Whereas the focus in the past has been on ensuring management did its job well (an agency-based perspective), the boards and directors I spoke with indicated that they are starting to wrestle with the challenge of understanding the purpose of the company and how the value-creation mandate might be fulfilled. Several folk added that their usage of the term ‘corporate governance’ has changed, returning to the early usage: a descriptor for what boards (should) do when in session (i.e., in board meetings).
Related to the first point, boards in several European countries (well, in Belgium, Netherlands and Finland anyway) are starting to think more carefully about the longer-term implications of their decisions. This is in stark contrast to the short-termism that continues to pervade US and Canada boardroom and shareholder culture.
De Nederlandsche Bank (DNB, the Dutch Central Bank) is increasingly taking a formative view of supervision, expecting financial institutions to not only demonstrate compliance with established statutes and codes, but also to demonstrate how value is being added to the banking community and beyond in the future.Many people (both in public forums and private conversations) volunteered that diversity is important if boards are to make high quality decisions. However, the same people quickly added that their usage of the term meant diversity of thought, not gender or any other observable form of difference between group members. KPMG, IIA and people from several other Finnish agencies were very interested in the implications of the proposal that board involvement in strategy is good for both effective board practice and business performance. It seems that the findings from my doctoral research hit a spot, with both strong support and many questions about the mechanism-based model of corporate governance and the opportunity the model presents to help boards understand how influence can be exerted from the boardroom.
In the UK:
Director recruitment: The criticism levelled by many aspiring directors—that many board appointments are based primarily on prior relationships and not director competency or ‘fit’—remains rife in the UK. Despite a plethora of calls for more a robust process, the dominant question asked by many boards and nomination committees continues to be “Well, who do we know?”
Institutions: Directors’ and governance institutes (including the Institute of Directors and the ICSA: The Governance Institute) continue to promote themselves as champions of board performance and director professionalism, supported by a bevy of training courses, press releases and contributions to emergent practice. However, almost half of the directors that I spoke with (most of whom are members of at least one institution) have concerns over the direction and focus of directors’ institutes. They noted that institutions have become somewhat self-centred, losing sight of their stated purpose of serving the interests of members and promoting the profession. Remedial suggestions included holding directors accountable for performance and any acts of malfeasance (including de-badging miscreant members of their chartered status); moving the discourse away from populist topics to substantive matters; and, weaning boards off the notion that compliance with corporate governance codes is a valid measure of good performance.
Performance: The long-held understanding that the primary responsibility of the board of directors is to recruit the chief executive and to oversee management remains the dominant logic in the UK, especially in the publicly-listed company community. Whereas many commentators and directors (including me) promote a performance-based understanding (whereby the board commits to determining and pursuing a value-creation agenda) most boards remain comfortable limiting their contribution to monitoring and controlling the performance of their chief executive.
Board evaluations: Directors are increasingly aware of the emergent expectations of shareholders and other stakeholders; that a periodic assessment of board performance is appropriate. However, while directors’ institutes have for some time recommended that boards submit themselves to scrutiny, most directors that I spoke with indicated that they remain uncomfortable with formal external evaluations. Privately, they harbour concerns that the results may be used to expose poor practice and, potentially, be used to remove under-performing directors. Sadly, it seems that preservation (of income and status) remains the dominant logic for many directors.
Blueprint for Better Business: After spending a week-and-a-half delivering presentations, meeting with boards and fulfilling advisory engagements my last two days in the UK were spent at Murray Edwards College, Cambridge, at an immersion workshop run by the Blueprint for Better Business organisation. The motivation for attending was straightforward: to understand the organisation’s proposition more fully, especially to determine its applicability in practice. I came away convinced, to the extent that QuarryGroup will become a facilitator of the blueprint to businesses in Australia and New Zealand (at least) from 1 May onwards.
Source: Musings, the blog – Peter Crow