tag:theconversation.com,2011:/uk/topics/boards-2644/articlesBoards – The Conversation2024-02-27T20:11:43Ztag:theconversation.com,2011:article/2235362024-02-27T20:11:43Z2024-02-27T20:11:43ZWhy do some organizations’ boards fail? The answer might lie in how directors perceive their expertise and responsibilities<figure><img src="https://images.theconversation.com/files/577683/original/file-20240223-28-8wo3px.jpg?ixlib=rb-1.1.0&rect=63%2C42%2C6991%2C4664&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The board of directors is a group of expert individuals responsible for overseeing the management of an organization.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>While many of us can name a handful of CEOs, identifying directors serving on the boards of those same organizations is probably more challenging. The work of directors, whether they hold volunteer or compensated positions, is rarely publicized, and when it is, it is rarely good news. </p>
<p>Indeed, <a href="https://www.forbes.com/sites/groupthink/2016/04/27/the-theranos-crisis-where-was-the-board/?sh=70b0404bc58e">corporate scandals often prompt public scrutiny</a>, <a href="https://money.cnn.com/2017/04/24/investing/wells-fargo-scandal-board-annual-meeting/index.html">focusing on the board’s role</a> and questioning how directors could have overlooked issues or been complicit in questionable organizational conduct.</p>
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Read more:
<a href="https://theconversation.com/boards-of-directors-not-governments-must-prevent-scandals-like-hockey-canadas-189201">Boards of directors, not governments, must prevent scandals like Hockey Canada's</a>
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<p>Consider instances such as <a href="https://www.nytimes.com/2016/03/22/business/dealbook/valeants-struggles-could-lead-it-to-crumble.html">Valeant Pharmaceuticals’ questionable accounting practices, which went undetected and unreported by the board</a>. Or <a href="https://hbr.org/2022/12/ftx-and-the-problem-of-unchecked-founder-power">the loose oversight of FTX’s board</a>, which led to the collapse of its cryptocurrency exchange. Or consider the shortcomings of <a href="https://www.nytimes.com/2018/01/25/sports/larry-nassar-gymnastics-abuse.html">USA Gymnastics’</a> and <a href="https://theconversation.com/how-good-governance-can-stop-toxic-bro-behaviour-at-companies-145826">Hockey Canada’s</a> boards in the face of major scandals. </p>
<p>How can we explain these governance failures and the apparent inability of some boards to effectively safeguard the interests of the public or shareholders? Part of the answer lies in the way directors use their expertise and understand their role on the board.</p>
<h2>What are boards of directors?</h2>
<p><a href="https://doi.org/10.5465/19416520.2016.1120957">The board of directors is a group of expert individuals</a> responsible for overseeing the management of an organization, setting its strategic direction and ensuring accountability in terms of financial and non-financial performance. </p>
<p>Often selected for their professional experience and expertise, board directors are <a href="https://laws.justice.gc.ca/eng/acts/c-7.75/FullText.html">chosen by an organization’s members in the case of non-profits</a> or <a href="https://ised-isde.canada.ca/site/corporations-canada/en/business-corporations/directors-and-officers#toc-02">by shareholders in corporations</a>. They are <a href="https://doi.org/10.5465/amr.2014.0066">expected to protect the interests of those who elected them</a>. </p>
<p>To exercise their oversight effectively, board directors are assigned to various committees tasked with overseeing processes and issues such <a href="https://doi.org/10.1506/car.26.1.3">as finance and audit</a>, corporate governance risk or <a href="https://doi.org/10.1111/j.1911-3846.2011.01118.x">human resources and management compensation</a>. </p>
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<img alt="A middle aged businesswoman talks to a group of people at a conference table" src="https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/577682/original/file-20240223-22-6uvtol.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Board directors are chosen by an organization’s members in the case of non-profits or by shareholders in corporations.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Directors are typically placed on committees based on the expertise showcased in their resumes. For instance, a chartered professional accountant will probably sit on the finance and audit committee, while a human resources professional is more likely to sit on the human resources and management compensation committee.</p>
<p>Staffing board committees according to directors’ areas of expertise makes sense and <a href="https://doi.org/10.1002/smj.3320">is a critical step to ensure board effectiveness</a>. </p>
<p>However, and as highlighted by a <a href="https://doi.org/10.1111/1911-3846.12890">field study I conducted</a>, expertise in one area does not guarantee its use on the board. Here is what I found through in-depth interviews with board directors of Canadian public companies.</p>
<h2>Being an expert or feeling like one</h2>
<p>Some directors don’t consider themselves as experts, despite what their resume states. Since directors don’t choose the committees they contribute to, some might find themselves involved with topics and processes they feel are beyond their comfort zone and range of knowledge. </p>
<p>This often leads them to let other directors, who they see as more knowledgeable, take the lead, which limits their own contribution. Because of this, the conventional indicators of expertise like professional designations, credentials and business awards may not actually reflect a director’s perceived competence.</p>
<p>Additionally, my study reinforces the idea that a board’s culture and approach of the chair both influence how directors mobilize their expertise during meetings. Directors tend to follow the <a href="https://doi.org/10.1080/09638180.2017.1367315">lead of the chair</a> and observe how other board members act and interact to shape their own actions and practices on the board. </p>
<p><a href="https://doi.org/10.1002/smj.3320">Directors also often prioritize maintaining positive relationships and collegiality</a> over asserting their expertise through challenging arguments and questions.</p>
<h2>To each their own oversight style</h2>
<p>The interviews I conducted for this study also show that board directors each develop their own oversight style and interpretation of what their responsibilities are on the board. </p>
<p>While rules and regulations outline <a href="https://ised-isde.canada.ca/site/corporations-canada/en/business-corporations/directors-and-officers">directors’ official duties</a>, there are no set requirements for how they should prepare for meetings or how much time they should invest in preparation. </p>
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<img alt="A group of people having a meeting in a conference room" src="https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/577686/original/file-20240223-18-5oxg63.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A recent study has found that a board’s culture and the approach of the chair both influence how directors mobilize their expertise during meetings.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Additionally, the verbs used to define the role of board directors in official guidelines such as “<a href="https://www.osc.ca/en/securities-law/instruments-rules-policies/5/52-110/unofficial-consolidation-national-instrument-52-110-audit-committees">oversee</a>,” “supervise,” and “<a href="https://ised-isde.canada.ca/site/corporations-canada/en/business-corporations/directors-and-officers">making decisions</a>” are elusive at best and unclear at worst. </p>
<p>This ambiguity contributes to a lack of clarity regarding what board directors should do in practice to fulfill their governance mission. </p>
<p>As a result, directors are left to interpret and determine which practices and tasks are sufficient on their own. This results in varying contributions to the board, with some directors reporting spending only a few hours preparing for meetings, while others dedicate days to reading material and formulating insightful questions ahead of time.</p>
<h2>Addressing governance challenges</h2>
<p>With directors not considering themselves experts and developing their own approach to board responsibilities, it’s unsurprising some boards end up only engaging in symbolic oversight.</p>
<p>In essence, there is an empirical difference between having the status of an expert and feeling like one. The way directors embody their responsibilities is up to interpretation, which may explain why some boards fail to prevent or detect management errors, whether deliberate or inadvertent.</p>
<p>Addressing governance failures requires a multifaceted approach. Boards must not only focus on assembling a diverse and qualified set of directors, but also foster a culture that encourages active engagement, knowledge-sharing and commits to <a href="https://theconversation.com/corporate-directors-dont-see-stopping-wayward-ceos-as-their-job-contrary-to-popular-belief-165788">effective monitoring</a> instead of a facade of oversight.</p><img src="https://counter.theconversation.com/content/223536/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Oriane Couchoux received funding from the Social Sciences and Humanities Research Council of Canada, the Canadian Foundation for Governance Research, and the CPA Ontario Centre for Corporate Governance & Accountability. </span></em></p>How can we explain governance failures in boards of directors? Part of the answer lies in the way directors use their expertise and understand their role on the board.Oriane Couchoux, Assistant Professor of Accounting, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1889662022-10-25T12:27:52Z2022-10-25T12:27:52ZWhat nonprofit boards need to do to protect the public interest<figure><img src="https://images.theconversation.com/files/490445/original/file-20221018-26-517a30.jpg?ixlib=rb-1.1.0&rect=0%2C65%2C5458%2C3293&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The best boards meet often.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/mature-businesswoman-leading-team-meeting-royalty-free-image/680315933">Thomas Barwick/DigitalVision via Getty Images</a></span></figcaption></figure><p>The people who serve on a <a href="https://www.councilofnonprofits.org/tools-resources/board-roles-and-responsibilities">nonprofit’s board of directors</a> are legally responsible for its performance. Despite their importance, board members are rarely in the news. When they do make headlines, they may have messed up.</p>
<p>Perhaps the most spectacular example is what happened to Donald Trump’s now-defunct charity. While he was a sitting president, Trump was <a href="https://www.npr.org/2019/11/07/777287610/judge-says-trump-must-pay-2-million-over-misuse-of-foundation-funds">forced to dissolve his foundation</a> and pay US$2 million to other causes after <a href="https://ag.ny.gov/press-release/2019/donald-j-trump-pays-court-ordered-2-million-illegally-using-trump-foundation">New York state authorities </a> found that the Trump Foundation had violated numerous state and federal laws.</p>
