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    Attributes vs. activities: changing the research agenda

    Governance Phd Research
    For decades now, researchers have been searching for the link between governance and performance that supposedly exists. Most of the research has investigated isolated attributes of governance—things like Board size, gender diversity, the inside/outside director balance, and CEO/Chair duality. The results have been mixed. Some researchers have suggested correlations. Others have disagreed. Despite considerable effort—over an extended period—researchers seem to have reached an impasse.

    I was thinking about this while watching a motor racing programme on television yesterday, and concluded we've been looking at the wrong things.

    Do cars go faster because they have a male driver or red paint, (for example)? Of course not. Rather, they go faster because of the way they are prepared and what happens on the race track. Racing drivers win because of what they do (techniques, decision-making), not who or what they are (gender, fitness levels, red car). 

    We have much to learn from this analogy. If a link between governance and company performance exists (as several well-regarded scholars have postulated), it will, in all likelihood, be due to the activities of the Board as a whole—what they talk about, the decisions they make, the way they monitor performance. If progress towards exposing the elusive link between governance and performance is to be made, the research agenda needs to change—from attributes to activities. Does this sound plausible to you?
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    On governance: Can (should?) one size fit all?

    Governance Readings Research
    This is one of the perennial questions of governance. It just keeps coming up. Almost every month I am asked to comment on the "best model" of governance. 

    Governance is hard to grasp as a concept. What's more, it is a complex and socially dynamic phenomenon. Governance has lots of moving parts, and things change, depending on context. Indeed, no universally accepted definition for "corporate governance", "IT governance", "policy governance", or even "governance" itself seems to exist. The OECD definition of corporate governance, written in 2004, is widely recognised and generally accepted, however many directors and owners of smaller companies question how it fits their circumstances.

    Back to the question. The research literature is fairly clear: the pursuit of a one-size-fits-all governance model—or an optimal Board structure for that matter—does not appear to be practical, feasible or even desirable. Just as different organisational structures and operating policies make sense in different settings (who'd apply Fortune 500 structures in a SME?), different governance models also make sense in different settings. So, the answer is "no"—but that begs another question: how should one go about implementing effective governance in an organisational setting? Well (you're not going to like this), it depends.

    Clearly, working out how to implement an effective governance framework is important, because the question keeps coming up. I've decided to try to tackle this question over the coming weeks. I'll share what I learn through Musings. Watch this space!
  • Published on

    Hello 2013

    Phd Research Time Management
    According to the calendar on my desk, today is 4 January 2013. However, in my mind's eye, today is "day two" of 2013—because yesterday was the first day back at my desk since about 18 December.

    The two-week break has been refreshing. I spent a lot of time on the three 'R's: reading, riding, relaxing (with family and friends). However, now it's time to "get stuck in" again—to what is shaping up to be a huge year of data collection, analysis and (hopefully) writing. 

    I spent the morning reviewing my doctoral journey to date, and sorting out the priority items that need most attention over the coming weeks. Here's what emerged:
    • Prepare an ethics application, for consideration by the University's Ethics Committee (all research involving human participants must be approved before it can proceed).
    • Recruit three companies to participate as cases in the research.
    • Review and rewrite the literature review I conducted last year.

    So, hello 2013. As I proceed, I'll draw strength from Isaiah 40:31.
  • Published on

    Should Boards engage independent advisors directly?

    Governance Research Strategy
    This might sound like a rather odd question to ask, because an affirmative answer seems so obvious. Yet in my experience, many Boards do not exercise the option of seeking advice directly, despite the benefits of doing so being clear. Generally, Boards turn to the CEO to fill information gaps, because they are well-placed to provide the additional information required. However, the CEO is not always the best source of information.

    In what situations should the Board engage independent advisors directly? Whenever independence is crucial, or there is a conflict of interest. Three areas emerge as prime candidates to engage independent advice (although there may be others as well):
    • Risk management: To do otherwise is to rely on management's view of risk—akin to asking a rustler to report on the number of animals lost. I wrote about this recently.
    • Legal advice: Leading governance expert, Dr Richard Leblanc, recently made a strong case for Boards to engage legal advisors who are not conflicted by also providing advice to management.
    • Strategy: Several researchers (*) have suggested that the provision of independent contributions (to supplement contributions from management and Board members) is extremely helpful, because it exposes the Board to a more diverse set of trends and options as strategy is developed.

    If Boards are truly committed to acting in the best interests of the company (or the shareholder, depending on the jurisdiction), the answer must, unequivocally, be "yes".
    My hope for 2013 (and beyond) is that more Boards will start to walk the talk.

    (*) contact me for references.
  • Published on

    On compensating directors...

    Governance Management Phd Research
    Should directors receive performance-based pay for their contributions?

    This is an interesting question. Performance-based pay has become commonplace amongst senior executives and sales staff in the last decade or so. The model is straightforward: perform well (by achieving agreed objectives) and get paid a commission, be awarded stock or receive recognition via some sort of bonus. Performance standards are generally set by a more senior manager. The system seems to work reasonably well. However, an increasing trends in recent years is the implementation of similar performance based reward systems in the boardroom. But is this smart? Do performance-based pay systems motivate the "right" behaviours amongst directors?

    Whereas management and staff are directly responsible for implementing strategy and achieving performance goals that are determined by a more senior party, the Board is not. In addition to their role being quite different (to determine strategy, monitor performance and manage risk), the link between what Boards do and company performance is tenuous, at best. Simply, we do not understand how Boards contribute to performance. Further, Boards are endogenous—they largely set their own agenda and determine the company's objectives. In establishing performance-based pay systems for themselves, Boards are immediately conflicted. One way of ensuring performance-based payments are made is to set artificially low targets (for example). I'm not sure this is a good way of maximising company performance, or motivating healthy behaviours, but it is a way of being paid(!)

    My preference is towards rewarding directors through fixed fee payments for their contribution. If they are contributing, they receive their fee. This would be the default. However, if they are not contributing effectively, this should become known through a formal Board review process. Shareholders should have access to review documentation, and only re-appoint directors that are contributing. 

    This sounds remarkably easy on paper, however the topic of today's muse is hotly contested amongst practitioners and academics alike. What's your view?
  • Published on

    What is the purpose of economic growth? 

    Phd Readings Research Societal Wellbeing
    Note: This Muse is somewhat different from many previous entries. Whereas most prior entries record aspects of my doctoral journey, or make suggestions about a range of topics, this Muse simply poses a question: "What is the purpose of economic growth?".

    I'm raising this question now because I realised, while re-reading some PhD notes today, that a statement that appears several times in my papers is heavily loaded. The statement is: "High company performance is an important contributor to economic growth and societal wellbeing". Today, for the first time, I realised this statement somehow assumes that economic growth and societal wellbeing are some how "good", and therefore worthy of pursuit. But why? What is the purpose of economic growth? What is the underlying driver? 

    Before you get too excited, I'm certainly not devaluing economic growth as such. Rather I'm asking why we humans pursue it. I don't have a clear answer right now, but I will ponder this question over the coming days, do some reading, and try to form some views.

    To kick the discussion off, Benjamin Friedman, the political economist, writing in 2006, asserted that "Economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy. Ever since the Enlightenment, Western thinking has regarded each of these tendencies positively, and in explicitly moral terms."

    What do you think? I love to hear your ideas—considered, wacky or otherwise!