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    EURAM'15: Is it time for a new paradigm?

    Accountability Conferences Governance Research Societal Wellbeing
    Professor Thomas Clarke, of UTS Sydney, opened the corporate governance track of the European Academy of Management 2015 conference by discussing both the history and the future of board research. In so doing, he asked the question as to whether boards and board research were on the cusp of a paradigm shift. 
    Looking back 83 years, Clarke called on the memory of Berle and Means, and their oft-cited work that explored the separation of ownership and control. Berle and Mean envisaged a collective and collaborative approach (between shareholders, boards and managers) to the achievement of various business goals. The article has been accorded seminal status by many researchers, yet it has been largely usurped in more recent times by agency theory (one of the most debilitating ideologies of moderns time, according to Clarke), a contribution that conceives an individual and separatist view where shareholder primacy is the primary (even only) goal. 
    In looking ahead, Clarke asserted that new a model is required because the world is on the cusp of a massive disruption caused by climate change. A continuation of the extant approaches will simply accelerate the demise of many economies. In calling for a zero-emission post-carbon economy, Clarke said that boards of directors have a key role to play. However, they need to be farsighted, determined and courageous. He called out Chandler (1967) and Stout (2012) as highly influential thinkers in this regard, and contrasted their theses with that of the more commonly cited Jensen and Meckling (1976) (who promoted agency theory). 
    The challenge for boards in the future is to return to the ideas of Berle and Means, for history suggests that their ideas were largely correct. Whereas the 19th Century was characterised by production and the 20th Century by marketing and consumption; the 21st Century will, more than likely be characterised by sustainability. Boards need to embrace this if they are to oversee the fundamental changes needed to make the transition. Whether boards will be prepared to look inwards, to re-invent themselves and the way they work is the first challenge to be surmounted. Clarke's thesis suggests that failure to act on this initial point may consign boards and the very companies they oversee to the very place they wish to avoid—the scrapheap.
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    International Governance Workshop: Reflections

    Conferences Decision Making Ethics Governance Leadership Research
    The second annual International Governance Workshop is complete. A small(ish) group of leading thinkers assembled at the Toulouse Business School in Barcelona to discuss and debate emergent research and to ask the "So what?" question. Overall, the presentations and papers were of a high standard, as was the discussion and debate that followed each paper. Also:
    • The organisers did a great job. Barcelona in June is like Goldilocks—not too hot and not too cold. The venues, both at TBS and those used for extra-curricular dinners, were conducive to good interaction between the delegates.
    • The highlight of the workshop (for me) was Silke Machold's keynote talk. She challenged much of the conventional thinking, and called both researchers and practitioners to re-think boards, board-practice and corporate governance expectations.
    • The discussion over wine in tapas bars and restaurants was something to be savoured. Even while socialising, delegates continued to think about the challenges facing companies and boards, and to explore options and scenarios to move from corporate governance towards the notion of a value-creating board.
    • The main theme (actually, challenge might be a better descriptor) that emerged from the workshop was 'change'. The nature of board research needs to change, from investigating isolated and observable attributes of boards and corporate governance activity, to studying boards themselves, both in situ and holistically. This presents a huge challenge for researchers, because it means that straightforward statistical analyses probably need to be replaced by more sophisticated techniques not unlike those used in sociology, psychology, behavioural economics and related fields.
    • The dominant logic of companies—maximisation of shareholder returns—probably needs to be reassessed in the light of wider stakeholder issues. This is not a call for Marxist or socialist-style interventions, but rather a recognition that shareholder maximisation to the exclusion of other logics is unlikely to be sustainable in the longer-term.
    While this conference was amongst the smallest (in terms of delegates) that I have attended in recent years, the quality of the discussion and debate was amongst the highest that I have experienced anywhere. Senior academics openly interacted less experienced researchers and other attendees in the discussions, to the extent that it was hard to tell who was who unless you looked at the titles on name tags.
    From small beginnings in 2014, the TBS team has a clear vision of what they want to achieve. This second workshop built on the first workshop (I am told, I did not attend the first one), which augers well for the future. I commend this workshop to all academics, consultants, advisors and serving directors with an interest in board practice and business performance.
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    IGW'15: Overcoming barriers to deploying complex technologies

    Conferences Decision Making Governance Leadership Performance Research
    The deployment of complex technologies can be a demanding problem in modern societies, especially when various interest groups support or oppose such deployments. The magnitude of the challenge was not lost on Alfred A. Marcus (Carlson School of Management, University of Minnesota). 
    Using the example of implementing wind turbine systems as a source of renewable energy generation, Marcus compared the approaches taken in Texas and Minnesota. Both states have the high and relatively consistent wind runs considered to be a necessity for large farms of wind turbines. However, renewable technologies such are wind turbine farms are not universally supported. Some like the romanticism of the blades gently turning in the breeze; others assert they are a blight on rural vistas; and, yet others both like the idea but oppose local deployment (the pejorative NIMBY). 
    Marcus observed that Texas' approach to decision-making and deployment was more top-down in nature, whereas the Minnesota experience was more bottom-up (and highly politicised). In considering this, he suggested that charisma without supporting regulation can lead to short-lived benefits. In effect, some ideas and decision processes need top-down 'support' to gain traction. Drawing on the work of Wilson (hierarchical decision-making) and Ostrom (collective action), Marcus proposed four 'rules' that can help, as follows:
    • Boundary rules
    • Allocation rules
    • Conflict management rules
    • Rules for changing the rules (!)
    In effect, Marcus' proposal was that a combined approach—incorporating hierarchical governance structures and decision-making processes and collectivism—was probably necessary if the not inconsiderable barriers to the deployment of complex and somewhat contentious technologies (like wind farms) are to be overcome.
    Although he did not explicitly extrapolate his comments, Marcus' suggestions are relevant and applicable to boards of commercial businesses. Many decisions, especially strategic decisions, fail to gain traction in implementation because a suitable framework for both decision-making and monitoring and verifying implementation is not established. Perhaps boards might like to consider Marcus' proposal, and see how it might apply. I suspect the answer in many cases will be 'well'—so long as a shared commitment to a common and singular purpose was in place.
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    IGW'15: "Much ado about nothing?"