<p>Among other lapses, his foundation <a href="https://www.snopes.com/fact-check/trump-fine-stealing-veterans/">inappropriately coordinated with his political campaign</a> and engaged in <a href="https://theconversation.com/what-trump-foundations-self-dealing-disclosure-means-for-a-conflicted-president-elect-70075">self-dealing</a> – using charitable money for his own personal benefit. In addition, state authorities determined that the foundation’s board members had failed to <a href="https://ag.ny.gov/press-release/2019/ag-james-secures-court-order-against-donald-j-trump-trump-children-and-trump">fulfill their duties</a>.</p>
<p>In fact, that board allegedly <a href="https://www.politico.com/story/2018/12/18/trump-foundation-to-shut-down-1067924">hadn’t even held a meeting</a> for two decades.</p>
<p>Fortunately, such cases are rare. But as a <a href="https://scholar.google.com/citations?user=Aos80cEAAAAJ&hl=en&oi=ao">nonprofit management professor</a>, I find that extreme tales of board failure can help illustrate what boards are actually supposed to do and why it’s so important to get it right. Public trust in charities is at stake.</p>
<h2>Doing more than the minimum</h2>
<p>To perform their jobs at a minimal level, boards of directors have to meet legal requirements, such as convening at least once a year and supervising an organization’s top leader.</p>
<p>But board members must do more than that if they are to meet the expectations of the donors, volunteers, staff and other stakeholders of the nonprofit they oversee. Let’s call these the “necessary” versus the “legal” obligations. While nonprofits’ tax-exempt status requires them to show the public they perform some community benefit, stakeholders who are supporting the organization may demand more. </p>
<p>Fortunately, board members can turn to <a href="https://www.councilofnonprofits.org/">organizations like the Council of Nonprofits</a> and <a href="https://doi.org/10.1108/01437730710726895">other sources trusted by experts</a> for excellent guidance. Let’s take these expectations one by one. </p>
<h2>The basics</h2>
<p><a href="https://www.harborcompliance.com/information/nonprofit-governance-by-state">Most states require</a> nonprofit boards to include at least one to three people. Experts believe that <a href="http://scholarlycommons.law.hofstra.edu/hlr/vol33/iss1/3">groups make better decisions</a> than individual people.</p>
<p>So donors are wise to insist that any charity they fund have more board members than the minimum for better oversight. Larger boards – <a href="https://theconversation.com/why-i-use-the-nra-as-a-case-study-for-how-nonprofits-shouldnt-operate-160430">but not too large</a> – perform better. Most have somewhere between <a href="https://www.sumptionandwyland.com/resources/sumption-wyland-articles/what-is-the-right-size-for-your-nonprofits-board">eight and 14 members</a>; newer organizations may have fewer. </p>
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<a href="https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A diagram consisting of concentric circles in different colors" src="https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=464&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=464&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=464&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=583&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=583&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491474/original/file-20221024-17346-83s1ou.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=583&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Nonprofit boards that do more than the law requires are more likely to succeed.</span>
<span class="attribution"><span class="source">Beth Gazley and Colin Kulpa</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
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<p>There are an estimated <a href="https://nccs.urban.org/project/nonprofit-sector-brief#overview">1.5 million registered nonprofits</a> in the U.S., with staffs that may range from a single unpaid founder to thousands of employees. These groups carry out a dizzying array of missions, ranging from community health care to boosting support for <a href="https://www.degruyter.com/document/doi/10.1515/npf-2018-0022/html">national parks</a>.</p>
<p>Because of that diversity, <a href="https://pubmed.ncbi.nlm.nih.gov/10160159/">experts</a> will <a href="https://www.bridgespan.org/insights/library/organizational-effectiveness/becoming-a-more-effective-nonprofit-board">never agree</a> on a single <a href="http://www.doi.org/10.1177/0899764003257463">job description</a> for nonprofit board members. Nor would they agree on a single recipe for who should sit on a board, although experts think nonprofits should <a href="https://leadingwithintent.org/wp-content/uploads/2021/06/2021-Leading-with-Intent-Report.pdf">pay more attention to diversity and representation</a>.</p>
<p>Nonprofit boards typically recruit people who can represent the people served and who bring a range of skills and expertise in such areas as finance, communications and management, along with a connection to the organization’s mission. Most nonprofits also expect board members to <a href="https://leadingwithintent.org/wp-content/uploads/2021/06/2021-Leading-with-Intent-Report.pdf">make a meaningful financial contribution</a> to the organization themselves.</p>
<p>Although it’s <a href="https://www.asaecenter.org/resources/articles/an_plus/2015/december/should-board-members-of-nonprofit-organizations-be-compensated">legal for nonprofits to pay board members</a>, most are volunteers.</p>
<h2>Care, duty and obedience</h2>
<p>Legal expectations of boards come from both the states and the federal government. For the most part, a <a href="https://www.boardeffect.com/blog/fiduciary-responsibilities-nonprofit-board-directors/">board’s legal responsibilities fall into three categories</a>: a duty of care, a duty of loyalty and a duty of obedience. </p>
<p>Care means board members must meet regularly enough and provide enough oversight to ensure a nonprofit’s staff, budget and other resources are furthering the mission rather than squandering its funds or diverting them into personal expenditures.</p>
<p>Loyalty means they must act in the organization’s best interest, rather than their own, avoiding conflicts of interest. </p>
<p>Obedience has to do with ensuring that the group follows all applicable laws and regulations while acting in accordance with its own policies and mission. </p>
<p>Those three obligations add up to what’s known as a board’s <a href="https://www.501c3.org/fiduciary-responsibility-of-nonprofit-board-members/">fiduciary duties</a>. </p>
<p>These duties encompass most of what boards do: approve budgets and expenditures; ensure that audits are conducted; hire the nonprofit’s chief executive and set that person’s compensation; and ensure that required public reporting happens, such as <a href="https://theconversation.com/whats-a-990-form-a-charity-accounting-expert-explains-175019">submitting a 990 information return</a> to the Internal Revenue Service every year. </p>
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<figcaption><span class="caption">Nonprofit board members have many legal obligations.</span></figcaption>
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<h2>Nobody’s business</h2>
<p>Unlike in the case of businesses, nobody owns a nonprofit.</p>
<p>Instead, nonprofits essentially belong to themselves. Since they are mostly tax-exempt, they operate under the distant supervision of public officials such as a state’s attorney general. The board acts as agent of the state to ensure the public trust is not broken.</p>
<p>That’s why board members are often called “trustees.” </p>
<p>And on the rare occasions when that trust is broken, state officials will exercise their authority to step in, as they did with the <a href="https://ag.ny.gov/press-release/2019/ag-james-secures-court-order-against-donald-j-trump-trump-children-and-trump">Trump Foundation</a>. </p>
<p>States set minimal standards for what boards need to do. Often, minimal compliance with those regulations does not suffice for an organization to thrive. For example, most states require boards to meet at least once every year.</p>
<p>Yet <a href="https://leadingwithintent.org/wp-content/uploads/2021/06/2021-Leading-with-Intent-Report.pdf">most boards meet five to eight times per year</a>, since nonprofit experts agree that <a href="https://www.ncfp.org/knowledge/policy-central-board-meetings-job-descriptions-and-rotation-policies/">multiple meetings are needed</a> to keep board members sufficiently informed and engaged. Additionally, regulators don’t require a conflict-of-interest policy, but stakeholders would be wise to do so.</p>
<h2>Board cultures</h2>
<p>A board’s structure – how big it is and how often it meets – is fairly easy to observe and measure. But what matters more is how the board behaves. How boards do their work is at least as important as what they do.</p>
<p>I’ve identified <a href="https://www.asaecenter.org/publications/107628-what-makes-high-performing-boards-effective-governance-practices-in-member-serving-organizations">three kinds of cultures</a> that help a board stay focused on what matters: a culture of learning, a culture of assessment and a strategic culture. </p>
<p>First, boards have to be willing to learn how to govern well, such as through training themselves. One common practice <a href="https://leadingwithintent.org/wp-content/uploads/2021/06/2021-Leading-with-Intent-Report.pdf?hsCtaTracking=90ad298e-8b64-4540-8736-dde2b57d3a6e%7C227f2aec-48d8-4c31-a13f-82eb7f58d496">is an orientation for new members</a>. </p>
<p>Members also need to assess not only the organization’s financial health but the health of the board itself. Although a <a href="https://www.councilofnonprofits.org/tools-resources/self-assessments-nonprofit-boards">board self-assessment is a recommended practice</a>, since it ensures board members understand their job, it is practiced by <a href="https://leadingwithintent.org/wp-content/uploads/2021/06/2021-Leading-with-Intent-Report.pdf?hsCtaTracking=90ad298e-8b64-4540-8736-dde2b57d3a6e%7C227f2aec-48d8-4c31-a13f-82eb7f58d496">only 4 out of 10 nonprofits</a>. </p>
<p>Finally, boards need to devote sufficient time to planning for the nonprofit’s future. Strategic boards that do this may in turn support <a href="https://www.hbs.edu/ris/Publication%20Files/21-058_156ff634-edb9-4cdf-89b7-5d0cddb29fd0.pdf">organizations that are more resilient </a> – such as those that can withstand crises like the COVID-19 pandemic.</p>
<p>As for who can serve on a board, the honest answer is that just about any adult can. I would encourage anyone who is passionate and knowledgeable about a cause to look for leadership opportunities on a nonprofit board. If you have children enrolled at a school, how about becoming a member of its PTA board? If you enjoy shopping for fresh produce, perhaps you can join a board that manages your local farmers market.</p>
<p>Just be ready for the legal responsibility of being a trustee.</p><img src="https://counter.theconversation.com/content/188966/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beth Gazley receives funding from no organizations referenced in this article</span></em></p>Their primary obligations consist of three duties: care, loyalty and obedience.Beth Gazley, Professor of Public and Environmental Affairs, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1330922020-03-09T14:57:27Z2020-03-09T14:57:27ZMary Beard and the British Museum – who runs the UK’s cultural institutions?<figure><img src="https://images.theconversation.com/files/319093/original/file-20200306-118890-606bca.jpg?ixlib=rb-1.1.0&rect=10%2C5%2C3488%2C2061&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">One of Britain's great cultural institutions: the British Museum in London.</span> <span class="attribution"><span class="source">Claudio Divizia via Shutterstock</span></span></figcaption></figure><p>Many of those within academic and cultural circles in the UK were shocked and angered recently when it was reported that the government <a href="https://www.artnews.com/art-news/news/mary-beard-british-museum-1202679615/">had refused to allow</a> the nomination of one of the country’s leading public intellectuals to the board of trustees of the British Museum. Mary Beard was rejected, reportedly by order of the prime minister’s office, apparently because of her outspoken pro-European Union views. </p>
