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    ECMLG'13: Reflections from Day 1

    Conferences Governance Management Performance Research Strategy
    The first day of the 9th European Conference on Management Leadership and Governance is over. During the course of the day, some 29 peer-reviewed research papers were presented, in addition to Sloan's keynote at the beginning of the day. Some of the highlights and reflections from day 1 are listed below:
    • We have much to learn from each other. For example, I sat with a Professor from Neapolis University (Pafos, Cyprus) over dinner. We had a great, wide-ranging conversation, which included the sharing of some stories about the demands of tertiary education, and especially the challenges of securing a place in undergraduate programmes in highly-regarded universities around the world. I concluded that New Zealand students have it easy, especially when compared to the demands of entry at places like Imperial College in London (mind you, it is one of the top five rated engineering schools in the world).
    • We have much to learn from each other #2. In a side conversation between sessions, I was told that an Australian-based doctoral candidate had recently completed a multi-year case study of leadership in several organisations, using direct observation as a key data collection method. This is the first time I have heard of any study (anywhere) that has attempted the same sort of design as I am using. Hopefully, when more details are available in the next week or two, I'll be able to assess the correspondence between their study and mine, with a view to securing a meeting to learn more—especially to  discover what learning might be applicable to my own work.
    • Many of the papers from Eastern European contributors followed a predictable pattern, of the statistical analysis of a set of quantitative data gathered from publicly available records. Some of the conclusions presented were a little tenuous, which is not surprising given the difficulties reporting generalisations about social phenomena from statistical data. Notwithstanding this, it was great to hear from enthusiastic researchers from a part of the world that I know little about, apart from what I have been exposed to in books and television programmes.
    • My own paper seemed to be well-received, despite a small audience. I appreciated the opportunity to summarise my work; to field questions from the floor; and, defend the philosophical and methodological approach that underpins my work. I am looking forward to more conversations on day 2 and beyond.
    • The conference dinner was held at Schloss Maria Loretto, on the shores of Wothersee. This beautiful castle that dates back to 1700s. The schloss is a short 8-minute walk from the conference hotel, so many of the delegates took a "walking bus" to get there. The food and service was outstanding. It was raining when we left, so many of us "enjoyed" the stroll back to the hotel in the gentle rain. My day ended damp but happy.
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    ECMLG'13: Observations and insights

    Conferences Governance Management Performance Phd Research Strategy
    Later this week—on Thu 14 and Fri 15 November—I will be speaking at the 9th European Conference on Management, Leadership and Governance in Klagenfurt, Austria. I'm looking forward to renewing acquaintances and making some new connections; to presenting a paper to an international audience which will include some of the world's leading governance scholars; to testing some emergent ideas; and, to learning from others throughout the two days. 

    I plan to post reflections here during the conference, so check back if you'd like to hear about the latest developments in management, leadership and governance research and practice.
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    How much time do you spend in your board role?

    Governance Performance Strategy Time Management
    The National Association of Corporate Directors (NACD) has just published its 2013–2014 Public Company Governance Survey. The news release and several top-line findings are available here. A copy of the full survey report is available from the NACD bookstore.

    The report makes for interesting reading. One metric that caught my attention was the average amount of time that board members commit to their work. Respondents claimed their annual time commitment was 235 hours per board. Using an 8-hour day as the basis, this means that directors of public companies in America commit, on average, 2.5 days per month to each board of which they are a director. Does this sound like a lot of time, or not much? By way of comparison, most boards of public companies in New Zealand meet ten or eleven times per year, and board meetings typically last between four and seven hours. Even taking the generous end of these ranges, and doubling the figure to account for committee work and pre-reading, the figure for a New Zealand director is about 154 hours, or roughly two-thirds of the American figure.

    What amount of time is reasonable? Clearly, boards and companies are complex, socially dynamic, and subject to the vagaries of markets and many internal and external factors, so every situation is different. However, I would have thought that a figure closer to 400–450 hours per year would be necessary, if a director is to understand the business of the business well (this being a prerequisite to making an effective contribution to the development of strategy and the making of informed strategic decisions), and monitor performance well. Could the lower levels of commitment that seem to be typical be material to the various failures of governance that have come to light in recent years?
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    Who should drive the development of corporate strategy?

    Governance Management Performance Phd Research 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.
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    When the Board and CEO hold different views...

    Governance Management Performance Strategy
    Periodically (or perhaps more often than one would care to admit?), corporate boards and CEOs have differing opinions about how best to drive performance. Most of the time, one or other of two options follow: either the board holds sway—it is the "alpha male" who employs the CEO after all—or the CEO gets their way. At the end of the day, it probably doesn't matter who "wins" as such, so long as the parties can find common ground and reach agreement. The reaching of common ground may take time, but it needs to be found, for the good of the company. But what options are available if agreement is not achieved? The CEO could decide to fold, and implement the wishes of the board. This may mean implementing decisions that they don't support, a position which can be uncomfortable. Alternatively, the CEO could continue to press their case, albeit at the risk of upsetting the board and the losing its confidence. If the situation is bad enough, whereby the parties are and remain poles apart on a substantive issue, then the CEO needs to do the right thing by considering whether they can continue in the role.

    The key to making meaningful progress is the organisation's core purpose and overall strategy. With a clearly stated purpose and an agreed strategy in place, then strategic options and various proposals that arrive at the board table can be debated in the context of an agreed reference point. Either they fit, or they don't. Without such reference points in place however, opinions and personal preferences, about how to drive performance, hold sway. And we know that our opinion is always right, don't we? This latter option, of operating a business without a clearly stated purpose and strategy, is a recipe for trouble. Yet many boards and CEO try to run their businesses without such reference points. Why? 
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    On the separation of governance and management

    Governance Management Performance Phd Research Strategy
    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.