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    Developing capable directors, in Sydney, Australia

    Director Development Governance Performance Research
    The effectiveness of company boards has become a hot topic in recent years, especially as the general public has become aware of various failures, missteps, poor practice, hubris and ineptitude, but also as attention has increasingly moved from the chief executive to the boardroom in search of high company performance.
    The role of the company director is not for the faint-hearted. Market forces, technical innovations and human factors all contribute to a complex and dynamic operating environment. Directors need to consider and make sense of information from multiple sources, and make informed decisions in the best interests of the company. It goes without saying that directors and boards need to maintain a continuous learning mindset if they are to keep up to date and contribute effectively.
    In a few days, I'll be in Sydney, Australia (18–20 September), to work with directors committed to the ideal of high performance. While the main objective of the visit is to present the first day of a new three-day course entitled "The effective director", I have time available to attend other meetings to share ideas and discuss emerging trends in corporate governance, strategic management and related topics of interest.
    If you'd like to get together while I'm in Sydney, please let me know. I have some free time and would be delighted to meet informally over coffee, or in a boardroom setting with you and your director colleagues.
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    Understanding Friedman, 47 years on

    Accountability Decision Making Governance Performance
    In September 1970, The New York Times Magazine published an article that subsequently became a catalyst, a touchpaper even, for a step change in the understanding of the purpose of business and, as a consequence, the priorities of managers and boards of directors. Milton Friedman, an economist and Nobel laureate, argued that the doctrine of 'shareholder primacy' should prevail over that of 'social responsibility'.
    The article garnered much attention (becoming seminal along the way) especially amongst those shareholders, directors and managers for whom the maximisation of profit was of primary (read: exclusive), interest. ​The statement most commonly used to justify the profit maximisation doctrine is right at the end of the article:
    "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits"
    Superficially, this statement is pretty clear: the purpose of business is profit and nothing else matters. But this statement is incomplete, a portion of a longer sentence. To stop reading at 'increase profits' is to read Friedman out of context. The complete sentence is as follows:
    "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud."
    Friedman was clear. He argued that the maximisation of profit is an important priority of companies, and he argued that this is not, and cannot be, an unbounded endeavour—much less an exclusive one. The proviso followed without as much as a comma—the pursuit of profit needs to occur within the context of prevailing law and regulation (rules of the game), competition and fair play. That Friedman's guidance was so clear begs a rather awkward question: Why has it been misinterpreted by so many shareholders and boards?
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    Purpose & strategy: In pursuit of performance

    Accountability Decision Making Governance Performance Strategy
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    One of the joys of my 'work' is that I get to journey with boards and executive managers as they wrestle with some pretty challenging questions. Whether the journey involves briefings, phone discussions, meetings over coffee, professional development sessions or facilitated workshops, the goal is generally consistent: to gain understanding, in pursuit of increased effectiveness and, ultimately, better business performance.
    By way of example, I was recently invited to work assist ChildFund New Zealand (*), a social enterprise committed to the ideal of eradicating child poverty. The board and senior managers gathered in a modest setting—the administration office—to strip back the layers and, in so doing, re-discover the organisation's reason for being (purpose) and develop strategy to achieve the identified purpose. The intention was to reach agreement in principle on the core elements by the end of the day, so management could form up a coherent strategy document for discussion with the board and subsequent approval. 
    We got underway at 9.00am, as planned. Some 116 man-hours of focussed and, at times, intense effort later, it was 5.00pm. I won't mention what was discussed or decided, other than to say agreement was reached on most of the big questions. Once the strategy elements are drafted up into a suitable document and approved (there will be a couple of iterations between management and the board to tidy up loose ends, no doubt), attention will move to implementation. The ChildFund board intends to use the approved strategy as a frame, to both resource management and hold it to account (which will include monitoring strategy implementation and verifying that the expected outcomes and benefits are actually being achieved).
    Tips for effective purpose and strategy workshops:
    • Comfort zone: Purpose and strategy workshops can be draining, because they 'force' people to think about the future, often beyond the square. If possible, book an external venue to minimise disruptions (not possible for ChildFund).
    • Preparation: Workshops can be incredibly fulfilling, leading to a real sense of achievement, but only if participants have prepared well beforehand.
    • Structure: A straightforward agenda and a proven framework (not to mention good food and coffee!) let participants know what's coming up.
    • Mindset: High levels of engagement and critical thinking are needed if the group is to explore, discover, listen and debate effectively; maintaining an open mind in search of shared understanding.
    • Facilitation: The use of an external facilitator (who is committed to the goal but neutral on the result) enables the entire group to concentrate on the goal or task at hand.
    • Scope: The importance of resolving purpose and strategy cannot be understated. Purpose without strategy is, simply, an aspirational vision; and, strategy without purpose leads to busyness and wasted resources. 
    (*) It is not my usual practice to name clients! However, when one of the ChildFund NZ directors posted a picture on social media of the board and managers gathered around a whiteboard, the occurrence of the workshop and my involvement became public. Regardless, the details of the discussion remain confidential. 
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    Reflecting on governance: Are we getting ahead of ourselves?