<p>To put this into context, <a href="https://www.theguardian.com/books/2020/mar/01/british-museum-put-mary-beard-on-the-board-despite-downing-st-veto">No 10 is reported</a> to have rejected someone whose <a href="https://en.wikipedia.org/wiki/Mary_Beard_(classicist)">CV reads as follows</a>: Dame Commander of the British Empire, professor of classics at Cambridge University, Royal Academy of Arts professor of ancient literature and classics editor of The Times Literary Supplement. And this, apparently, because she takes an opposing view on one of the key issues of the day.</p>
<p>Former BBC World Service boss Sir John Tusa – himself a former trustee of the British Museum – condemned the decision, calling it an “<a href="https://www.varsity.co.uk/news/18883">absolute scandal</a>”. It has been reported that the British Museum <a href="https://www.dailymail.co.uk/news/article-8061773/British-Museum-defies-Downing-Street-veto-plans-make-pro-EU-scholar-Mary-Beard-trustee.html">will defy the government</a>and that Beard will still be appointed to one of five trustee positions that the museum controls itself (the government and the Queen control the other 20).</p>
<p>But the story of the government’s rejection of Beard’s candidacy is not just about escalating political polarisation within Britain but also a deterioration of the “arm’s-length principle” that has characterised the governance of cultural institutions in the UK for many years.</p>
<p>It’s a principle that is designed to protect institutions like the British Museum from politicisation. The argument is that it protects both parties, preventing important cultural institutions from becoming politicised and at the same time protecting the government from any backlash due to the inherent heterodoxy and freedom of expression within arts and culture. </p>
<p>The British Museum itself cites arm’s length as its governance principle, as you can see from this extract below: </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=462&fit=crop&dpr=1 600w, https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=462&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=462&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=581&fit=crop&dpr=1 754w, https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=581&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/319072/original/file-20200306-118966-1hguwqy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=581&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">How the British Museum is governed.</span>
<span class="attribution"><span class="source">British Museum</span></span>
</figcaption>
</figure>
<p>In their much cited <a href="https://www.americansforthearts.org/sites/default/files/ArmsLengthArts_paper.pdf">1989 discussion of cultural funding practices</a>, Canadian academics Harry Hillman-Chartrand and Claire McCaughey noted that: </p>
<blockquote>
<p>having been appointed by the government of the day, trustees are expected to fulfil their grant-giving duties independent of the day-to-day interests of the party in power, much like the trustee of a blind trust. </p>
</blockquote>
<h2>Guarantee of independence</h2>
<p>According to the <a href="http://www.legislation.gov.uk/ukpga/1963/24/contents">British Museum Act (1963)</a>, out of the British Museum’s 25 trustees, 20 are appointed by the Crown – one by the queen, 15 by the prime minister and four by the culture secretary. Refusing to nominate Beard – while distasteful on the part of the government – might not strictly be a violation of the arm’s-length principle, because the museum can still insist on having Beard as one of its five nominees. The real violation would be if the choice of the trustees was not allowed as a result of further government intervention.</p>
<p>Most public cultural institutions do not have the options available to the British Museum. The arms’s-length principle has been undermined within the realm of British cultural governance for some time. Of the four institutions covered by the <a href="http://www.legislation.gov.uk/ukpga/1992/44/contents">1992 Museums and Galleries Act</a>, only the trustees of the Tate Gallery and the National Gallery are allowed one nomination – but it must be a trustee from the other institution’s board (so the National Gallery chooses a trustee from the Tate Gallery’s board and vice versa). </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=482&fit=crop&dpr=1 754w, https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=482&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/319096/original/file-20200306-118960-pk7fk4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=482&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">National Portrait Gallery is allowed to nominate only one of its trustees.</span>
<span class="attribution"><span class="source">FenlioQ via Shutterstock</span></span>
</figcaption>
</figure>
<p>In comparable institutions covered by other acts, for example the V&A Museum, all trustees are appointed by the prime minister’s office. So the wholesale appointment of trustees to cultural institutions by the government is not unusual and there is no scope for the kind of action or show of independence that the British Museum trustees are planning to take. </p>
<p>Here lies the danger – the arm’s length maintained between the government’s political interests and those of trustees of cultural institutions has – in essence – become closer. It now appears to be more of a handshake.</p>
<h2>A limited model</h2>
<p>The arm’s-length principle is more commonly discussed in terms of funding and in relation to the UK’s various Arts Councils. The Arts Council of Great Britain – now the Arts Council of England (ACE) – which was created in 1946, was arguably the world’s first arm’s-length council.</p>
<p>Despite this model finding its way into governance in countries around the world, such as <a href="https://www.crcpress.com/Global-Cultural-Economy/Beukelaer-Spence/p/book/9781138670099">Australia and New Zealand</a>, the ACE model has been <a href="https://www.americansforthearts.org/by-program/reports-and-data/legislation-policy/naappd/distance-or-intimacy-the-arms-length-principle-the-british-government-and-the-arts-council-of-great">found wanting</a> for its inattention to <a href="https://www.cusp.ac.uk/themes/a/oakley-obrien-inequality-in-cultural-production/">issues of systemic exclusion</a> on race, class, gender and even location. One <a href="https://www.artsprofessional.co.uk/sites/artsprofessional.co.uk/files/administrator/ace_in_a_hole_jan2020.pdf">criticism</a> of ACE’s recently released ten-year strategy, ACE in a Hole?, focused on the values it needs to espouse rather than any particular initiative.</p>
<p>The two most important, as far as I am concerned, are trust and accountability. The report’s authors highlight the lack of accountability and trust between ACE, the government and the various cultural communities. These criticisms echo one another – even as far back as 1997, academic <a href="https://doi.org/10.1080/10286639709358066">Ruth Blandina-Quinn</a>, whose work has focused on arts policy, noted increasing politicisation of the Arts Council. This, she wrote, had been exacerbated by the lack of criteria for appointment, as well as political appointees, a lack of transparency, a lack of accountability to the artistic community and increasingly closer ties with, and oversight by, the government. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1234048980595748864"}"></div></p>
<p>While the public awaits the conclusion of the Mary Beard episode, it’s a good time to examine and debate whether arm’s length is still the principle within cultural governance. Criticisms about <a href="https://manchesteruniversitypress.co.uk/9781526144164/">systemic inequity</a> within the arts and cultural industries abound and have not been helped by the exclusion of one of the UK’s leading female public intellectuals. </p>
<p>It’s a slippery slope – Britain’s cultural institutions must be safeguarded from becoming political footballs where a person’s opinions alone are grounds for exclusion from governing bodies. The debate, as we wait to see whether Mary Beard is allowed to take up her place in the British Museum’s trustees, is what a country whose galleries and arts organisations are directly controlled by government placeholders will look like.</p><img src="https://counter.theconversation.com/content/133092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kim-Marie Spence serves on the advisory board of the John Hansard Gallery in Southampton.</span></em></p>The government must respect the arm’s-length principle which ensures institutions like the British Museum are independent from government control.Kim-Marie Spence, Postdoctoral Researcher in Pop and Global Cultural Industries (and Adjunct Lecturer, University of the West Indies), Solent UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1075092018-11-28T19:06:54Z2018-11-28T19:06:54ZSo what’s a secretary to do? Banking Royal Commission raises questions about what’s in minutes<figure><img src="https://images.theconversation.com/files/247447/original/file-20181127-130902-1qps1qv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Too much or too little information? The role of a secretary is to get the balance right.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Financial Services Royal Commission last week challenged the chair of the Commonwealth Bank Catherine Livingstone about her claim that she confronted management during a 2016 board meeting, <a href="https://www.smh.com.au/business/banking-and-finance/cba-accused-of-board-minutes-breach-20181121-p50hcp.html?promote_channel=edmail&mbnr=MTYwMzg3Nw&eid=email:nnn-13omn659-ret_newsl-membereng:nnn-04%2F11%2F2013-business_news_pm-dom-business-nnn-smh-u&campaign_code=13IBU021&et_bid=29152781&list_name=2032_smh_busnews_pm&instance=2018-11-21--07-29--UTC">saying it wasn’t recorded in the minutes</a>.</p>
<p>“Do you understand that a failure to comply with the requirements in relation to the keeping of minutes under section 251A of the Corporations Act is an offence?” Counsel Assisting asked.</p>
<p>“The explanation is the minutes don’t usually record verbatim what is discussed at the board meeting,” Ms Livingstone replied.</p>
<p>Minutes came into question again on Tuesday. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/heres-a-tip-that-could-make-banks-phenomenally-successful-radical-honesty-106931">Here's a tip that could make banks phenomenally successful: radical honesty</a>
</strong>
</em>
</p>
<hr>
<p>National Australia Bank chairman Ken Henry was invited to consider whether a board meeting had discussed a dispute between the bank and the Australian Securities and Investments Commission over adviser service fees.</p>
<p>Then he was shown the minutes of that meeting and asked to agree that it had not.</p>
<p>“It’s very probably the case. I can’t say for sure obviously, but it’s very probably the case, yes,” he conceded.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1067232758412394496"}"></div></p>
