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    What types of decisions should boards make?

    Governance Management Performance Phd Research Strategy
    One of the crucial tasks of a board of directors—as they discharge their duties to optimise the performance of the organisation in accordance with the shareholder's wishes—is to make decisions. While most directors and boards (that I have spoken with) agree with this viewpoint, there seems to be far less agreement about what sort of decisions this means boards should, and should not, make. Should boards only make strategic decisions (those that relate to the achievement of corporate objectives and affect the long term performance of the organisation), or is the making of important operational decisions acceptable?

    I have been pondering this question for several months now, in the context of the data being collected for my doctoral research and the wider body of literature. I've concluded that boards should limit themselves to those decisions that have a direct impact on their duty (to optimise performance). As such, boards should make strategic decisions only. Boards that move beyond this and make operational decisions are, in effect, becoming involved in the operation of the organisation (the implementation of strategy)—which is dangerous because that is the job of management. Examples of strategically important decisions might include:
    • recruitment of a CEO
    • approval of corporate strategy / strategic plan
    • raising of new capital to fund the approved strategy

    None of these decisions are straightforward. They require time; the gathering of (often) considerable amounts of information; high levels of cognitive ability to analyse and process options; and, wisdom and experience. Given this, an effective board, operating on the basis of optimising performance based on the making of strategic decisions and the monitoring of performance against strategy, may only make 2–4 strategic decisions per year. Does that sound reasonable or feasible? I'd value some feedback on this one!
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    On the professionalisation of governance

    Governance Performance Research
    The Institute of Directors in New Zealand is embarking on a metamorphosis, to transform itself from a membership organisation into a professional body. This is great news. While the Companies Act 1993 and various other statutes provide legal remedies for fraudulent behaviour, there is no mandatory framework to ensure high standards are maintained across the cohort of directors. In contrast, other professions—including doctors, lawyers and accountants (for example)—have had compulsory competency standards, continuing professional development and discipline measures in place for many years. The proposal, to introduce a Chartered Director framework, seeks to address this gap.

    The Institute has invited me to join an External Review Group, which is being formed to provide an informed, independent and sensible external perspective. To be asked to contribute to the professionalisation of one's vocational group in this way is both exciting and humbling. I'm looking forward to it though, because this initiative is likely to have a significant impact on the practice of governance and, hopefully, business performance. 
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    Maintaining contact with reality

    Performance Phd Readings Research
    Universities provide ideal conditions within which eccentric personalities—learned but oft socially-challenged individuals with a tenuous connection with the real world—tend to congregate. The article Academic Tumbleweeds summarises the situation eloquently. 

    Over the years, I too have criticised those academics for whom the pursuit of knowledge is the end, because social ineptness, eccentricity and misguided thinking often follow. This is not to criticise universities per se, for they have a crucial role to play in society. By way of example, it is unhelpful, even perhaps unethical, for business school academics to pursue a neo-Marxist anti-business agenda—but that is how some, whose primary interest is the pursuit of knowledge, behave. It's almost a sport it seems.

    One of my concerns in embarking on my journey was to avoid becoming caught by the stereotype—thus my decision to work from home and to intersperse other activities, in order to maintain contact with reality. These other activities have included a few teaching, facilitation and short advisory assignments, and a couple of board appointments. Is it a reasonable approach? No doubt the proof will come when the usefulness of my research is tested in the real world. Hopefully, it won't be found wanting and the somewhat derogatory academic tumbleweed label will not be required.
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    When things go wrong, should one ask or wait to be told?

    Governance Management Performance Research Strategy
    I was party to a rather interesting, and at times quite vigorous, discussion while working with 24 delegates at the Institute of Directors' Company Directors Course on Tuesday last week. My task was to present the strategy material, and to facilitate a wide-ranging conversation to help delegates understand the board's role in the respect of strategy.

    The question that precipitated the discussion concerned information sharing and accountability: How and when should the board discover that there is a major problem with the performance of the business due to the approved strategy is not being achieved as expected? Should the board rely on the standard reporting process (and risk ignorance if management decided to remain silent), or should the board ask searching questions if things don't quite seem right? When I asked this question last week, one delegate suggested, almost immediately, that management should report any and all material information to the board. By implication, this position places the responsibility and accountability directly with management. Another delegate responded strongly with a counter view, by suggesting that the board should not simply "trust" management to decide what needed to be reported, but that it was sometimes necessary to ask searching questions. A vigorous 20-minute discussion ensued. Points and counter-points were exchanged, with some great supporting examples (which I cannot share unfortunately, due to the Chatham House rule).

    Where the did discussion land? The majority of the group appeared to hold the view that, if directors are to add value, and to fulfil their duties to act in the best interests of the company, then it is their duty to discover the real state of affairs by asking searching questions—even though such a position requires them to be more fully engaged in the process of governance than a lesser "monitor based on what is reported" position would require. While my personal view is consistent with that of the majority of the group, I'm not at all sure whether such a position is representative of how the majority of boards actually act. The Christchurch City Council, Fonterra and Solid Energy cases all suggest the board relied on management reporting rather than on the asking of searching questions...

    I would appreciate hearing what others think...
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    So, what exactly is governance?

    Governance Management Performance Readings Research
    One of the most common requests I get in my advisory and research work, and at speaking engagements, is to provide a definition of 'governance'. I think it keeps coming up because there's no universally accepted definition. To press the point, when Africa Zanella asked for a definition of governance on LinkedIn recently, her question generated over 50 replies.

    Notwithstanding this, we need to try understand what governance is and what it is not. Here's my take (which also appears as one of the 50 replies): I have come to understand that governance is an activity. It has a purpose (what) and a process (how).
    • The purpose of governance is to protect the owner's interests, and to optimise the performance of the organisation in accordance with the owner's wishes.
    • The process of governance is encapsulated in one word: oversight 

    To be effective in governance, boards need to understand their purpose, and have a process through which to determine performance goals (develop a strategic plan, together with management) and oversee performance against plan (a monitoring regime). In contrast, the primary role of management is to implement the approved plan (having contributed to its development, with the board).

    Hopefully, this view is helpful. Love to hear what you think!
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    Failure of governance leads to ... a large payout. Gulp!

    Governance Management Performance
    The failure of governance that I commented on a couple of months ago has now provided the ratepayers of Christchurch with an unwanted headache. Reports have emerged today that outgoing CEO, Tony Maryatt, will leave the Christchurch City Council today with a large severance payout estimated to be in the order of $400,000. The severance payout will have been triggered by provisions in Mr Maryatt's employment contract, no doubt. 

    While the media, ratepayers and members of the public will raise their collective arms in horror at the scale of the severance payment, another less visible—but arguably more significant—factor actually merits more attention; that of accountability. Councillors need to think more carefully about their motivations and their actions. The common good must prevail over personal or party agendas.

    With the local body elections upon us, voters would be well-advised to quiz candidates carefully, to satisfy themselves that each candidate understands governance; is committed to a creating a strong and effective team of leaders; and ultimately, is focussed on working productively towards the common goal of rebuilding the city of Christchurch.