Phd - Peter Crow | Helping boards govern with impact

Published on: 29 October 2013

Who should drive the development of corporate strategy?

The selection and implementation of strategies that enable a company to compete effectively appears to be crucial to value maximisation. Given this, who should drive the development of corporate strategy? The value that boards can contribute appears to lie in their active and ongoing involvement in the strategic management process—through the consideration of strategic options; the development of strategy; the making of strategic decisions; and, the adequate monitoring of strategy implementation and subsequent performance. It seems to improve the quality of environment scanning; minimise the chance of selecting poor strategies; and, improve decision-making. Assertiveness and knowledge about the business also appears to be important, even though many CEOs believe their boards do not fully understand the strategic drivers to their company's success. The question of who should drive the strategy development process is less clear however.

My recent research suggests there is a fine line between the board having an active involvement in strategic matters (seen as desirable), and the board being seen to impinge on management's delegated responsibility to implement strategy. While the development of strategy is now widely recognised as a major task of the board, all of the CEOs that I interviewed claimed to control the process of strategy development, whether their board was actively involved or not. Also, company performance appeared to be enhanced when the division of labour between board and management was clearly defined and efficiently implemented. Further, the boards of successful companies appear to enjoy strong relations with management; they seek to make consensus decisions together in order to achieve strategic goals; and, the amount of political interplay between individuals appears to be low. The key point is that the board and management work together in a positive manner, and that they are both actively involved in the process of defining and deciding where and how the company should be headed.

Published on: 27 October 2013

When stamina and focus come together...

What's the best way to cope with (and survive!) a busier than normal work week? When I was out delivering pamphlets this afternoon—for Party-by-the-Lake, a Halloween alternative which is enjoyed by 3000 people in our local community—I found myself thinking about this very question, based on my own busy week ahead:

On Monday, I get to relax—with my wife—because it's Labour Day
On Tuesday, I fly to Dunedin for a board meeting, and home again afterwards
On Wednesday, I fly to Sydney Australia to collect data for my PhD research, after which I fly to Auckland New Zealand
On Thursday, I will collect more data, before flying home at the end of the day
On Friday, I have two CEO interviews scheduled, followed by a trip to visit my PhD supervisor to finalise details the trip to speak at ECMLG in Austria
On Saturday, I have a strategic planning workshop to attend (as a participant, not a facilitator)

This schedule will see me in four cities, in two countries, in four days. Does reading it make you feel a little tired? In all, the week will involve ten hours in the air; at least seven hours waiting in airport lounges; and, several early starts and late nights. It will be mentally and physically draining, I'm sure. Hopefully, I will still be compos mentis by the end of the week! While I'm somewhat out of practice with such busy international schedules, I expect to call on several habits that have served me well when dealing with similar schedules in the past:

Focus: Block out everything not related to the work directly ahead. Prepare well in advance of meetings, and review notes the evening before. Plan to arrive at airports and meeting venues early, to allow a little time to relax and refocus. Check email and social media websites daily (only), lest they divert your focus.
Physical care: Avoid alcohol and big meals if possible. Get outside and walk, every day. Drink plenty of water, and get as much sleep as possible (flights are great for this).
Stamina: Think about the week as a whole, not just the day or the few hours directly ahead, and pace yourself. A tough week is akin to running a 10,000 metre race, not a 100m metre sprint. A short focus will put you at risk of not making it through the week. Good levels of physical fitness is a real blessing here—which is why I try to get out on my bike two or three times every week—although this requires a pre-emptry commitment because, unfortunately, physical fitness can't simply be "turned on".

So there you have it, some of my techniques for dealing with a busier than normal schedule. How do you cope with such weeks?

Published on: 18 October 2013

On the separation of governance and management

The assumption that governance and management should be held separate has been a cornerstone of boardroom practice for decades. Statements like "We can't go there, that's management", and "Is that management or governance?" are commonplace in boardrooms. The assumption, which is based on the agency theory of governance, has dominated governance research as well. But I think the assumption is flawed. Allow me to explain:

Agency theory describes the situation where the board is a proxy for owners who are not involved in the day-to-day affairs of the business. The separation of owners and managers, as described in Fama and Jensen's seminal paper, can lead to conflict because the actions of managers can depart from those required to maximise returns to owners. Structures and control mechanisms can supposedly mitigate the problem of divergent objectives. Much research has been undertaken to understand this, to try to identify the best configuration through which to minimise the problem and optimise company performance. Correlations between observable variables have been produced (independent directors, board size and gender, amongst others), but no consistent improvements in, nor predictions of, company performance or value creation as a result of these mechanisms have been reported.

The dearth of any conclusive evidence to link separation of governance and management with performance should not be a surprise. Structures and controls cannot guarantee effective governance, nor can they assure any future company performance. In fact, an inspection of corporate failure data suggests that the separation of governance and management has been the source of much confusion. The various defensive screens that have been erected by boards in response to failures—including claims of paucity of information; poor implementation of strategy; and, management fraud—expose the shortcomings of the core assumption. Consequently, the question of whether a clear separation between governance and management is the best model through which to achieve the organisation's aims needs to be revisited.

I've been working on this issue for about 18 months now, as a core theme of my doctoral research. My thoughts are starting to take shape, to the extent that a paper I've written is being peer-reviewed for the International Conference on Management Leadership and Governance to be held in Boston, USA in early 2014. A copy of the abstract is available here. If you'd like to provide some feedback, I'd love to hear from you.

Published on: 11 October 2013

What types of decisions should boards make?

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!

Published on: 2 October 2013

Maintaining contact with reality

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.

Published on: 10 September 2013

On meeting people, and learning from them

One of the things I really enjoy when travelling is meeting people for the first time. My doctoral research journey provides a case in point. It has brought me into contact with many interesting people, including members of the international academic and governance communities. The conversations and experiences that I've been privileged to be part of have helped me gain new insights; form opinions; and, map out the next steps of my journey. The sights and sounds of unfamiliar cities, and the conversations with hotel staff, shopkeepers and other locals, have added context, colour and richness.

When I am in England and Europe in November, to present a paper at ECMLG'13, I hope to continue conversations started in Bangkok back in February; to start new conversations and build new relationships; and crucially, to help others grapple with the demanding topic of how governance can help improve business performance.

If you'd like to join the conversation or arrange a meeting, please contact me, so that we can find a date and time that works best for you. I'm available to meet anyone, anywhere.

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