<p>So, ought the minutes of company board meetings to be a complete record of what’s discussed? </p>
<p>Ought company secretaries to be “shaking in their boots” as a result of the Royal Commission hearings, as the <a href="https://www.afr.com/brand/chanticleer/banking-royal-commission-cbas-catherine-livingstone-clashes-with-rowena-orr-20181121-h185f8">Financial Review</a> has suggested they are?</p>
<h2>What’s a secretary to do?</h2>
<p>All the law requires is that the “proceedings and resolutions” of directors’ meetings be recorded within one month of the meeting. </p>
<p>It offers no guidance about how to do that, and offers no template for the format. </p>
<p>Although it is usually assumed that it is the company secretary who takes the minutes, there is no actual statutory requirement for the person who occupies that position to do so. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-way-banks-are-organised-makes-it-hard-to-hold-directors-and-executives-criminally-responsible-93638">The way banks are organised makes it hard to hold directors and executives criminally responsible</a>
</strong>
</em>
</p>
<hr>
<p>And some smaller companies operate without a company secretary.</p>
<p>Where there is one, that person does much more than take minutes.</p>
<p>With QUT research student Robyn Trubshaw, we have conducted a series of interviews with high profile company secretaries and discovered that what they think matters most is “courage” – the courage to call out lapses of process. </p>
<p>They said it was their job to ensure reasons for decisions were documented, and also, according to some, to act as a “filter” for deciding what was recorded. </p>
<p>By determining what went into the minutes in concert with the board they acted as “shared conscience” of the company. </p>
<h2>On their toes</h2>
<p>Our interviews also revealed a heightened awareness about the importance of getting the right balance between reporting outcomes and recording discussion. </p>
<p>Company secretaries are already acutely aware that every set of minutes of every board meeting might one day end up as evidence.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/solving-deep-problems-with-corporate-governance-requires-more-than-rearranging-deck-chairs-99297">Solving deep problems with corporate governance requires more than rearranging deck chairs</a>
</strong>
</em>
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<hr>
<p>So this suggests the royal commission will not be the game changer for company secretaries that some think it will be.</p>
<p>They are already on their toes.</p>
<p>Whether it’s a chess club, a bowls club, a school board, a small or medium sized enterprise or one of Australia’s largest corporations, the role of the secretary matters.</p>
<p>The good ones already know how to get the balance right.</p><img src="https://counter.theconversation.com/content/107509/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ellie Chapple is affiliated with the Corporate Law Teachers Association, a not for profit academic association that promotes teaching and research in corporate and securities law. Ellie has also from time to time facilitated a course on Applied Corporate Law for the Governance Institute Australia. </span></em></p><p class="fine-print"><em><span>Elisabeth Sinnewe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Proceedings at the banking royal commission suggest if it isn’t in the minutes of a board meeting, the board didn’t consider it. It makes the role of the company secretary critical.Ellie Chapple, Professor, QUT Business School and research leader Accounting for Social Change research team, Queensland University of TechnologyElisabeth Sinnewe, Lecturer, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/979642018-06-18T09:42:18Z2018-06-18T09:42:18ZTheranos founder fooled investors with the promise to revolutionise healthcare – it offers three big lessons for companies<figure><img src="https://images.theconversation.com/files/223035/original/file-20180613-32334-1vww5nj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Theranos CEO Elizabeth Holmes.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/fortuneglobalforum/22718256482/in/photolist-ABx1ah-ADJ9Av-zFD12f-ADHE3i-Am53Js-ADEd1V-ACJgMe-ACJdKx-ADJn1a-zFRgWM-ACFcta-AArv2Y-ADJmhX-Am4R9d-AAnSsw-Am527Q-AAnR1y-ACEXei-zFRjCi-Am4TCb-yWg8Kd-zFR8K6-pzDHqR-zFGGJm-ADHZZ2-zFR4QH-pxTrQw-qhG442-pirkc8-pirtiD-q18uTd-q18o9m-pxT5AN-piqCvG-qhCzof-q1fDqv-pkGLd5-piqHam-q19gro-pzU4sh-pipDnH-pzDG66-pzTYj1-pzVz42-q1fwBv-pkGWCU-qhCRC9-q18Bos-qfpX4m-q1heei">Fortune Global Forum</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Less than three months after being <a href="https://www.sec.gov/news/press-release/2018-41">charged by the US Securities and Exchange Commission</a>(SEC) with “massive fraud” and barred from being the CEO of a public company for ten years, entrepreneur Elizabeth Holmes is <a href="http://uk.businessinsider.com/theranos-founder-elizabeth-holmes-new-startup-report-2018-6?r=US&IR=T">reportedly</a> on the hunt for investors for a new company. </p>
<p>She is still allowed to be the CEO of a privately held company – but would-be investors should heed the lessons from Holmes’ last venture, Theranos.</p>
<p>In 2003, 19-year-old Holmes dropped out of Stanford and founded the health tech firm, Theranos. It worked in “stealth mode” for a decade while developing new technology to perform many standard medical tests using only a single drop of blood. After unveiling the company’s device and its plans to revolutionise the healthcare industry, Holmes was <a href="https://www.inc.com/magazine/201510/kimberly-weisul/the-longest-game.html">heavily profiled</a> in the media and embraced the role of guru. </p>
<p>Holmes had a US$4.5 billion share of the company, which was valued at US$9 billion at its peak in 2014. But, in March 2018 the SEC <a href="https://www.sec.gov/news/press-release/2018-41">charged Holmes and Theranos</a> “with raising more than US$700m from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.” </p>
<p>Neither Holmes nor the company admitted (or denied any wrongdoing) but agreed to a settlement that effectively stripped Holmes of control of her company and she was fined US$500,000.</p>
<p>There are lessons that we can learn from this spectacular fall. At first glance, it raises concerns about the role of board members in carrying out their clear fiduciary duties. For a US corporation this includes, but is not limited to, “the duty of care”: to exercise one’s independent judgement with skill and diligence. </p>
<p>Theranos’ board seemingly overlooked a systemic and long-term fraud. And yet its <a href="http://fortune.com/2015/10/15/theranos-board-leadership/">members</a> were preeminent public figures – three former cabinet secretaries, two former senators, as well as retired high-ranking military officials. While Theranos’ board has been criticised for not including industry experts, its members were highly knowledgeable about governance, and would have been aware of their fiduciary responsibilities.</p>
<p>There are three insights from Theranos’ failure, which apply to any new company – and would-be board members of Holmes’ next venture. </p>
<h2>1. The danger of sticking to what you know</h2>
<p>We know from the study of <a href="https://www.spring.org.uk/2009/08/why-groups-fail-to-share-information-effectively.php">group dynamics</a> that groups talk about what they know. Members of any group – including boards – discuss topics such as what they accomplished together, the good old days, common friends and the familiar. The dark side of this underlying, subconscious force is that groups do not talk about what they do not know. </p>
<p>So, while the Theranos board members could add value to Theranos – they were knowledgeable and competent in their fields – they, too, were subject to the forces of group dynamics and we can speculate on whether they might have avoided discussions of the unknown. Did they, for example, deeply interrogate Holmes’ technological tool box to understand the company’s main product? You simply cannot talk about what you do not have the knowledge base for.</p>
<h2>2. Watch out for fairy tales</h2>
<p>Theranos was a Silicon Valley fairy tale. A young, charismatic CEO proposes a revolutionary, industry changing idea that will heap rewards on all involved. These seductive, too-good-to-be-true stories do become real in Silicon Valley – think Facebook, Google, Apple. </p>
<p>But Theranos had the elements of a modern Rumpelstiltskin – with the false promise of gold being spun from nothing. Holmes – a college dropout, visionary and charismatic entrepreneur – <a href="https://www.youtube.com/watch?v=ho8geEtCYjw">claimed</a> Theranos would revolutionise the healthcare industry with its ability to perform 240 common blood diagnostic tests with a single drop of blood. It’s the role of the board to truly understand their company’s product and ask the difficult questions – we therefore have to question whether Theranos’ board might have enabled or failed to stop the creation of this particular fairy tale.</p>
<h2>3. Spot self-deception</h2>
<p>Finally, as CEO, surely Holmes knew that her company’s technology did not perform as promised. Yet she repeatedly, convincingly and passionately <a href="https://www.youtube.com/watch?v=rGfaJZAdfNE">maintained</a> that it did. This begs the question: at what level was she deceiving herself?</p>
<p>It also raises the issue of how our culture likes to <a href="https://www.hbs.edu/faculty/Pages/item.aspx?num=11408">create heroes</a> so much that some become completely invested in their own hype. Still, neither Holmes nor Theranos admits any wrongdoing. Holmes’ behaviour as CEO of Theranos is similar to that of disgraced <a href="http://www.philly.com/philly/entertainment/20131129__The_Armstrong_Lie___An_epic_of_betrayal__self-deception.html">cyclist Lance Armstrong</a> in that they both were unshaken in their belief in themselves despite being exposed to the public.</p>
<p>Ultimately, all groups – boards, teams, families – are subject to unconscious processes. The decisions that boards make are the outcome of just such group processes. Therefore, members need to build their awareness of unconscious dynamics within their group. </p>
<p>Developing this kind of insight takes work, and is extremely uncomfortable. But doing so can help the board carry out its fiduciary duties more effectively. It can also help board members spot self-delusion in leaders.</p><img src="https://counter.theconversation.com/content/97964/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Elizabeth Holmes has been charged with ‘massive fraud’. She maintains her innocence but what lessons can boards take away from the whole affair?Anand Narasimhan, Shell Professor of Global Leadership, International Institute for Management Development (IMD)Nancy Lane, Research Associate, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/940032018-03-28T12:28:08Z2018-03-28T12:28:08ZDoes Mark Zuckerberg have too much power at the helm of Facebook?<figure><img src="https://images.theconversation.com/files/212229/original/file-20180327-109175-kw1eba.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Facebook CEO has promised to 'do better'.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/jelenia-gora-poland-february-25-2016-381874783?src=Q4fPaEqMe_s21yhdxV25Nw-1-24">Bakhur Nick / Shutterstock.com</a></span></figcaption></figure><p>The scandal around Facebook’s privacy practices and the way that it protects its users data – now <a href="https://www.bloomberg.com/news/articles/2018-03-20/facebook-sued-by-investors-over-voter-profile-harvesting">under official investigation</a> for possibly violating US federal securities laws – brings into question <a href="https://www.theatlantic.com/technology/archive/2018/03/can-anyone-unseat-mark-zuckerberg/556247/">the way that the company is run</a>. In particular, the fact that its founder, Mark Zuckerberg, owns approximately 16% of Facebook but commands 60% of its voting power <a href="https://www.economist.com/news/business/21729813-multiple-class-share-structures-are-controversial-are-probably-here-stay-facebook-and">via a special type of shares</a>. </p>
