Time to reinvent? Or revolutionise?

Charting the Future of the NFP Boardroom (for the 21st Century)

Better Boards Conference

26 July 2015, Brisbane

Elizabeth Jameson,

Managing Director, Board Matters

www.boardmatters.com.au

The Thesis?

The ‘command & control’ model of industrial

revolution profit-driven governance is

exhausted Our connected and information-rich world

demands a new model Time to consider a more shared

and distributed governance model?

Where it all starts

κυβερνάω

[kubernáo]

Where it starts

The word ‘governance’ is derived from the

Greek verb κυβερνάω [kubernáo]

Meaning:

‘to steer’

Roll up! Roll up!to the Governance ‘3 Ring Circus’

Legal ‘Members’

CEO & ManagersBoard

Legal Authority

Accountability

Fiduciary Relationship

Contractual Relationship

The World that gave rise to the model…

The World that gave rise to the model…

Huge innovation driving hunger for limited

immobile capital

Low levels of education

Low levels of access to knowledge

Distances could not be quickly or easily traversed

And we ended up with…

An ‘agency theory’ view of the world

The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.... Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

Adam Smith,

Wealth of Nations, 1776

Today – ‘command and control’

Three separate bodies each responsible to hold the

next accountable:

Derived from ‘agency theory’

Assumes persons in control most likely to squander

organisational wealth

Most suited to stable economic environment and for

large corporations with shareholders

Embodied at law – Corporations Act, Associations

Incorporation Act and constitutions

Contrast that with today’s world

The World that struggles with the model today…

Huge innovation driving hunger for limited

immobile limitless and very mobile capital

Low High levels of education

Low High levels of access to knowledge

Distances can’t can be quickly and easily

traversed

The World that struggles with the model today…

An alternative view of the world

The board as a mediating hierarchy (Blair and Stout,

1999) in a complex distributed and connected world...

…underpinning a board ‘team production theory’ with

the board mediating the hierarchy of interests in the

corporation for better corporate outcomes

The key isn’t structural, it’s social.

What distinguishes exemplary boards

is that they are robust, effective social

systems.Jeffrey A Sonnenfeld

‘What Makes Great Boards Great’,

Harvard Business Review,

Sept 2002

What doesn’t change?

What doesn’t need to change?

Most contemporary definitions of

governance incorporate: Accountability to key stakeholders Performance of the organisation Direction and control over the organisation

‘Board’ Role:

The key role of the board is to ensure corporate

management is continually striving to achieve above-

average performance taking account of risk …

F.G. Hilmer

Strictly Boardroom:

Improving Governance to Enhance

Company Performance, 1998

What might need to change?

Compliance roles

Performance roles

External roles

I nternal roles

Past and present orientated

Future orientated

Provide accountability

Strategy formulation

Monitoring and supervising

Policy Making

Approve and work with and through the CEO

Compliance roles

Performance roles

External roles

I nternal roles

Past and present orientated

Future orientated

Provide accountability

Strategy formulation

Monitoring and supervising

Policy Making

Approve and work with and through the CEO

Robert I. TrickerInternational Corporate Governance: Text Readings and Cases, Prentice Hall, 1994

What might need to change?

‘Board’ Functions

What does need to change?

Legal ‘Members’

CEO & ManagersBoard

Legal Authority

Accountability

Fiduciary Relationship

Contractual Relationship

What does need to change?

Operators

Decision Makers

Stakeholders

Example: Council & Board

Council & Board as a ‘shared and distributed’ model?

The upside: Broader stakeholder engagement Greater input to Board strategic decisionsThe downside: Ambiguity about who is ultimately responsible De facto/shadow director risk Cost of larger Council meetings Confusion about role Exclusion of some ‘members’

2100 – Multiple Boards?

So what could we do better today?

Steps towards a more ‘shared and distributed’ model?

Use of more active committees of the board – but proceed with caution!

Use of more short term working parties with diverse membership – not only board members?

More robust delegation of authority for decisions (and hold people to account) – consider who is best for each decision?

Steps towards a more ‘shared and distributed’ model?

The virtual stakeholder/advisory council – the input without the cost?

Wisdom of Crowds (J.Surowiecki): Ask an expert? Phone a friend? Ask the audience?

Strive for constructive diversity amongst board members – use more rigorous nominations processes?

Understand the (real) role of “members”

Steps towards a more ‘shared and distributed’ model?

Accept and manage the de facto/shadow director risk (e.g. review insurances)

Break down the mythical divide between governance and management – rely on Management liabilities?

Make the job of governing more dynamic and interesting – surely not?!

Remuneration of board members – the inspiration to ‘take the job seriously’?

So what could we do better today?