The Boardroom Conversation

Unless key figures in an organisation live company values and are prepared to speak up, corporate governance policies are pretty much meaningless.....see my piece on the Boardroom Conversation in Financial Director

Update for "women in the boardroom"

Politicians love easy wins: they love good news; so UK government ministers are positively ecstatic that their calls for greater representation of women in corporate boardrooms has borne fruit after just a few months. Figures published by Cranfield Business School show that FTSE 100 companies have moved from 12.5% representation to 14.2%. Whoopee!

But look more closely. Out of 21 female appointments to FTSE 100 companies in the past six months, 18 are non-executives. So there is no evidence that promotion of women within companies is improving. Also the number appointed to a wider spread of FTSE 250 companies was only 28 - so just 7 for companies ranked 100 to 250.

Now it is movement and it may be a good thing but it still misses a large part of the point - diversity in the boardroom is good but equality of opportunity is better and demands changes to recruitment, development and promotion practices below board level. How many of those 28 had kids?

See my posts on discrimination in recruitment  and on discrimination against women in particular

Psychopaths in the boardroom

A recent Horizon television programme for the BBC discussed the physical differences of psychopaths, whether noticeably different brain functions or differences in key genes. One of the principal researchers in this field, who appeared on the programme, reported that he found no less than sixteen murders committed by members of one branch of his family, over several generations. He also found that he himself had the gene that predisposes its carrier to this condition, attributing his lack of symptoms to a happy childhood and proposing that the gene on its own does not cause the condition but needs to be triggered by stressful influences such as childhood abuse.

Towards the end of the programme a New York psychologist, Paul Babiak, recounted his research that shows psychopathic characteristics are found disproportionately amongst top executives. Why should this be found amongst the most successful? Because the characteristics of the psychopath revolve around a lack of empathy for others and a need to take big risk. So the psychopath can be ambitious, manipulative and ruthless, without qualms and they will be attracted to jobs that give high adrenaline surges. Of particular note is another aspect of Babiak's research that shows these people may get to the top but that , once there, they perform noticeably less well than their peers. This should not be surprising - business is a collective activity that calls for social skills far beyond a mere ability to manipulate others.

Perhaps none of this should be too much a of a surprise. Many of us will have come across such people; manipulative, bullying charmers who, you feel, would sacrifice anyone to their ambition, whether friend or foe. And yes, I have felt they talked the talk but actually lacked the substance to perform in that top job.

What implications for corporate governance? I think this raises serious questions for those people who believe that rules and codes, or even laws, will control corporate governance on their own. If one or more senior people in a corporation is driven to take risks and seek thrills whilst having no moral scruples about harming others then will they not simply ignore those rules if they can? And the more precise you make the rules, to strengthen them, the more chinks appear, through which the determined can wriggle. You have to have the rules, but more important, you have to have the collective ethos that, like a net, holds the errant individual tightly in its strands. To continue the analogy, if the individual can cut one of the strands of the net then the net is weakened but it will still hold him unless he can cut many strands. So the real constraint comes from shared values across the organisation, where people will not be bullied into doing things that are patently contrary to those well-communicated values and the constraint comes from individual ethical behaviour - which is shared values at a society level.

Financial Times Briefings: Corporate Governance

My book on UK corporate governance is finally published.
ISBN-10: 0273745972

"Corporate governance describes the systems, procedures and behaviours by which an organisation is directed and controlled."

The book is designed as a quick, practical and accessible guide to what you need to know about UK corporate governance. It describes the basis of law and how voluntary codes, backed by a "comply or explain regime", were encouraged as government took fright over the effect of corporate scandals on capital markets. Inevitable accretions of bureaucracy have led to the voluntary approach being partly subsumed into law and describes how this trend is likely to continue under the influence of EU pressures to unify national practices.

The book covers the responsibilities of directors and boards and how the latter should be organised and managed. It also addresses the practicalities of how to measure, manage, discuss and justify corporate governance.

However, rules are not enough – both corporate scandals and anecdotal evidence suggest that behaviours are critical to good governance. Indeed too much legislation is counterproductive, turning into a box ticking exercise rather than something people really engage with. For the ill intentioned those laws and regulations merely provide neat targets for side-stepping and proving that their behaviour did not quite fit the definitions givem. Rules and codes, together with the prevailing climate of opinion can encourage appropriate behaviours and ensure the quality of the ‘Boardroom Conversation.’ But  if people think they can get away with sliding around the definitions while ticking the boxes then many of them will.do so; that climate of opinion is critical because it can discourage behaviour that falls just outside the definitions but that business partners believe is beyond the pale.