<p>Facebook is not alone in this respect. There appears to be a trend among newly-listed, mostly high-growth, firms to have these corporate governance structures that provide shareholders with weak rights <a href="https://www.wsj.com/articles/facebook-to-viacom-targeted-by-sec-regulators-attack-on-dual-class-shares-1518730229">when it comes to running the company</a>. The dual class share structure, as in Facebook’s case, is only one of several measures to ensure that the founding member team remains in power. </p>
<p>As well as Facebook, companies that have established these sorts of governance mechanisms include Berkshire Hathaway, Expedia, FitBit, Ford, Google (Alphabet), GoPro, Hyatt Hotels, Snap, <a href="https://www.cii.org/files/issues_and_advocacy/Dual%20Class%20Company%20List%202018%203-19-18.pdf">and Under Armour</a>. The main defence of this governance measure, used by the founders or family heirs of these firms, is that it allows the companies to take a long-term view and make investment decisions that may not necessarily yield results in the short run. </p>
<p>But the recent Facebook scandal also highlights that these corporate governance mechanisms appear to make firms immune to calls for change, particularly if the leadership of the firm is affected. </p>
<h2>Good vs bad governance</h2>
<p>Shareholders are the main providers of capital for publicly listed companies. In return, they receive a variety of rights, such as voting at the annual general meeting and electing the directors who sit on the board. </p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=278920">Academic findings suggest</a> that firms in which shareholders have many opportunities to raise their voice tend to perform better than firms with weak shareholder rights. Hence, firms with strong shareholder rights are often considered “good” corporate governance firms. Firms with weak shareholder rights are typically referred to as “bad” corporate governance firms. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=429&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=429&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=429&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=539&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=539&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212233/original/file-20180327-109185-ywwszj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=539&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Facebook might benefit from giving shareholders more say.</span>
<span class="attribution"><span class="source">focal point / Shutterstock.com</span></span>
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<p>This is, however, a very simplified way of describing things. There is no blueprint for good corporate governance as every firm is likely to have different needs, and these also change <a href="https://www.sciencedirect.com/science/article/pii/S0304405X0700181X?via%3Dihub">over the life cycle of the firm</a>. </p>
<p>Yet, there is little a controversy about the fact that when there is little opportunity for existing shareholders or outside activist investors to influence things, managers and directors can become entrenched and make decisions that could harm the business – and therefore shareholders. And companies where the board of directors can make decisions without fear of being replaced <a href="https://academic.oup.com/qje/article-abstract/118/1/107/1917018?redirectedFrom=fulltext">have been labelled</a> “dictatorship firms”.</p>
<h2>Pros and cons of dictatorship</h2>
<p>As it turns out, under certain conditions, dictatorship firms may actually perform well. Recent <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1784024">research</a> <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.2011.01688.x">suggests</a> that in order to foster innovation, reward for long-term success and job security are important. The way that dictatorship firms are set up facilitates this.</p>
<p>Data also <a href="https://www.sciencedirect.com/science/article/pii/S0304405X17302143">suggests</a> that dictatorship firms can increase company value by allowing it to take a long-term view. Hence, shareholders provide capital to dictatorship firms by trusting the skills and vision of the founder and leadership team to identify, invest in, and manage projects that guarantee continual high future growth. </p>
<p>But dictatorship-style corporate governance can become problematic in three scenarios. First, when growth and innovation slow down. This contradicts one of the main arguments in favour of dictatorship firms – that their long-term focus fosters innovation and that this is associated with high growth. But when growth does slow down, the firm will have fewer investment opportunities. </p>
<p>Plus, lower spending tends to mean higher future cash holdings and academic evidence <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/0022-1082.00179">suggests</a> that as companies accumulate more cash, they tend to make worse investment decisions. Hence, in those firms, it becomes more important to monitor how capital is spent and to consider paying out more to shareholders. </p>
<p>A second problematic situation for dictatorship firms is how to handle succession – something Elon Musk, the founder of Tesla and SpaceX, <a href="https://youtu.be/uegOUmgKB4E?t=57m37s">has spoken of</a>. As Musk puts it: the dual class structure can be taken to an extreme “where one class basically doesn’t count”. That’s the public shareholders. And, although possible, it is rare that the children of the founders are the right people to continue running the firm (which is a common line of succession in a dictatorship firm). Hence, there needs to be a path towards a single share class so that control is not passed on via dictatorship.</p>
<p>The third problematic scenario for dictatorship firms is when a dramatic change in the course of action of the company is required – particularly in response to scandals. Since 2010, Facebook has had <a href="https://www.bloomberg.com/news/articles/2018-03-20/facebook-s-long-history-of-resolving-privacy-claims-on-the-cheap">ten sets of legal issues</a> (excluding the Cambridge Analytica scandal). In a company with strong shareholder rights, it is likely that a change in the executive leadership team would have happened by now. </p>
<p>Not all hope for better corporate governance is lost, however. The ride-hailing app company Uber provides an example of how change <a href="https://theconversation.com/uber-gets-a-backseat-driver-as-kalanick-exits-top-job-79854">can still happen</a>, despite having an entrenched leadership team. After several scandals emerged at the end of 2017, its board made former Uber CEO Travis Kalanick step down and revoked his super-voting rights, <a href="https://www.wsj.com/articles/uber-board-approves-series-of-corporate-reforms-1507073868">creating equal voting power among shareholders</a>. Facebook is yet to make similar moves but it would create a more democratic governance structure if it did so.</p><img src="https://counter.theconversation.com/content/94003/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stefan Petry does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Zuckerberg’s control over the way Facebook is run far outstrips his shareholdings. That can be a problem when scandals hit.Stefan Petry, Lecturer in Finance, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/913022018-03-08T11:40:32Z2018-03-08T11:40:32ZVery few women oversee US companies. Here’s how to change that<figure><img src="https://images.theconversation.com/files/209402/original/file-20180307-146697-1ggogv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Men's dominance in the boardroom has barely changed over the years. </span> <span class="attribution"><span class="source">Everett Collection/Shutterstock.com</span></span></figcaption></figure><p>Women’s participation in the labor force <a href="https://fred.stlouisfed.org/series/LNS11300002">has soared</a> over the past 50 years, rising from 32 percent in 1948 to 56.7 percent as of January. </p>
<p>Yet those gains have not translated into the U.S. corporate boardroom, where women <a href="http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=5A7755E1-EFDD-1973-A0B5C54AFF3FB0AE">held just 16.6 percent</a> of seats in 2015, according to a Credit Suisse analysis of the world’s largest 3,400 or so companies. That’s up a little from the 12.7 percent five years earlier but still disappointingly low.</p>
<p>As <a href="https://scholar.google.com/citations?user=loPMxzAAAAAJ&hl=en&oi=ao">scholars</a> of corporate governance, we felt the answer to this puzzle might require a bit of digging beyond this simple percentage. So we crunched the numbers on individual states over an 11-year period to see where women fared better in the boardroom and why. </p>
<p>Our findings were startling but also suggest a solution.</p>
<h2>The case for parity</h2>
<p>The ethical case for a government promoting or even mandating gender equality, whether in the classroom, office or boardroom, seems fairly straightforward.</p>
<p>Beyond that, research suggests that companies with more female directors achieve better <a href="http://amj.aom.org/content/58/5/1546.short">financial results</a>, <a href="http://onlinelibrary.wiley.com/doi/10.1111/corg.12165/full">are more socially responsible</a> and are less likely to engage in wrongdoing such as <a href="http://amj.aom.org/content/58/5/1572.short">fraud</a>. </p>
<p>While many countries in Europe have used quotas to get more women on corporate boards, in the U.S. there is <a href="https://www.nytimes.com/2015/03/07/world/europe/german-law-requires-more-women-on-corporate-boards.html">resistance</a> to doing so. Instead, federal government agencies have focused on disclosure, which <a href="https://web.northeastern.edu/ruthaguilera/wp-content/uploads/2017/02/36.-Terjesen-Aguilera-Lorenz-2014-JBE.pdf">has had little impact</a>.</p>
<p>Under the U.S. Constitution, states have significant power in setting their own policies. And while none have instituted a gender quota for corporate boards, some states have gone further than the federal government on a variety of policies that affect women’s career advancement, such as workplace discrimination and family planning. We theorized that these differences might help explain the prevalence of women on boards in some states and not others.</p>
<h2>A wide range of representation</h2>
<p>To find out, <a href="https://www.sciencedirect.com/science/article/pii/S0148296318300444">we examined</a> the boardroom diversity of the 1,500 companies in the Standard & Poor’s 1500 index, which represents about 90 percent of total U.S. market capitalization. </p>
<p>We focused on the period 2003 to 2014 using data provided by <a href="https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=3419764">Governance Metrics International</a>, which compiles governance information annually from companies’ proxy statements and public filings. </p>
