The Fish Rots From The Head: The Crisis in our Boardrooms: Developing the Crucial Skills of the Competent Director

by Bob Garratt

Attention can then turn to five central aspects of a board’s capabilities: range of thinking styles ability to work together as an effective group critical understanding of their business model overall performance in terms of directoral skill, care and diligence ethical performance in terms of accountability, probity and transparency.

only psychometric test I know of that deals with the range of thinking in a systematic way is the Thinking Intentions Profile (TIP).79 In its most sophisticated form it looks at 25 combinations of thought preferences. In its simplest form, it looks at six basic types of thinking: Past-orientated thinking (judging what is right) – logic/rationality – values/commitment Present-orientated thinking (describing what is true) – the hard facts – sensing the soft facts Future-orientated thinking (realizing what is new) – using ingenuity – visionary capacity

80% of directors, male and female, are driven strongly by the present-orientated soft facts (sensing the micro-politics of their organization) backed closely by the past-orientated thinking style of logic (they are good at post-rationalizing what they are doing). Then they tend towards values and vision. What concerns me greatly is that they downrate hard facts and, especially, ingenuity – making the future happen.

The next step is to use a ‘stop, start, continue’ analysis. This can be as simple as hanging flipchart paper on the boardroom wall with the name of each director placed above the words ‘stop, start, continue’. The directors are encouraged to write in each of the three categories actions that would help them be more effective on the board: what they should stop doing, what they should start doing and what they should continue to do. This can be done anonymously at first, perhaps in a separate room during a mealtime or coffee break, but later it can become a legitimate part of a board meeting.

It is for the chairman to ensure that each director is properly mentored or coached, by him or herself, by someone else within the organization, or by an experienced and disinterested outsider.

Chairmen should ensure that a small time and money budget is made available for the personal well-being of each statutory director, both executive and non-executive. I have seen this give a tremendous boost to the positive emotional climate of the board.

Personal development is especially helpful for directors who have led an achievement-driven life and feel that there is a lack of balance in a number of personal areas: between mind and body, work life and home life, work and recreation, work life and spirit. The vast majority of directors I meet around the world think that they are out of balance on a combination of these dimensions and are struggling to find the time to rebalance themselves. Having a personal development agenda at least legitimizes the aspiration.

creating a personal portfolio of performance-related thinking styles is crucial.

Corporate governance affects all aspects of our lives. It should, therefore, form the assessable framework for the running of all our organizations – private, public, governmental and not-for-profit – to allow us to create balanced yet dynamic civil societies. It is our job as advocates of effective corporate governance to convince the politicians, civil servants and business folk that this is critical to the success of all.

The ultimate owners of any organization should be identified legally and then be assessed regularly on their stewardship of their organization. This is a major issue for existing listed companies where the conflict between shareholders and traders is becoming acute. It is an issue for minority shareholders in any organization. And now it is of growing importance in the public and not-for-profit sectors where the concept of ‘stakeholder’ is taking hold without a legal framework to focus it.

It is obvious that directors alone cannot be held accountable because they are part of a wider system, which is seldom acknowledged in corporate governance discussions. Directors are the agents of the owners. They are part of a system of powers that are currently inherently unstable, where owners should agree direction but rarely do. The board must then dispose their wishes as best it can. Yet there is little oversight by or of the owners, and little regular feedback. The working assumption, at least in the private sector, is that if the owners do not like it, they can sell their shares. The lack of any long-term, sustainable goals set by the owners is often astonishing.

It is this short-termism, lack of ownership vision, selfishness and greed that is undermining our capitalist system.

There is a paradox here. At all levels – personal, corporate and governmental – the concepts of sustainability and stewardship of the earth’s limited resources are increasingly accepted intellectually by organizations’ customers and users. Yet little action is taken. So how do we move intellectual acceptance into profitable and sustainable action? The values of sustainability need now to be reflected in all organizations’ purpose, vision and values so stakeholders can see that they are taken seriously. This would be the start of a major reframing of corporate governance and consequent board behaviour.

