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    Governance, by looking backward

    Governance Leadership Performance Research Strategy
    The NACD's annual missive, of the burning issues likely to light up the corporate governance firmament in 2014, has just been published. The article, which claims to provide a comprehensive assessment of what's on the board director's horizon, makes interesting reading—as much for its omissions as its inclusions. Sadly, the reportedly burning issues, which were "gleaned from interviews with directors and corporate governance leaders", are historical, defensive or operational in nature.

    I have no doubt the reported issues are the ones that were on the top of director's minds when they were interviewed. They are important, and need to be dealt with. However, the omission of issues that can make a difference to company performance is very revealing. Boards are responsible for optimising company performance in accordance with the shareholder's wishes. If the published list is any indicator, few boards will spend much time actually looking ahead in 2014 to issues that matter, like strategy, boardroom performance and accountability.

    The question that drops out of this discussion is a tough one: Why do shareholders continue to appoint directors and accept boards that spend the bulk of their time looking backward?
  • Published on

    Are you an Advisor or a Consultant?

    Governance Leadership Management Performance Societal Wellbeing Teaching
    Periodically, I'm asked whether I'm an advisor or a consultant. For many years now, the answer I've provided has been 'advisor', often in an effort to avoid the stigma commonly associated with 'consultant'. (Consultants are the guys that borrow your watch to tell you the time, right?) However, as I've studied the English language more closely in the last couple of years, I've become much more comfortable with the term 'consultant', because it most accurately describes who I am and what I do. Let me explain.

    Generally speaking (although perhaps somewhat simplistically):
    • A consultant is a problem-solver, a simplifier. They are someone you call on to find a way forward, when you have a problem in need of a solution. At their best, consultants provide answers, or at least recommendations. They may or may not actually do the work to implement any solution you choose to pursue.
    • An advisor is a problem-definer. They are someone you call on as an impartial sounding board, to stimulate your thinking and to test ideas. At their best, advisors help survey the horizon and bring the future into focus. They may well recommend the names of others (consultants!) to help solve a problem once it is more clearly defined.

    While my priority as a pracademic is to think broadly about corporate governance and strategy in order to discover possibilities and pursue options, my clients are most interested in solutions to problems they face today – recommendations and answers – which fits nicely with my instinct to understand and solve problems.

    Now your turn: Are you an advisor or a consultant?
  • Published on

    Finally, some sensible rhetoric from local government

    Governance Leadership
    I have written about failures of governance in the local government sector several times over the last six months or so. Hubris appears to be a common thread, whereby political agendas, grandstanding and various hobby-horse schemes get in the way of sound strategic and fiscal management—to the detriment of our cities and communities. It's a bit sad really.

    You can imagine my surprise then, to read this article on the living wage proposal recently adopted by Wellington City Council. It is one of the most coherent arguments that I have heard from a serving councillor in a very long time. Amongst other points, Councillor Young admitted that the decision process amounted to a failure of governance. Well done, Nicola Young. Hopefully your colleagues will read your article, see the sense in it and reverse their recent decision – but that may require the consumption of some humble pie, and the intervention of a higher power, like the ballot box, I suspect.
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    New Years Honours: where is the consistency?

    Governance Leadership Management Performance
    I'm confused. The New Years honours list has just been announced, and it appears some odd choices have been made. Two recipients of high honour are Dame Alison Paterson and Sir Robert (Bob) Parker, both of whom are well-known in governance circles. When one looks at the credentials of Dame Alison, it's easy to see why she was nominated and supported. However with Sir Bob, the picture is less clear.
    • Dame Alison has served as a company director and board chair for four decades. She was a pioneer in terms of female directors, and most of the companies she has been associated with have performed well. Dame Alison is widely respected.
    • Sir Bob is a well-known media personality and former mayor of Christchurch. While he was the 'face' of the Christchurch earthquake response, he has also been associated with several failures of governance, including a CEO pay debacle and the Council losing the right to issue building permits. His knighthood has polarised opinion.

    On the surface, one recipient has served consistently, with distinction, over a long period. In contrast, the other has been a mediocre contributor, save a high-profile media role following a natural disaster. The credibility of the honours system, particularly the bestowing of knighthoods, is dependent on the consistent application of demanding criteria, lest it be reduced to 'gongs for mates'. 

    Have I missed something, or are there a few inconsistencies in play this time around?
  • Published on

    Do you remember the Cadbury Report (1992)?

    Governance Leadership Management Performance Research Strategy
    Christmas 2013 is now history, which means 2014—and all the rituals associated with New Year—is nigh. For many people, the act of hanging a new calendar on the office wall in the last few days of December carries far more significance than simply closing off one year and opening the next. It stirs thoughts of the future, of what lies ahead, of one's dreams, hopes and aspirations. I am amongst those that think about the future and what lies ahead when the new calendar is hung. However, this year, I'd like to briefly look back before looking forward, lest an important anniversary in the world of corporate governance is overlooked.

    The Cadbury Report has just turned 21 years old. Do you remember the Cadbury Report and the recommendations it contained? The so-called Cadbury Report was actually the Report of the Committee on the Financial Aspects of Corporate Governance. An archive containing copies of Sir Adrian Cadbury's speeches, the report itself, and other related matters is now available online. The Report was commissioned following several scandals and company collapses, and the damage to investor confidence that ensued. It provided several recommendations to improve corporate governance. Amongst other items, these included:
    • that the roles of Chair and CEO be separated and held by two different people
    • that the majority of the board be outside directors
    • that an Audit committee, comprised of outside directors, be appointed

    The goal was to improve trust, transparency and performance. Subsequent to the Report, many companies have adopted the recommendations (motivated perhaps by the London Stock Exchanges "comply or explain" requirement), although not without resistance and reluctance in some quarters.

    The question to be asked on the occasion of the Report's 21st birthday is whether the recommendations have improved corporate governance and, perhaps more importantly, company performance. Sadly, the evidence is mixed, very mixed. History shows that the structural provisions, including those contained in the Cadbury Report, were insufficient to prevent the high-profile failures of the early 2000s (Enron, WorldCom, Tyco, et al), the global financial crisis of 2007–2008, and some more recent failures in New Zealand and elsewhere as well. But that should not be a surprise to anyone, because the purpose of rules and structures is to provide boundaries. Rules and structures cannot ensure or predict any level of future performance. The human condition; ethics; and, the propensity to act in good faith (or otherwise) need to be factored in, if a performance orientation is to be pursued.