<p>Nationally, our data showed that just 15.2 percent of S&P 1500 board seats were occupied by women in 2014, up modestly from 9.7 percent in 2003. One explanation for why our figures show less representation than the Credit Suisse data cited earlier is that the largest corporations have done a better job promoting women, while the S&P 1500 includes medium-sized companies as well. This is a correlation also supported by our data.</p>
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<p>Our sample included companies headquartered in 49 states (none were in Wyoming). As some states only had a few companies listed in the index during the period and others had many, we controlled for the economic size of each state as well as several other factors, such as a company’s size and state demographics. This allowed us to more fairly compare each state’s figures and isolate potential explanations. </p>
<p>Overall, the national trend of increasing representation persisted in the vast majority of states from 2003 to 2014, while four experienced slight declines. Not a single woman served on the board of the sole Alaskan company in the index during the period. Beyond that, the data showed wide variation from state to state. </p>
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<p>In 2014, the worst states for women on boards were Louisiana, Nebraska, New Hampshire and Alaska, all of which had less than 10 percent. New Mexico boasted the most women on boards at 44 percent, followed by Vermont, Delaware, Iowa and Maine. </p>
<p>Another way of looking at the data is to focus not just on basic representation but at what percentage of companies have three or more women in the boardroom. Research shows that this <a href="https://link.springer.com/content/pdf/10.1007/s10551-011-0815-z.pdf">can constitute a critical mass</a> that enables them to make a real difference by affecting a board’s working style and dynamic and creating a more favorable environment for women’s perspectives to be heard. </p>
<p>By that measure, the data are a lot more discouraging. Only 11 states, such as Minnesota, Connecticut and Washington, had even a third of their companies meet this threshold. In 18 other states, including Louisiana, Tennessee and Virginia, less than 10 percent had at least three women on their boards. </p>
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<h2>Women’s rights</h2>
<p>What explains the differences? </p>
<p>Our initial hypothesis was that state policies had something to do with it because <a href="http://journals.sagepub.com/doi/full/10.1177/0007650315613980">existing research</a> has found a link between national governmental policies and participation of women in leadership positions. </p>
<p>So we examined whether states had gender-related policies in three general areas: reproductive rights, anti-discrimination and work-family balance. We then analyzed several databases to find out which states had these policies. </p>
<p>We found that that companies headquartered in states with policies that provided more protections for women than the federal government requires in terms of reproductive rights, such as public funding for abortion and laws against gender discrimination, tended to have a greater share of female directors on their boards. Interestingly, we didn’t find a link with work-life balance policies such as better access to maternity leave. </p>
<p>For example, states like Minnesota, Connecticut and Washington – all of which have a greater level of female board representation than the national average over the 11-year period – also had most of the policies we identified. All three provide funding for abortions through Medicaid and have passed <a href="http://www.ncsl.org/research/labor-and-employment/discrimination-employment.aspx">gender discrimination protections</a> that are stronger than exist at the federal level. </p>
<p>In contrast, states where relatively few women sat on corporate boards, such as Alabama, Colorado, Louisiana, Georgia, Nebraska and Virginia, tended to have weaker policies protecting women and their rights. </p>
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<p>Overall, we found a strong statistical link between these types of policies and female representation in the boardroom, which held even after controlling for alternative explanations, such as the political orientation of the state and cultural attitudes toward women based on surveys. To us, the point isn’t that these policies in particular lead to more women on boards, but that they broadly represent a favorable cultural environment for women in the workplace. </p>
<p>There were a few notable exceptions to our findings. California, for example, which has progressive policies in these areas, boasts few women on its boards, or about 14 percent in 2014. One possible explanation could be that <a href="http://www.jstor.org/stable/pdf/20159898.pdf?refreqid=excelsior%3Acccc9b1c2022ca9e0a0f530fa8775900">older companies are more likely to have more women on their boards</a>. A significant number of California companies in the index were relatively young. </p>
<h2>Equity without quotas</h2>
<p>Making it into the highest echelons of a corporation is very difficult and typically requires opportunity for training and access to social networks, both of which are jeopardized when, for example, women suffer harassment on the job or incur a “motherhood penalty.” It is not surprising, for example, that female directors are significantly more likely to be <a href="http://www.heidrick.com/Knowledge-Center/Publication/2012-Board-Of-Directors-Survey">single and childless</a>, compared with their male peers.</p>
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<p>European countries such as <a href="https://web.northeastern.edu/ruthaguilera/wp-content/uploads/2017/02/36.-Terjesen-Aguilera-Lorenz-2014-JBE.pdf">Iceland, Norway</a> and <a href="https://www.la-croix.com/Economie/Social/Les-femmes-restent-tres-minoritaires-dans-conseils-dadministration-2017-01-03-1200814337">France</a> have become <a href="http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=5A7755E1-EFDD-1973-A0B5C54AFF3FB0AE">world leaders</a> in female representation by instituting quotas. In 2017, <a href="http://eige.europa.eu/gender-statistics/dgs/indicator/ta_pwr_bus_bus__wmid_comp_compbm">women held more than 40 percent</a> of the seats on the largest listed companies in all three countries, a significant increase from a decade earlier. </p>
<p>The good news is that our findings suggest that states – as well as the federal government – have policy options at their disposal short of establishing gender quotas to increase female representation in the boardroom.</p><img src="https://counter.theconversation.com/content/91302/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The share of board seats held by women varies dramatically across the country, from none in Alaska to close to half in New Mexico. A few key policies may make all the difference.Yannick Thams, Assistant Professor of Strategy and International Business, Suffolk UniversityBari Bendell, Assistant Professor of Management and Entrepreneurship, Suffolk UniversitySiri Terjesen, Dean's Faculty Fellow in Entrepreneurship, American University Kogod School of BusinessLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/880792017-12-14T04:09:11Z2017-12-14T04:09:11ZGreater skills diversity on boards might actually be worse for business<figure><img src="https://images.theconversation.com/files/199129/original/file-20171214-27597-19em9gm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Increasing the amount of skills on a board from 10 to 13 reduces firm performance by about 2.4%, research finds.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Having directors with diverse skills doesn’t necessarily lead to better firm performance. Using US data, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2365748">our research</a> found that increasing the amount of skills on a board from 10 to 13 reduces firm performance by about 2.4%. The boards with more skills performed worse than boards with less.</p>
<p>In taking into account other research, we suggest that boards whose directors share common skill sets have better firm performance because they can communicate effectively. </p>
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Read more:
<a href="https://theconversation.com/targets-and-quotas-a-two-pronged-approach-to-increase-board-diversity-12553">Targets and quotas: a two-pronged approach to increase board diversity</a>
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<p>In <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1251846">theory</a>, the optimal board combines monitoring and advisory roles to varying degrees. However, how individual director skills map into these roles is less well understood. </p>
<p>Research on board makeup has mixed answers when it comes to what contributes to success. For example, <a href="http://www.jstor.org/stable/10.1086/431448">one study</a> finds that directors with CEO experience increase firm value, while <a href="http://www.sciencedirect.com/science/article/pii/S0304405X10000139">another</a> found no such relationship. One reason for this could be that the usefulness of a director’s skills to a board depends in part on the other skills represented on a board. </p>
<p>US firms are now required to disclose the skills of their directors: in our study, this allowed us to assign skills to directors that would have been hard to characterise based on their employment history alone. </p>
<p>Using these disclosures, we found that the average director has three skills, out of the 20 we examined. The most common skill among directors is management skills (38% out of all assessed skills).</p>
<p>At the board level, there’s usually one director with finance and accounting skills. Boards also tend to have directors with management skills (90% of all boards). </p>
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<p>Usually diversity of skills <a href="https://www.jstor.org/stable/258667">is found to be</a> beneficial in decision making, as it brings greater resources to problem solving and could lead to a more complete analysis of an issue. However, different personal and professional backgrounds may lead to different ways in which team members interpret information and to multiple representations of a problem. In turn, this may lead to delays in decision making.</p>
<p><a href="https://www.jstor.org/stable/2392984">Research also suggests</a> that diversity in a group could lead to failures, as it might cause the group (boards in our case) to be less integrated. This might also lead to a higher level of dissatisfaction and turnover among group members. For example, directors may be more likely to leave the board as they may not feel that they are part of a group. </p>
<p>Misunderstandings and disagreement can mean less effective decision making within multidisciplinary teams. Having <a href="http://www.sciencedirect.com/science/article/pii/S0304405X17301228">boards with directors</a> who have different beliefs may lead to disagreements within the board. As a result, the board invests inefficiently because directors anticipate future disagreements.</p>
<p>One of the reasons for diverse skilled boards performing worse could be because of the lack of common ground between board members. Directors need to be able share skills to be able to communicate effectively. There is <a href="https://www.jstor.org/stable/2393297">evidence</a> that groups with greater skill diversity communicate more formally and are less well integrated. </p>