The next step is the creation of a corporate value chain (the reconsideration of the business model) spot-welded to the corporate values statement, backed by an enforceable corporate code with sanctions (for any organization – private, public or not-for-profit) and endorsing the following: we seek to do no harm we seek to replace anything unsustainable that we use in our work processes where we cannot replace we shall develop new substitutes where we cannot substitute we shall seek a timed withdrawal from this product or service.

at the start of the 21st century science was seen increasingly as becoming a victim of politically correct thinking, especially about global warming. In 2009, the uproar over the data emanating from the University of East Anglia, and the researchers’ seeming unwillingness to share or even store some of the data that had been collected, exacerbated public criticism of science. A broad condemnation of science based on this specific case is nonsense, but it is typical of the way the public, backed by an often hysterical media, no longer trust the previously accepted notion of the inherent goodness of science. This is a concern as it destabilizes many of the current assumptions on which we have organized our world. And there is worse to come, especially in economics. My concern is how directors and executives keep abreast of such debates in their horizon scanning.

The falls of Lehman Brothers, AIG, Royal Bank of Scotland, HBOS and Northern Rock were all due to faulty business models combined with insufficiently critical boards of directors.

It has always puzzled me that directors and managers will happily repeat one of the great lies of the world – our people are our greatest asset – whilst behaving in exactly the opposite manner.

With the exception of some Western service industries, labour costs have become significantly smaller in many businesses. But the value created per head has risen as the manual elements have been replaced whilst the ‘brain’ costs have increased. High and regularly assessed levels of competence make such folk worth keeping. Thoughtless cost-cutting in these areas quickly erodes the know-how and know-why that give businesses their edge and allow them to charge premium prices. Corporate amnesia can set in quickly, especially if such folk are replaced by cheap but inexperienced substitutes.

One of the reasons I am interested in concepts like sustainability and Ubuntu is that very interconnectedness of human systems. It requires little thinking to see that any organization exists only in its energy niche and that any disturbance threatening that specific combination of energies will threaten the survival of that organization. Such ecological and cybernetic systems thinking is now much more acceptable in business than it was ten years ago. I have found it useful to differentiate between two types of stakeholders. FIGURE 26• The connectedness of the corporate governance players

In the nearer field are the contractual or operational stakeholders, prominent amongst whom are the staff and the suppliers. These are the people who keep the day-to-day work flowing through a mixture of contracts, cash and goodwill. Curiously, they are rarely acknowledged in current thinking on corporate governance and are seen to have little bearing on the big owner/director issues. Yet without them the organization does not operate effectively or efficiently. They are fundamental to customers’ or users’ experience of the organization. They are the ‘moments of truth’ that build or destroy a brand. They reflect the emotional temperature of the business – whether dour and uninterested, full of patently false bonhomie leading to redundant intimacy, or genuinely keen to solve a problem. These contractual stakeholders are fundamental to delivering good service through the service profit chain,97 and it is on their learning and goodwill that companies must rely in hard times. The key governance question is how can they be brought into the corporate governance orbit? And the simplest answer is by treating them as the frontline of the cybernetic feedback and learning system that continuously adds value to your brand.

In respect to the owners, little is said about their rights and liabilities until a corporate disaster such as administration or liquidation occurs. Indeed, often more can be learnt about their current roles from reading the Insolvency Act rather than the Companies Act.

A modest manifesto for the future of effective corporate governance Any effective process of corporate governance must start at the national level and depends on the legislators ensuring: a law of property a law of contract effective courts of law a process of speedy legal redress. The main recommendations I am making from this book are as follows: Government Be modest, thoughtful and consult widely on your proposed legislation. Do not assume that the government always understands corporate governance. Ensure that the directors’ legal duties described in company law apply to all organizations across the private, public and not-for-profit sectors. Ensure that secondary legislation, including all codes concerning corporate governance, is incorporated into company law. Enforce the laws on the use and abuse of the term ‘director’. Ensure that triple bottom line reporting is written into national legislation for all organizations to encourage responsible investing. Ensure that all governmental agencies are legal entities so that their boards can operate under company law rather than at the whim of government ministers. Pass legislation so that the roles of ministers and public-sector directors are clearly defined. Create a separate national oversight and conduct regulator for corporate governance. Public sector Conduct your business under the relevant company law and corporate governance code as best practice. Adopt triple bottom line reporting. Ensure that the accountable offi...

Can such a personalized approach work? There are some signs of hope. An immediate response from the business schools has been to ensure that faculty and staff swear an oath on joining the institution. The first and classic one was that of Harvard Business School and others have followed.

The City of London thrived on the medieval livery companies and these have kept up the tradition of the taking of oaths.

Might this taking of public oaths be one way of committing individual directors to pursue effective corporate governance through the public avowal of their determination to follow the values of accountability, probity and transparency?

can we strive to re-establish the credibility of the financial services of the City of London and other financial centres by encouraging a modern version of these civic and fellowship oaths, with the sanction of social exclusion rather than more regulation?