    Governance Performance Research
    Corporate governance has had a bad rap of late. From not even rating a mention twenty years ago (my father, an experienced company director, had not heard of the term until 2001), the term has become ubiquitous, hackneyed even, to the point now of being conceived (blamed?) variously as a perpetrator or panacea for all manner of corporate ills and missteps. Further, a bevy of related terms has emerged; an industry in and of itself.
    One especially troublesome 'related term' that has emerged in recent years is 'governance professional'. What does it mean, and to what or whom does it refer? I put this question to a professional associate recently (a highly experienced director, chairman and board consultant). His answer, delivered without pause, was telling: "A company director, of course". After a brief pause, he asked why I'd posed the question. I related a couple of stories, of recent discussions including one in which the other party asserted that company secretaries and corporate risk managers are both 'governance professionals'. My colleague interjected asking, "Really? Aren't they getting ahead of themselves?" ​​
    Let's consider this in the context of another sector and look for parallels. Take healthcare. Doctors and nurses are universally understood to be healthcare professionals—clinicians who serve patients' healthcare needs in pursuit of physical and mental wellness. But what of receptionists, administrators and practice managers? These people make important contributions to the delivery of healthcare in a supporting capacity. But organising appointments, processing paperwork and supporting clinicians is not the same as delivering healthcare, the threshold for the 'healthcare professional' moniker.
    How might this example inform our understanding of troublesome term 'governance professionals'? First, let's acknowledge that corporate governance describes the work of the board. We know this from Richard Eells, the person who first coined the term (the structure and functioning of the corporate polity), and Sir Adrian Cadbury (the means by which companies are directed and controlled). Given corporate governance is something that occurs in the boardroom (i.e., a board-activated mechanism for coordinating knowledge and making informed decisions in pursuit of the long-term future of the company), my professional associate's reply (that a company director is a governance professional, but the roles of company secretary and risk manager are not) seems plausible. What do you think?
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    On effectiveness: How is your board tracking?

    Accountability Decision Making Governance Performance
    Whether or not one is consciously aware of it on a daily basis, time marches inexorably on. Indeed, 60 per cent of 2017 is now consigned to history.
    That time marches on is a healthy reminder of the value of ongoing reflection, especially at the board table. It's really important for boards to understand and respond to actual performance in the context of agreed strategy, and to nip any variances in the bud early. To that end, how is your company tracking towards goals established for the year? And how is your board performing? Here's a few questions to kick start the board's reflections:
    • Is the company's approved strategy being implemented as expected?
    • Are the expected results being achieved?
    • Are the expected benefits being realised?
    • How effective has the board itself been in both fulfilling its duties and adding value?
    Beyond these questions, it may be helpful to think slightly more broadly. Earlier this year, I wrote several articles (below) to highlight some of the challenges that directors said they had struggled with 2016, none of which are independent from the questions above. As several boards have been in touch recently to discuss points mentioned in the articles (thank you), it seems appropriate to re-publish the links, as a resource for other boards reflecting on company performance and board effectiveness.
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    Who[ber] took their eye off the ball?

    Accountability Decision Making Governance Performance Strategy
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    So, Travis Kalanick has left the building, no longer the chief executive of Uber, the company he co-founded. The company, which makes money through the use of a ride sharing application, has grown rapidly in recent years. From a good idea, the company has become a colossus valued at over US$65 billion. Kalanick deserves credit for Uber's rise. However, Uber's reputation is not without tarnish; reports of a toxic culture, sexism and several scandals have blotted its copybook. The co-founder's pugnacious style hasn't helped either. 
    Uber's widely-reported missteps raises some challenging questions about the role and function of the board of directors; questions that are strikingly similar to those asked following the Wells Fargo fake accounts scandal and the collapse of Wynyard Group, both in 2016:
    • Why was shareholder direct pressure necessary for action to be taken?
    • Why did the board not act earlier? The problems were not a secret (they had been widely reported over many months) and several managers have departed recently (a strong signal of underlying problems).
    • To whom did the board think it was accountable, or was accountability not a consideration?
    • In law, directors get one vote each, so why did one director (the CEO) wield so much control over the board? (That debate occurred within the boardroom, from one director anyway, is acknowledged.)
    Uber was founded on a strong vision and its grew rapidly. The board was technically diverse and debate did occur in the boardroom at times, yet the evidence suggests that board lost its way and became ineffective.
    Though tragic, the Uber situation is instructive for directors and boards elsewhere. Power seems to have been a significant factor.  ​If directors are serious about fulfilling their duties well—especially acting in the company's best interests and pursuing the future performance of the business—some shared understandings are crucial:
    • A commitment to pursue the agreed purpose of the company
    • A clear and coherent corporate strategy (to achieve the agreed purpose)
    • The role and function of the board (i.e., the practice of corporate governance)
    • A commitment to the tenet of collective responsibility
    • A strong and healthy workplace culture
    However, the presence of these factors is insufficient in terms of predicting effectiveness or performance. Ultimately, the effectiveness of any board is a function of what the board does and how directors behave. Research is starting to understand the mechanism of corporate governance, but causality remains elusive. Directors take their eyes off these considerations at their peril.