    Conferences Governance Leadership Research
    Prof. Silke Machold delivered the second keynote talk at the International Governance Workshop in Barcelona. Machold, who has been researching boards for many years, is a researcher that I admire—for she has been able to gain access to boardrooms to observe boards in action. Here's a summary of her rather wide-ranging commentary on companies and corporate governance:
    • If we look back through history, a steady progression from city states, through church states to nation states is apparent. The latest development is large corporations, some of which are as large as nations (Apple is as big—in revenue/GDP terms—as Austria, for example). While size often begets influence, scale does not necessarily mean that corporations are 'good' or beneficial to society.
    • Myths: That the shareholder maximisation value is always 'good', and that shareholders are owners (I commented on this recently). If shareholders were owners, then they could enter the place the company operates from and they could take possession of the company's assets. Just imagine doing that if you were a Walmart or Tesco owner—you'd be arrested for theft or shop-lifting!
    • The strong focus on earnings, and board and managerial propensity towards short-termism is, in essence, 'fishing with dynamite'. While it is this dangerous, what's worse is that it is a self-fulfilling prophecy.
    • They way we tend to look at boards—as decorations (Mace, 1970) or as engaged actors (Huse, 2007)—is somewhat simplistic. Machold has observed boards that are or have been both active and passive at different times.
    • In respect of conflict in the boardroom, Machold called out two different types of conflict, one of which is healthy and the other which is not. Cognitive conflict (thinking about and debating problems is good) whereas affective conflict (debating personalities and emotions is destructive). Boards and management teams need to discover how to pursue CC.
    • Machold walked into the diversity discussion by suggesting some types of diversity are good and others are probably not as good. Personality diversity is probably unhelpful, because the tendency is to focus on personality differences rather than debate problems. Machold suggested that boards and recruitment committees should include personality profiling within their recruitment process because better cognitive debate is more likely to occur amongst directors with similar personalities (than directors with a considerable personality diversity).
    Machold summarised her talk by suggesting that much has been said and claimed over the years, and that much of it had led to people getting quite excited about factors and attributes that, quite frankly probably are immaterial—thus the title of her talk: Much ado about nothing.
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    IGW'15: Gender diversity on boards

    Conferences Diversity Leadership Management Performance Research
    The topic of gender diversity on boards has received a lot attention in recent years. Researchers, interest groups and the media have chased various agendas. Much has been written and many claims have been made. However, compelling conclusions remain elusive. The topic received more attention during the first session of the second day of the International Governance Workshop in Barcelona.
    Three speakers presented the results of their research, conducted in the Polish and Spanish contexts. The studies explored variations on the theme of the impact of women on various financial and non-financial measures. All of the studies were quantitative analyses, conducted using publicly available data and statistical techniques. I have been critical of the use of such techniques for social research in the past. Reductivist approaches rarely provide insight beyond straightforward correlations. Sadly, I heard nothing to suggest otherwise in these talks. 
    The challenge for board research is to move beyond the 'big three' assumptions--ontological reductionism, that a single objective reality might exist, and that a constant conjunction between variables constitutes a causal explanation—are inapplicable to board research, because boards and the context within which they exist, companies, are social constructions. Rather, the more demanding route, of qualitative research that explores boards in situ is more likely to reveal explanations that shareholders and director nomination committees can rely on.
    I remain convinced that women and people from a diverse range of background affect board practice. However, simple empirical research is not the appropriate pathway to understand and explain whether this is correct is not. More subtle approaches, that consider the context and behavioural nuances of individual directors appears to be crucial.
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    IGW'15: Opening Keynote

    Conferences Ethics Governance Leadership Management Performance Research Strategy
    The second International Governance Workshop got underway at Toulouse Business School, Barcelona Campus on Thursday 11 June 2015. Professor Morten Huse, an esteemed corporate governance scholar from Norway, provided the opening day keynote. Huse has been studying boards for a long time—the mid 1970s—so when he speaks, people tend to listen. Here's four of the points from his talk:
    Huse's talk set the scene for a lively debate through the balance of the conference. It will be very interesting to see how this develops.
    • The dominant logic of modern boards—independence and opportunism—has not delivered any significant value to shareholders over time. Rather, it has driven short-termism, strong norms of privacy and mis-trust.
    • The conception of corporate governance as a set of rules and regulations to keep management honest needs to be replaced. Instead, boards need to think and behave in terms of becoming value-creating teams.
    • A fundamental shift is starting to occur, if you look closely: Evidence is starting to emerge to suggest that boards that lead, seek to create value and are involved in the strategic management process are more likely to make positive and meaningful contributions. However, this is not guaranteed, as boards are comprised of people and complex interactions, and external forces exert influence as well.
    • Huse suggested that a common language is required. Too often, a speaker says 'X' only to find that other directors hear 'X', 'Y' or even 'Z'. He went on to overlay a common language and important board tasks over the value creation process (the value chain, if you will).