<p>This then could hamper these groups’ ability to make better decisions for their firms. The negative association between diversity and communication isn’t just limited to skills or one’s previous industry or occupational experience. For example, in groups where members have different educational backgrounds, <a href="https://www.jstor.org/stable/2393297">research</a> shows an increase in turnover among group members. </p>
<p>Then there’s the opposite effect - skills shared by directors could lead to better communication and then improved firm value. One way to look at this is to group skills by their functions. </p>
<p>For example, governance and risk management skills could be grouped together under monitoring skills, whereas leadership and entrepreneurial skills could be grouped together under advising skills. </p>
<p>Our research provides some evidence that certain skills may appear together on the board. For example, we find that when there is a director with governance skills on the board, we are more likely to find another director with risk management skills on the board. </p>
<p>We are not suggesting that all firms should have a few skills on their boards. Our results suggest that firms should take a step back and think about how they choose their directors and how the communication among directors may be affected by having many skills on the board. </p>
<p>Also when firms appoint directors, they face many search problems. For example, US boards need to have at least one director on the board who is a financial expert and majority of board members need to be independent directors.</p>
<p>Add to these, governance regulations that may seek to, for example, increase gender diversity on the board (like the one implemented by <a href="https://theconversation.com/lessons-from-norway-in-getting-women-onto-corporate-boards-38338">Norway</a>). Then a firm looking for a new financial expert director may need to find a director who would be a financial expert and an independent director, and someone who would also be increasing gender diversity on the board. In the presence of other frictions, like search costs, firms may not be able to cover all these dimensions at the same time.</p>
<p>Similarly, in trying to meet governance regulations focusing on one characteristic (like independence) or one objective (diversity) firms may not achieve the best match between new directors and the board. So governance regulations may not always lead to better company performance.</p><img src="https://counter.theconversation.com/content/88079/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ali Akyol does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If there are more directors with common skills on boards, then they are more likely to communicate effectively.Ali Akyol, Senior Lecturer in the Department of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/744532017-03-14T18:56:53Z2017-03-14T18:56:53ZHow governance failures messed up South Africa’s rail agency<figure><img src="https://images.theconversation.com/files/160672/original/image-20170314-10716-1wt5dwp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>The Passenger Rail Agency of South Africa is going through serious <a href="http://allafrica.com/stories/201703130071.html">turbulence</a> that’s symptomatic of broad corporate governance failures within the country’s state owned enterprises. Its acting CEO was recently <a href="https://www.businesslive.co.za/rdm/business/2017-02-28-prasa-boss-fired-over-350-salary-increase/">fired</a> by the board, following allegations that he <a href="http://www.timeslive.co.za/sundaytimes/stnews/2017/02/26/Acting-Prasa-CEO-ups-his-own-pay-by-350-and-demands-chauffeur">raised his remuneration by more than 350%</a>. Shortly afterwards the minister of transport <a href="https://www.businesslive.co.za/bd/companies/transport-and-tourism/2017-03-08-breaking-prasa-board-fired/">dissolved</a> the board. The Conversation Africa’s Business and Economy Editor Sibonelo Radebe asked Owen Skae to explain the causes.</em></p>
<p><strong>What went wrong in the governance of the Passenger Rail Agency of South Africa?</strong></p>
<p>This is just another example of the shareholder undermining the board, something that’s becoming an all too <a href="http://www.ujuh.co.za/poor-corporate-governance-is-damaging-soes/">common dynamic</a> within South Africa’s state owned enterprises. The trend can be seen in the frequent chopping and changing of state owned enterprise boards over the past few years. Names that come to mind are <a href="https://theconversation.com/south-africa-must-free-itself-from-the-burden-of-owning-a-national-airline-64004">South African Airways</a>, <a href="https://theconversation.com/south-africas-airports-company-faces-a-hard-landing-why-this-is-bad-news-for-the-country-72115">Airports Company of South Africa</a> and the arms manufacturer <a href="http://www.fin24.com/Economy/denel-fires-suspended-ceo-gupta-links-questioned-20160418">Denel</a>.</p>
<p>At best this leads to toothless boards, which may be trying to do their best but are undermined at every turn. At worst, it creates “zombie boards” which are simply there to rubber stamp the wishes of the shareholder and the powerful executives who don’t feel they are accountable to anybody. When that happens things can go horribly wrong.</p>
<p><strong>What are the key tenets of healthy relations between the executives (CEO) and the board?</strong> </p>
<p>The starting point is to understand what the respective roles and responsibilities of board members are. As <a href="http://www.mervynking.co.za/pages/contact.htm">Mervyn King</a> Chairperson of the King Committee (which drafted a set of codes on good corporate governance for the country) often points out, there is no single leader of an organisation. Rather, there’s a chairperson who leads the board, (or governing body as it’s referred to in <a href="http://c.ymcdn.com/sites/www.iodsa.co.za/resource/resmgr/king_iv/King_IV_Report/IoDSA_King_IV_Report_-_WebVe.pdf">King IV</a>, and a CEO who leads the executive team.</p>
<p>What many people fail to grasp is that the board is not accountable to the shareholder. It is accountable to the organisation and is duty bound to act in its best interest.</p>
<p>The board safeguards the interests of the enterprise, thereby ensuring that sustainable value is created for all stakeholders, including the shareholder.</p>
<p>The board determines the policies and strategy of the organisation (based on input from the executives), and then delegates the authority to implement the strategy to the CEO and the executive team. </p>
<p>The board then has a monitoring and oversight role and will meet at regular occasions to engage with the executives. The board is also expected to establish committees to monitor key areas like remuneration, audit, risk, social and ethics issues.</p>
<p>It’s vitally important that the board doesn’t interfere or undermine the executive team. Trust is essential to allow the respective roles of the board and the executives to be carried out. At the same time, however, the necessary checks and balances must be put in place to ensure that the executives don’t go beyond the parameters and authority set by the board. </p>
<p>The CEO is of course the visible face of the organisation and hence often enjoys the highest profile. But it doesn’t change the fact that the CEO (the executives) report to the board. </p>
<p><strong>Who should set a CEO/executive directors remuneration and why?</strong> </p>
<p>South Africa’s <a href="http://c.ymcdn.com/sites/www.iodsa.co.za/resource/resmgr/king_iv/King_IV_Report/IoDSA_King_IV_Report_-_WebVe.pdf">code</a> on corporate governance recommends that the board establishes a remuneration committee. Its members should be non-executive and the majority must be independent non-executive directors. This is to avoid conflicts of interests which can lead to underhand deals.</p>
<p>The code also stresses that the committee should be chaired by an independent non-executive director. </p>
<p>The structure is designed to make sure that the CEO cannot determine his or her remuneration, as they are likely to have a conflict of interest in doing so. </p>
<p><strong>The running of state owned enterprises is complicated because of the role of the political office (the line minister). How should this dynamic be navigated?</strong></p>
<p>Whether it’s a private or public entity the bottom line is that the board – and not the shareholder – is the custodian of the corporate governance practices.</p>
<p>The shareholder approves board appointments. After that, the shareholder should allow the board to function and not undermine the workings of the board. The relationship between the board and the CEO must then be allowed to be conducted in terms of good governance. </p>
<p><strong>How can the SOE situation be fixed?</strong> </p>
<p>The shareholder should ensure it elects board members who imbue the qualities of integrity, competence, responsibility, accountability, fairness and transparency. The board should then elect its chair, subject to the approval of the shareholder. </p>
<p>After that, the board must be left alone to discharge its duties and report to the shareholder as required in terms of legal, compliance and other relevant obligations. The shareholder should not have a direct line to the CEO as this simply undermines the relationship between the board and the executives.</p><img src="https://counter.theconversation.com/content/74453/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Owen Skae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The leadership crisis experienced at the Passenger Rail Agency of South Africa reveals deep seated corporate governance failures in the management of the country’s state owned enterprises.Owen Skae, Associate Professor and Director of Rhodes Business School, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/721152017-02-22T14:34:20Z2017-02-22T14:34:20ZSouth Africa’s airports company faces a hard landing. Why this is bad news for the country<figure><img src="https://images.theconversation.com/files/157298/original/image-20170217-10228-ij1zts.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Airports Company South Africa <a href="http://www.airports.co.za/">(ACSA)</a> – until recently held as a model for other South African state-owned enterprises to emulate – now faces a drastic reversal of fortune stemming from a regulatory decision to reduce airport charges by <a href="https://www.businesslive.co.za/bd/companies/transport-and-tourism/2017-01-05-acsa-turbulence-on-plummeting-service-charges/">35.5%</a> in the coming year.</p>
<p>On top of this, the majority state-owned enterprise is in the middle of a boardroom scuffle. There are reports that the <a href="http://www.fin24.com/Companies/Industrial/why-minister-axed-acsa-board-members-20170221">Minister of Transport</a>, Dipuo Peters, has decided to retire four board members to replenish it with the expertise and skills needed to guide the company going forward. And indeed, those skills will be needed when looking at the financial challenges ahead.</p>
<p>Under normal circumstances ACSA’s financial performance might be no more than a blip on the radar. After all, the airports company represents only a small fraction of South Africa’s investment in infrastructure. But global credit ratings agencies have assigned a <a href="https://theconversation.com/south-africa-is-skating-on-thin-ice-as-rating-agencies-weigh-their-options-69243">negative outlook</a> on South Africa’s sovereign debt, citing risk exposure to state-owned entities as a key area of concern. This makes developments at the airports company a serious matter.</p>
