Why do corporate boards fail?
Governance guru Ira Millstein often says: ‘Good governance requires more than compliance with mandates, it requires voluntary initiatives.’ With that in mind, when it comes to the boardroom, being able to step outside of the box and challenge the views of your board members is an effective way to start leading your team toward good governance.
‘When you find the conversation predominately focused on compliance and not voluntary initiatives, then the board is not future-proofing the company,’ says Fay Feeney, a corporate board consultant who provides board chairs with advice on ways to improve boardroom performance. Feeney says there’s no one better to help the board break old patterns than the corporate secretary.
‘The corporate secretary can expand his/her listening to hear beyond the usual channels, to social media, when conversations are starting to call out his/her boards,’ says Feeney. ‘Corporate secretaries can serve as an early warning – monitoring for external conversations that raise suspicion.’
Perhaps the boards of News Corp and BSkyB could have benefited from an early warning or monitoring system to help prevent the continuing fallout over the phone-hacking scandal at News of the World. As the scandal enters its fourth week, attention has shifted to News Corp’s boardroom, where there’s been a sudden move by independent directors to hire a prestigious defense attorney and former US attorney general to protect shareholder value, among other things.
Additionally, reports that UK TV giant BSkyB decided to keep Rupert Murdoch’s son James on as chairman, despite the phone-hacking row, have earned its board some scrutiny. Many industry observers felt Murdoch’s son should resign the chairmanship of BSkyB. But the 38-year-old billionaire enjoyed unanimous backing from the broadcaster’s board. Some might wonder how much ‘good governance’ this board would provide under Murdoch, heir to a scandal-tainted media empire.
‘Directors, investors and stakeholders surely saw the signs of a culture that did not challenge the chairman, [and] the corporate boards that can’t be trusted… are right under our noses,’ Feeney contends.
So how can a corporate secretary tell whether a board is set up for failure? Feeney identifies three ways boards have gotten off track:
(i) Board chairs are granted a unique role in setting the boardroom agenda and controlling the conversation. It is time to respect that we are transitioning to a model with separation of chairman and chief executive officer roles – I’ll accept that this could take time but it is behavior like chairman Murdoch’s that creates the perception that independent leadership’s time has come. As Dr Stephen Davis, executive director of the Millstein Center for Corporate Governance and Performance, recently wrote: ‘Today, 40 percent of S&P 500 companies split the roles between two individuals. Seven years ago the comparable figure was just 27 percent.’
(ii) Culture. It begins with being able to understand the underlying beliefs behind the chair’s and director’s behavior. In my experience, as I spend time with directors, if they say, for example, ‘I’m too busy with email to learn about social media’, I know we have an issue. The issue is not their opinion of social media, but that they believe they are too busy for it. We’re all busy, but this belief is not serving their business. Not being open to seeing how new ideas impact your business means trouble is brewing.
(iii) Open attitudes. Recently I’ve been explaining my practice to board chairs as ‘an inside voice of activism’ [because] we tend to get stuck on labels and language. If you see the reactions to labels like activism and whistleblower being used as pejorative, this is a bad sign. Leaders need to be able to listen to people who disagree with them.
