type of innovation. Is this something your board can support? If so, please contact Guy Lé Pechon at Gouvernance & Structures.