Governance - Peter Crow | Helping boards govern with impact

Published on: 23 May 2015

I stand corrected!

A muse that I wrote yesterday asked a series of questions about company ownership. It stimulated quite a bit of interest, albeit for reasons other than I expected. Having discussed the matter with several commentators, I now know why. It turns out that one of the underlying assumptions upon which the muse was based—that companies have owners—was wrong.

How often have you heard someone say they 'own a portion of <company name>' or that they are 'company owners'? These statements, while plausible, are actually incorrect. People (individuals, groups, other companies) own shares in a company, they don't own the company (or a portion of the company) directly. The company is an entity itself. It issues shares ('bundles of intangible rights') and these can be owned or traded, as is so ably explained here (see clause 2).

Thank you to those people that contacted me to point out my error. The phrase 'company owner' has been removed from my vocabulary! However, the notion of 'ownership' remains. I hope this brief note goes some way to putting the record straight. Please contact me if you would like to know more.

Published on: 22 May 2015

Apparently shareholders do not own corporations!

Please excuse this rather sensationalist title—I have just picked myself up from the floor having read this clause in the recital section of a [draft] directive being prepared in the EU:

"Although they do not own corporations, which are separate legal entities beyond their full control, shareholders play a relevant role in the governance of those corporations."

The proposed directive, which encourages long-term engagement and gives voice to shareholders in listed companies and large companies, seems to be well intentioned. However, the statement that shareholders do not own the corporation left me flabbergasted. It raises all sorts of questions:

If the shareholders (collectively) do not own the corporation, who does?
To whom is the board accountable—the shareholders (who don't own the asset the board is charged with operating); or, the [now unknown] owners; or, some other group?
Who benefits from the wealth created by the corporation, the shareholder, the owner or some other party?

Why anyone would buy an asset if they knew that a condition of purchase was that they did not own what they had just paid for is beyond me. Is this sloppy drafting, or have I missed something in the semantics? Can someone with a legal mind and expertise in this area please elucidate?

Published on: 20 May 2015

Three conferences in three weeks, starting in 13 days

Here's the trip schedule:

In just under two week's time (June 1), I embark on another trip to England and Europe. The main purpose of this trip is to attend three important corporate governance conferences, to contribute to the emerging conversation. Many of the world's leading advisors, company directors and academics will be at the conferences. I am honoured to be speaking at two of them.

June 2
June 3–5

June 8–9
June 11–12
June 15
June 17–20
June 20

Arrive in London
International Corporate Governance Network Conference, London
(click to set up meeting at conference)
Available in London or nearby (Want to meet? Get in touch)
International Governance Workshop, Barcelona (my paper abstract)
Limited availability in London (Want to meet? Get in touch)
European Academy of Management, Warsaw (my paper abstract)
Return to New Zealand

If you are interested in a specific conference presentation but cannot attend, please let me know. I'll try to attend for you and post a report. Conference updates will be posted here and on Twitter during the conferences, so check back if you are interested.

I'm looking forward to reconnecting with #corpgov friends and associates, making some new connections and testing some of the ideas that have emerged from my research work. Much coffee will be drunk, no doubt! If you'd like to meet up, at a conference or separately, please get in touch.

Published on: 18 May 2015

Selling a major company asset to a director, and doing so properly

Is it ever OK to sell a major company asset to one of the company's directors? One must be careful, very careful. The safe answer is probably 'no', because the proximity of conflict is ever-present and the question of whether the transaction satisfies the director's duties provisions (to act in the best interests of the company) sets a very high bar to clear.

However, a recent case in New Zealand suggests that such transactions can be completed, and well, if certain provisions are satisfied. In this case, Dorchester Property Trust (DPT) wanted to sell one of its properties the Goldridge Resort Queenstown (GRQ). A DPT director wanted to acquire the asset. The DPT board acted cautiously. The director took no part in determining whether the asset should be offered for sale, and was excluded from the process of assessing acquisition offers. As such the board's handling of the matter satisfied the related party transaction requirements.

While some investors were a bit scratchy over some some matters (see the article), few if any concerns over the GRQ transaction have been raised. This suggests that the board handled the matter well, in both a legal and a moral–ethical sense. Well done to the DPT board.

Published on: 8 May 2015

Executive pay: is Thodey's call a signal that enough is enough?

David Thodey, outgoing chief executive of Telstra, has just gone on record: CEO pay is out of control. Swimming against the tide, Thodey said his remuneration was indefensible, and called for change. A cynic might suggest that it is all very well for Thodey to say these things, especially after he pocketed $27M while he was the chief executive. Nevertheless, Thodey's call is not unique. One in four chief executives think that time is more important the money.

Is Thodey's call, and those of others, a harbinger of change to rein in executive pay? I hope so. History tells us that gross disparities between the 'haves' and the 'have nots' can lead to uprisings and, potentially, bloodshed. The French revolution , Bolshevik Revolution and the Arab Spring are notable examples, although there are many others. To make some adjustments now may be just the pressure release valve that many in society are looking for.

Published on: 7 May 2015

NACD announces "long-term value creation" commission

The National Association of Corporate Directors (NACD) has announced the establishment of a Blue Ribbon Commission to investigate the board's role in driving long-term value creation. You can read the full announcement here.

Twenty-six "distinguished corporate leaders and governance experts" have been appointed as commissioners. Surprisingly, no corporate governance academics have been appointed. This begs the question of how the BRC intends to go about its work, and to conduct empirical research in particular. I hope the opportunity to investigate what value creation is—and how it is created—is not lost.

I'm in two minds about this investigation. On one hand, it confirms the profession has a serious problem: that we simply don't know how boards add value or influence performance begs the question of what directors and boards actually do. On the other hand, congratulations are due to the NACD taking the bold step of commissioning the investigation. The subject is topical (in the last six months alone, I have been party to well over 100 conversations and debates on the topic of strategy in the boardroom), to the point of being somewhat personal (the subject is at the heart of my doctoral research).

Consequently, I intend to watch developments closely especially as the commission seems to be very similar to a study undertaken last year. If asked, I will make my research findings available to the BRC.

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