Furthermore, governance extends beyond the boardroom door. The blowout at BP’s Deepwater oil rig and GSK’s product quality failings at its Costa Rica drug manufacturing plant occurred despite compliance processes and safety officers and reams of risk assessments and governance procedures in annual reports. The behaviour of subordinates is also the responsibility of the board and an integral part of their governance duties – how do they make their policies stick?

The book emphasises that corporate governance applies as much to private as to listed companies as well as to a range of public bodies and not-for profit organisations. Good corporate governance contributes to business success, to successful fundraising and to dealing with business partners. It balances the needs and rights of different interest groups. It constrains the overmighty chief executive, chairman or shareholder to consider other stakeholders, appropriate levels of risk and to follow fair and transparent processes. It should reduce the incidence of corporate disaster as much as corporate fraud – better board structures and approach would surely have increased the chances of GEC avoiding policies that led inexorably to the company’s implosion? 

Key chapter headings include;

PART 1 – In Brief   

1          The executive précis:

2          What is it? What do I need to know?  Key terms/ concepts

The Background, Corporate Culture, Creative Accounting, Individual Behaviour, The legal structure, Current UK developments, Voluntary Codes or Legislation? The International Picture – EU, The Sarbanes Oxley Act etc

2.1            What is it for?  

2.2            Who is it for?  

2.3             Objectives

3.         Why do it? Risks/ Rewards

Compliance, Stakeholder demands, Corporate effectiveness, Public and Employee Relations, The costs, risks and rewards of good governance, Roes it work? Reasons for Corporate Social Responsibility

4.         Who’s doing it? Who has done it?   

What do success and failure look like?

  

PART 2     In Practice          

5.         How to do it

Role and Duties of Directors, The role of the Board, Integrity and Values, Shareholder rights, The Role of Markets      

6.                  How to manage it

           

7.                  How to measure it

           

8.                  The business case for corporate governance

9.                  How to talk about corporate governance      

PART 3 - Intervention

Executive intervention, Internal communication, Delegated Authority, Risk Management, Whistleblowing, When is my intervention needed? What questions should I ask, and who should I ask?   What are the decisions I need to make? What levers should I pull?            How do we know when we’ve succeeded or failed? 

PART 4 – Other Resources

websites, books, courses, consultants

Do directors of private companies have a duty to declare insider knowledge when puchasing shares?

Yesterday The Times reported on the settlement of a court case involving former shareholders in Uswitch who alleged that the Marquess of Milford Haven induced them to sell their shares, at an undervalue, to a company that they did not know was connected to him. Shortly afterwards the business was sold in its entirety for over £200m to a US company at a price per share some ten times what they had received.

The outline of the allegations points to an anomally in UK company law. For a company whose shares are publicly traded on an exchange, the directors are obliged by the Financial Services and Markets Act to disclose information about their share dealing and to make full disclosure of relevant information to shareholders through the regulatory news services. But this legislation does not apply to private companies. Shareholders in these businesses can only sue for deception or misrepresentation if they feel they have been wronged.

In another example, a friend of mine is a shareholder in a private company. After some years the shareholders as a whole appointed an outsider as chairman who, over a period, bought shares from individuals and became the largest individual shareholder. During this period there were expressions of interest from a foreign company in buying the business, though this has not yet come to anything. My friend thinks the chairman is very capable and has done a good job. There is no implication that he has done anything morally wrong. But UK company law offers very little protection if he had used inside information to buy shares at an undervalue. In this case, at least, the sellers would have known they were selling to an insider but would they have imagined that protections against insider dealing applied to them? Insider dealing is an offence defined in relation only to quoted companies not to private ones.

It seems to me that larger private companies which allow their shares to be traded should produce, at least, a code of behaviour for directors and other executive shareholders. If it were possible to put something stronger in place through a binding shareholder agreement that would be better. If a satisfactory way could be found to extend the law to private companies then that would be better still.

Transparency International calls on FIFA to improve governance

Article by Aarti Maharaj in Corporate Secretary reports that Transparency International, the corruption campaigning and monitoring group, has produced a report that suggests, among other things, that a group of independent outsiders should oversee the current review.

 “FIFA says it wants to reform, but successive bribery scandals have left public trust in it at an all-time low. Working with an oversight group – taking its advice, giving it access, letting it participate in investigations – will show whether there is going to be real change. The process has to start now,” said Sylvia Schenk, senior advisor on sport to TI.

That certainly suggests a pretty low degree of trust in Fifa and its internal processes...probably well deserved.

Peter Day's radio 4 programme on corporate governance

If you missed it then it is worth listening to this programme on corporate governance. It covers too many issues too superficially and seeks too many easy soundbites but it assembled a group of mostly impressive and interesting people to provide those soundbites. And, Peter Day actually asks some very good questions. And, by the way, most of those issues are really important.