Governance - Peter Crow | Helping boards govern with impact

Published on: 12 June 2015

IGW'15: A portfolio concept of board roles in SMEs

The paper offered some interesting insights relating to the emergence of corporate governance as a system within SMEs, and highlighted the need for a holistic, integrated consideration of board roles and board research, one that takes the company objectives and configuration into account. The research, to understand what this insight might actually mean is continuing apace.

A team of researchers from Spain, France and New Zealand have been collaborating on an interesting project: one of understanding how board roles and contributions change in different firm circumstances. Khlif, Karoui and Ingley have identified five 'roles' that appear to emerge as firm circumstances change in two dimensions, as follows:

The difference in the way the boards work (in terms of performing control, service, strategy and mediating tasks) appears to vary quite markedly when the difference between ownership and directorship is high (the directors are not owners), and when the difference between ownership and management is high (the managers and directors are not the same people).

Published on: 12 June 2015

IGW'15: Governance in emerging markets (panel discussion)

A panel of three very capable thinkers offered conference delegates insights into boards; board practice; and, continuing tensions between calls for corporate governance reforms in emerging markets, vibrant cultural differences and inconsistent capital market pressures. a summary of the insights and comments offered by panel members Thomas Clarke (UTS, Australia), Anderson Seny Kan (Université de Toulouse, France) and David Zoogah (Morgan State University, Baltimore, USA) follow:

Clarke observed the many emerging markets had, in fact, emerged. They have become powerful in their own right. However, varieties of capitalism exist (the BRICS economies were compared and contrasted), all of which stand in contrast to the Anglo–American model of hard legal and regulatory structures, and market oriented corporate governance.
Seny Kan suggested the boards are 'social spaces' and that culturally appropriate tools are required to 'govern' such spaces. The emergence of post-colonialism has seen a marked reaction against colonial forces in many cases, thus leading to some very stressed and complicated situations. A regime of practices may be required to 'normalise' practices within each economy, but not to (re)impose Anglo models that simply don't fit the cultural context particularly well.
Zoogah took a slightly different perspective, by comment on something he called the 'natural resource curse'. The catalyst for the entry of many big firms into so-called third world emerging economies has been natural resources. this has brought employment and economic growth, however in many cases the modus operandi has been exploitation not endowment. Firms have failed to embrace the grand challenge of tidying up, or by sharing the wealth created in any equitable manner.

While the three panel speakers observed many idiosyncrasies between emerging markets and with developed Anglo–American economies, a common thread emerged during the discussion. In most cases exogenous forces have held much of the power but this is starting to change. The role of the company in each economy is pivotal, both to the effective and fair operation of markets, and to contribute to the well-being of all citizens.

While the panel members did not explicitly focus their comments directly on corporate governance, the linkages and implications for boards were clear: that company leaders and boards have a crucial role to play in the development of emerging economies, and that role needs to be taken seriously.

Published on: 11 June 2015

IGW'15: Opening Keynote

The second International Governance Workshop got underway at Toulouse Business School, Barcelona Campus on Thursday 11 June 2015. Professor Morten Huse, an esteemed corporate governance scholar from Norway, provided the opening day keynote. Huse has been studying boards for a long time—the mid 1970s—so when he speaks, people tend to listen. Here's four of the points from his talk:

Huse's talk set the scene for a lively debate through the balance of the conference. It will be very interesting to see how this develops.

The dominant logic of modern boards—independence and opportunism—has not delivered any significant value to shareholders over time. Rather, it has driven short-termism, strong norms of privacy and mis-trust.
The conception of corporate governance as a set of rules and regulations to keep management honest needs to be replaced. Instead, boards need to think and behave in terms of becoming value-creating teams.
A fundamental shift is starting to occur, if you look closely: Evidence is starting to emerge to suggest that boards that lead, seek to create value and are involved in the strategic management process are more likely to make positive and meaningful contributions. However, this is not guaranteed, as boards are comprised of people and complex interactions, and external forces exert influence as well.
Huse suggested that a common language is required. Too often, a speaker says 'X' only to find that other directors hear 'X', 'Y' or even 'Z'. He went on to overlay a common language and important board tasks over the value creation process (the value chain, if you will).

Published on: 9 June 2015

On strategy: "A palette of plans"

Every now and then, a great article crosses my desk—one that seems to lift itself off the page, as if to command attention. This is one such article. Writing in The Economist, Schumpter comments on an idea promoted by Boston Consulting Group: that dexterity is increasingly important in today's fast-paced world. The assertion is that modern companies need to be adept at skipping nimbly between strategies or types of strategies (or to commit to multiple strategies simultaneously). Five types of strategy are identified, as follows:

Classical: find a niche and develop a plan to achieve dominance
Adaptive: try many things and back those that work
Visionary: the 'blue-ocean' approach of creating a new market based on a compelling idea
Shaping: partnering with others to achieve both scale and reach
Renewal: whole reshaping of the business (often to defend against pending failure)

The article makes plan the challenge moving between strategies, especially with management reputations and careers on the line. One option to resolve this challenge might be for boards to focus directly on leadership and strategy because the task of developing strategy has become so important to business success. A return to the historical conception of strategy--strategos, the art of command—is appropriate. (Many business academics and boards of directors consider strategy to be an important task of the chief executive.) If boards become more strategic, by contributing expertise and challenging strategic options, then 'ownership' of both strategy and the outcomes that flow is likely to move to where it actually belongs--in the boardroom.

