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    What should boards do when vital information is withheld?

    Governance Management Performance
    Decisions about major transactions, or matters that might be material to the future prospects of a company, are usually reserved for the board of directors. This is appropriate, because directors have a duty of care—to the company they govern and to the shareholders that own the company. In fulfiling their duties, directors must ensure they are adequately informed regarding the affairs of the company, so that decisions can be made in the best interests of the company and, ultimately, the shareholders. 

    This all seems straightforward and tidy, but is it always so? Unfortunately not—well not at Hyundai anyway. Recently, the Hyundai board of directors approved a bid to buy a large and valuable parcel of land—without actually knowing the price! Claims by management that the bid price was "top secret" and therefore could not declared seem to have been accepted by the board:
    While boards of the three firms discussed and approved bidding for the plot in the capital's high-end Gangnam district to house a headquarters complex, hotel and automotive theme park, the bid price was not shared with directors as it was deemed to be confidential, three of the directors said. The Hyundai Motor and Kia Motors boards unanimously approved making a bid for the Korea Electric Power (KEPCO) land, two directors said.
    The making of strategically important decisions without vital information borders on reckless trading. That such a large transaction would be approved without knowledge of the price defies normal logic. That $8B of market value has been wiped off Hyundai should come as no surprise.

    Why did the Hyundai board make the decision without knowing the bid price? If the board carries the ultimate responsibility for company performance and business value, it should know everything that is material to a decision. If information is missing, the board should insist on it being provided, and to defer any decision until the information is provided. That management thought that the board could not be trusted with knowledge of the bid price, and the board let management get away with it, is an indicator that there are some fundamental problems with the corporate governance systems at Hyundai. The directors need to take a good long look at themselves and the way they operate, and seriously consider whether they are fit to carry on.
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    Is competition always good and are monopolies always "bad"?

    Governance Language Performance Readings Strategy
    What a great question. Throughout my business career, of over thirty years now, the prevailing answer has been 'yes'. However, Peter Thiel reckons the answer to both parts of the question is or at least should be 'no'.

    Thiel's thesis, that competition is for losers, and this response to it will get you thinking... Boards and regulators might need to take note.
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    Where should the accountability benchmark be placed?

    Governance Leadership Performance
    Corporate boards and executive managers have endured some criticism of late, as yet another wave of reports of incompetence, fraud and hubris have reached the public domain. Some directors have been lambasted for their actions, while others have avoided any direct consequences. Clearly, this raises an interesting question of consistency. Where should the accountability benchmark for acceptable director performance be placed? 

    My sense is that directors need to think very carefully about why they are appointed and what duties they must fulfil having accepted any appointment. All directors have a duty of care and a duty of loyalty—to the company or to the shareholders (depending on the jurisdiction) and not to themselves. This means that the director role is a servant role, of serving the best interests (of the company/shareholders). In fulfilling these duties, directors need to ensure they are adequately informed and well-intentioned, lest the wool is pulled over their eyes or they make decisions that are not consistent with their duties. The role of the director bears a weighty responsibility, so directors need to take their appointments seriously. Most do, but some, clearly, flout the boundaries of moral and ethical acceptability. 

    Directors need to be beyond reproach, and clear demarcations of what is acceptable—and what is not—need to be established. The challenge, of course, is holding directors to this level of performance, in the public domain and through any legal processes that may be required.
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    Another example of directors escaping guilt: has justice been served?

    Governance Performance Societal Wellbeing
    More news on the Feltex front today: a judge has just cleared the directors of liability for disclosure failures. I have discussed the sorry story of Feltex before. That the directors were charged seemed to be fair, given the seemingly strong evidence that something was awry. However, the judge has now issued their reserved judgement. Many will be surprised that, in the face of incriminating emails and other evidence that directors knew there was a problem with the business fundamentals, the decision was not guilty. However, and interestingly, the judge did note "some justification" for the criticisms of the prospectus upon which the case was based.

    Is this a case of well-heeled directors being able to rally a strong defence to protect their reputations, or was no wrong done? Regardless, the decision has been made, and with it a potentially dangerous precedent has been established—that the standard of accountability for directors may actually be quite low. While this is good news for directors, I'm not sure it is good news for shareholders, or for society more generally.   
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    BAM2014: The state of #corpgov research

    Conferences Governance Performance Research
    In the last few days, I have sat through over twenty presentations on various aspects of corporate governance and made many notes to ponder over the coming days and weeks. A few of the presentations are reported in the musings below. As I walked back to the hotel this evening, I found myself thinking about the overall state of corporate governance research. Here are a few of my initial thoughts:
    • The research agenda is still dominated by quantitative research—the statistical analysis of numerical secondary data—primarily because they can't get access to boardrooms to observe what actually happens, and there is a perception that quantitative empirical research is somehow "better".
    • Researchers are starting to realise that experience counts. People like Adam Poole, Donald Nordberg, Ruth Massie (all of whom addressed the conference) all have "working backgrounds". That they understand business and what goes on in boardrooms is helpful to making sense of what boards do (and should do).
    • Corporate governance research remains a minor contributor in the field of business and management researcher. Of the 640 or more papers, less than 25 addressed the topic of corporate governance. My hope is that business schools and the researchers they employ give more attention to the topic in the coming years, given the importance of board performance to the achievement of company performance outcomes.
    • The Anglosphere continues to dominate the research landscape, despite the emergence of developing nations, and the strength of China and many Asian economies. How do we correct this imbalance?
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    BAM2014: What is "reasonably good" governance?

    Conferences Governance Performance Research
    Former Reuters reporter turned academic Donald Nordberg led a very interesting discussion on the topic of good governance. He suggested that corporate governance researchers and working directors like to think of corporate governance as being a rational and tidy activity with clearly accountabilities and readily defined boundaries. However, the reality is quite different: governance is actually quite messy, with no universally accepted definition of what corporate governance is, might be or does, let alone a common and consistent set of practices to guide boards towards this so-called nirvana of effective governance.

    Nordberg suggested that researchers and directors need to get down from their lofty pursuit of order, in favour of reasonableness and flexibility. They also need to embrace accountability in terms of giving an account of why something was done or a decision made, because the compliance view of accountability serves only to establish an adversarial relationship between parties. If researchers and boards embrace these suggestions, then "reasonably good" governance can follow, and that might just be good enough.

    Now in the twilight of his working career, Nordberg's experience—and value as someone with both practical and academic experience—was palpable. I'm glad to have listened to him speak, and thrilled to now have the opportunity to sit with him again later in the year during my next trip to England.