Business leaders told to move on from compliance and get governance right for their companies
Many boards comply with corporate governance codes and ever more complex reporting requirements but fail to adopt practices that could increase their contribution and transform the prospects of their companies according to Prof. Colin Coulson-Thomas, author of Developing Directors. Speaking at the London Global Convention on Governance and Sustainability organised by the Institute of Directors of India he asked “What has happened to relevance, economy, simplicity, proportionality, adaptability, flexibility and diversity of board types and practices?”
Coulson-Thomas reflected on his involvement with boards before the adoption of governance codes: “Prior to committees of enquiry into corporate governance someone who supported boards and helped them to build businesses would encounter a rich diversity of board types and practices. People adopted or developed governance arrangements that matched their aspirations and the situations they were in and evolved as companies developed and board priorities changed. Failings tended to be an over-valuation of stock rather than a threat to the world’s financial system.”
He continued: “In the pre-governance age many directors were modestly paid by today’s standards. In the English speaking world there were united and unified boards. The focus was upon customers, challenges and opportunities in the marketplace, and the growth and development of the company. Directors and boards contributed to business success. They worked hard to help people build global businesses and their reward and source of satisfaction was the achievements of their companies.”
Following a succession of governance reports and codes the professor suggests “the current situation is very different. Irrespective of particular circumstances, stages of development and areas of operation, there is greater uniformity of board types and practices, as people comply with standard models and observe codes. Directors now receive massively higher remuneration packages as a result of remuneration committee policy of paying ‘above average’ or ‘in the top quartile’.”
Coulson-Thomas finds: “Since our preoccupation with governance codes board membership is divided between executive and non-executive directors. The latter keep an eye on the former. The focus is often internal, upon compliance, the management and/or avoidance of risk, and contracts and insurance to protect the interests of directors. Contemporary scandals and governance failures are on a much larger scale. Some have international implications. When directors are removed they often receive huge pay-offs. Few entrepreneurs ascribe their success to corporate governance.”
The Professor feels: “I may have been fortunate to encounter so many competent and dedicated directors during the 1980s, but recent experience suggests that all is not rosy with corporate governance and that some re-assessment and critique of the current direction of travel is required. Vested interests have grown up around governance, reporting and regulation Measures introduced for the best of motives can have unintended consequences and some aspects can be costly to implement. My investigations reveal affordable and cost-effective alternatives that can be adopted.”
Coulson-Thomas urges directors who are uncomfortable with the direction of travel to speak up: “When emphasizing teamwork we should not overlook individuals. Given the responsibilities of boards, individual directors, whether executive or independent directors, can make a significant contribution. With multiple challenges and opportunities in business, market and operating environments, the exercise of individual thought and judgement has never been more important. Individual directors speaking up to encourage, warn or challenge can and do make a difference.”
The London Global Convention “Boards to Lead: Effective Corporate Governance and Sustainability” was organised by the Institute of Directors of India. The four-day programme of events included a two day international conference that was held on 29th and 30th October at the Millennium Hotel Mayfair in Grosvenor Square, London W1. Coulson-Thomas delivered a summary and overview of the convention during the concluding and plenary valedictory session on Thursday 30th October. He can be contacted via: http://www.coulson-thomas.com/
Prof. Colin Coulson-Thomas, a member of the business school team at the University of Greenwich, holds a portfolio of board, public and academic appointments and has helped companies in over 40 countries to improve board and corporate performance. Author of over 50 books and reports, including Developing Directors, a handbook for building an effective boardroom team, Colin has held professorial appointments in Europe, North and South America, the Middle East, India and China. His book Developing Directors and his other recent books and reports are available from Policy Publications: http://www.policypublications.com/
05 Nov 2014
Colin Coulson-Thomas