Published on: 8 June 2015

Reflections: International Corporate Governance Network conference

The twentieth annual conference should be recorded in the annals of the International Corporate Governance Network as being a successful conference. From small beginnings twenty years ago, when 49 hardy souls met, the ICGN annual conference has grown ten-fold. Nearly 500 delegates assembled (from close to 50 countries) at the Guildhall in London to listen, share and, importantly, to exchange experiences.

While all of the speakers and panel members were of a high calibre, Alderman Alan Yarrow, Bob Monks and Martin Wolf stood out. Drawing on their vast experience, each of these gentlemen offered perspectives and insight that many of the younger delegates are unlikely to have considered previously.
The unspoken conception of corporate governance that seems to pervade the conference (as something that helps investors get what they want) surprised me. My understanding of corporate governance concerns the way boards of directors work, both in oversight of management and in pursuit of desired outcomes. This surprise may simply have been one of perspective—many of the delegates and speakers are members of the investor community, whereas much of my experience is from within the boardroom.

Another surprise was the disparity between who I thought might attend this conference and who actually did. The delegate list was dominated by institutional investor and industry body representatives, advisors and lawyers with some academics to boot. However, there were precious few serving company directors in attendance. Serving directors are a (the?) crucial cog in the corporate governance ecosystem. Perhaps the organisers might wish to consider how to redress this imbalance at future conferences.
The matters of trust (between directors on a board, and between shareholders and the board) and reputation were visible throughout the conference, and rightly so. That big business suffers a troublesome reputation amongst the general populace was noted publicly and it was discussed further over the tea-cups—although whether any remedial actions are forthcoming remains to be seen.
The conference was well-organised and well-run, and the venue was, simply, stunning.
The organisation (which prefers to think of itself as a network actually, it's less hierarchical) appears to be in good health. Kerrie Waring is a capable leader. She and her team clearly have the best interests of the organisation, and its goal of lifting the standard of corporate governance, at heart.
More personally, I met some amazing people (including some that, to this point, had been but names or acronyms on social media exchanges) and had some very helpful discussions. My intention was to watch and to take it in. That others saw it fit to invite me to join their discussions was humbling indeed.

Was the conference worthwhile? If the quality of the insight, discussions and relationships are any indication, the answer must be 'yes'! Consequently, the 21st edition is already marked my diary.

Published on: 6 June 2015

ICGN'15: On sustainable market reform—what needs to be done?

Day 3 of the ICGN annual conference opened with a lively panel discussion on the subject of sustainability reform. From the title of the session, I thought the conversation would explore ways and means of reforming the capital market in the fight against short-termismthe goal being longer-term corporate value and sustainable economic growth. However, the conversation was actually about the ESG (environmental, sustainability, governance) agenda.

The starting point for the conversation what that shareholders need to change their mindset, away from short-termism and quarterly results, towards the long term prospects of the company, for the good of the economy and the well-being of society. Regulation was identified as being important (and probably necessary) if the desired behaviour change was to occur. However, there was little appetite for a new regulatory regime to expedite change. Rather, the panel thought professionalism was a far better vehicle—on the basis that professionalism well implemented should reduce the need for prescriptive regulation.

Notwithstanding this, a reasonably significant shift in behaviour is likely to be required (amongst shareholders and the board) if companies are to respond positively to the sustainability expectations of customers, suppliers and the general public. Institutional investors probably need to step up and become part of the conversation, both to move their focus beyond the ninety day cycle and to pressure management into embracing sustainable business practices.

The panel was asked how this move towards professionalism could be effected. One popular and readily implementable option was to use the AGM as a forum to raise questions. If institutional investors were to speak publicly (at the AGM) on matters of climate change, sustainable business practices and responsible business practice (for example), and do so in a firm but fair manner, then others (including the press and smaller investors) would notice. In so doing, astute directors and managers would respond by adjusting various priorities.

Much of the conversation was focussed on structural responses to identified problems. However, the ante was raised somewhat towards the end of the session, when an audience question shifted the conversation. Panel members were asked for their thoughts on how to drive desirable (sustainability) behaviours in the boardroom. After some um-ing and ah-ing, the following three items were proposed:

Think in terms of the purpose of the business
Demarginalise ESG: Make it prominent on the agenda
Respect SME suppliers—they are not equipping to fund the working capital of larger companies!

This seemingly 'thin' response exposed another problem: that investors may not think about what goes on in the boardroom as much as some might think or hope. This probably needs to change.

Standing back a little, the session explored a different question from the one I expected to be tackled. However, the discussion was very helpful because it demonstrated that change is possible if the right sort of pressure and catalyst is brought to bear. The power of the AGM as a suitable forum to raise questions and exert pressure on the board and management of companies should not be underestimated for example.

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