<h2>The effect of the tariff cut</h2>
<p>With regulated tariffs having increased by some 160% since 2010, the regulator has now ordered a roll-back of 35.5% for the coming year. Predictably, the tariff decision has been <a href="http://traveller24.news24.com/News/Flights/acsas-35-tariff-cut-means-cheaper-air-travel-in-2017-20170105">well received</a> by the airlines and flying public, although some have <a href="http://www.fin24.com/Economy/acsa-airport-charges-cut-long-overdue-still-not-enough-ceo-20170105">stated</a> that it does not go far enough.</p>
<p>Surprisingly, ACSA’s response has been <a href="https://www.businesslive.co.za/bd/companies/transport-and-tourism/2017-01-06-acsas-tariff-cut-to-lower-flight-prices/">rather sanguine</a>, highlighting that the decrease in tariffs had been anticipated and factored into its financial and business plans. But there are unanswered questions about how it will make up for the shortfall of revenue, and the medium term outlook does not look good.</p>
<p>The airports regulator, the Regulating Committee for ACSA and Air Traffic Navigation Services, has published little information that could shed light on the financial implications of the tariff decision. Nevertheless, there are a few things that we do know. </p>
<p>To see how the tariff decision will affect ACSA, I have taken ACSA’s 2016 financial results and adjusted revenue on the aeronautical side of the business to account for the 35.5% decrease. Holding all else constant – admittedly a rough approximation – this translates to a loss of revenue of some R1.85 billion compared to actual results for 2016. </p>
<p>Of course, all else will not remain constant. External factors such as domestic and global air traffic will affect revenues, and inflationary pressures will increase costs. And internally, there are financial levers that ACSA can use to manage cash flow and to service its financial obligations. </p>
<p>So a few working assumptions must be made to form a rough estimate of how the decrease in tariffs will affect ACSA.</p>
<h2>Internal and external drivers</h2>
<p>Looking at external revenue drivers, ongoing growth in air traffic is expected to propel both the aeronautical and commercial sides of the business for the foreseeable future. Using ACSA’s assumptions on <a href="http://www.airports.co.za/InvestorInformation/ACSA%20Final%20Corporate%20Plan%20presentation%20-%20Banks%20and%20Fitch%20-%20April%2014.pdf">trend growth</a> in passenger numbers and flight arrivals, year on year increases in aeronautical revenue of R200 million might be expected over the medium term. Adding to this, commercial activities such as retail leases, parking and hotel operations could see year on year increases in revenue of some R145 million based on trend growth seen over the last five years. </p>
<p>Another area targeted for growth is in airports concessions. ACSA has investments in Mumbai International Airport and Aeroporto de Guarulhos. But these <a href="http://www.fin24.com/Companies/Industrial/acsa-posts-r19bn-profit-20160923">investments</a> have under-performed to expectations and are not expected to contribute to earnings in the short to medium term. </p>
<p>On the cost side of the equation, employee and operating expenditures will no doubt be targeted for savings. But in looking at trend values, year-on-year expenditures in this area have increased on average by some 215 million. </p>
<p>Capital expenditure, budgeted at R4.9 billion for 2017 - 2019 represents a large pool of funds, that if rephrased could free up cash and shore up ACSA’s balance sheet. But the company has put the brakes on capital spend since 2015, and airline representatives have been critical of any further talk of delay in rolling out critical projects. </p>
<p>Adding up these various factors, the net effect will lead to a significant weakening in ACSA’s finances for the 2018 financial year. ACSA has estimated returns less than half of that achieved in 2016 due to the tariff decision. A rough estimate of ACSA’s credit metrics for 2018 show a similar weakening. </p>
<p>This could be a problem, as Moody’s warned in a 2016 review that if key financial ratios were to weaken on a sustained basis, it would be cause for a downgrade. This would take ACSA perilously close to junk status.</p>
<h2>A regulatory own-goal</h2>
<p>No doubt there are areas in which ACSA can achieve real efficiency savings that could, in part, offset lower tariffs. There are also matters of fruitless and wasteful expenditure as identified by the Auditor-General to be resolved. Even so, the regulator’s decision to sharply reduce tariffs seems to have overshot the mark. </p>
<p>In responding to a similar situation in 2015, the Regulating Committee pointed out that ACSA was not another Eskom, the troubled state owned power utility. Indeed, ACSA has achieved sound profits in recent years and has aggressively retired borrowings. In addition, it has won international recognition for its airports, and its CEO has taken up the prestigious position of Deputy President of Airports Council International. </p>
<p>That said, Eskom was in a similar position only 10 years ago. Back then it was winning awards for its performance against international peers, was carrying low levels of debt and was maintaining an investment grade credit rating. That has <a href="https://businesstech.co.za/news/energy/143709/eskom-is-in-deep-financial-trouble-and-this-is-really-bad-news-for-south-africa/">all changed</a>. </p>
<p>Key decisions and commercial practices no doubt had a role in the deterioration of Eskom’s finances. But past regulatory decisions also played an important role. </p>
<p>If ACSA suffers a similar reversal of fortune, the general perception towards South Africa’s state-owned enterprises would be negatively affected. This could not come at a worst time. Credit rating agencies are <a href="https://theconversation.com/south-africa-is-skating-on-thin-ice-as-rating-agencies-weigh-their-options-69243">circling the country</a> and have state-owned enterprises firmly in their sights. South Africa’s investment grade credit rating could suffer from the collateral damage if ACSA hits the skids.</p><img src="https://counter.theconversation.com/content/72115/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Labson has acted as an external regulatory adviser to ACSA from 2008 through 2013. He has received no payment or any financial benefit for writing this article, and the views expressed are his alone.</span></em></p>Airports Company of South Africa, a majority state owned enterprise, is set to be hit by a regulatory own-goal that puts further pressure on the country’s credit rating.Stephen Labson, Director, Trans African Energy, and Senior Research Fellow, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/692352016-11-22T11:47:32Z2016-11-22T11:47:32ZMay’s backtrack on workers on boards shows the old guard is still in business<p>Two days before she was installed as the UK’s new prime minister in July, Theresa May <a href="https://www.politicshome.com/news/uk/political-parties/conservative-party/news/77172/theresa-may-put-employees-company-boards">pledged</a> to “have not just consumers represented on company boards, but employees as well”. She <a href="http://www.telegraph.co.uk/news/2016/10/05/theresa-mays-conference-speech-in-full/">repeated the idea</a> to her party faithful in October, by saying “later this year we will publish our plans to have not just consumers represented on company boards, but workers as well”.</p>
<p>Just a month later, May has rowed back on this promise. Addressing the conference of the Confederation of British Industry, <a href="https://www.politicshome.com/news/uk/economy/taxation/news/80965/full-text-theresa-mays-speech-cbi">she said</a>:</p>
<blockquote>
<p>While it is important that the voices of workers and consumers should be represented, I can categorically tell you that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on boards.</p>
<p>Some companies may find that these models work best for them – but there are other routes that use existing board structures … It will be a question of finding the model that works.</p>
</blockquote>
<p>In other words, there will be no legal compulsion for companies to have workers on their boards. Essentially, they will continue to be free do to as they wish, by having worker directors or not having worker directors. At present, just one British company has a worker director on its board, the transport conglomerate First Group. So, don’t expect a rush from others to join it, given that nothing is changing.</p>
<h2>Undeveloped and untested</h2>
<p>This is a u-turn from a prime minister who entered 10 Downing Street promising an economy and society that “works for everyone”. Either she had not thought through the policy very well when she first proposed it, or she has been turned by business interests, which are clearly opposed to having workers on boards. Perhaps it’s both.</p>
<p>May made her pledge about workers on boards in her first campaign speech. The campaign was then immediately cut short by her opponent pulling out of the race that day. This meant that the idea was never developed or tested. Such a testing would have helped establish her commitment to the idea. Plus, <a href="https://theconversation.com/theresa-may-prime-minister-the-ball-is-in-her-court-on-workplace-democracy-62388">necessary specifics</a> could have been worked out, such as what mechanisms would be chosen to enforce the requirement; whether there would be penalties for non-compliance; and whether all employers would be obliged to have worker directors. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=483&fit=crop&dpr=1 754w, https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=483&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/146985/original/image-20161122-21744-17gawwu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=483&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lacking diversity.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>The pledge remained in the baldest of states between its first announcement in July and its reiteration in October. All May did was to say that a former adviser to Tony Blair, Matthew Taylor, had been <a href="https://www.theguardian.com/money/2016/oct/01/theresa-may-hires-former-tony-blair-policy-boss-to-review-workers-rights">appointed to review the issue</a>, along with a host of others on employment matters. </p>
<p>It seems that making policy promises is easy, but delivering them is a much, much harder task.</p>
<h2>Concerted campaign</h2>
<p>Ever since May became prime minister, business groups have campaigned and lobbied against the idea of statutory worker directors. The initial response in July was polite but frosty. For example, Tim Thomas, director of employment and skills policy at the EEF, the industry body for manufacturers and engineers, <a href="https://www.ft.com/content/09fc5360-4780-11e6-b387-64ab0a67014c">commented</a>: “These items would not be at the top of businesses’ wish lists right now.”</p>
<p>Then a concerted campaign swung into operation, which appears to have changed May’s mind. The very nature of this kind of business lobbying means that it is not open to public view <a href="http://www.independent.co.uk/voices/if-youre-not-concerned-about-behind-the-scenes-lobbying-you-should-be-it-affects-everything-from-the-a6697056.html">because it happens behind the scenes</a>. But there was an unexpected glimpse of what companies were saying when the matter was raised at the House of Commons’ business, energy and industrial strategy committee in early November. </p>
<p>Here, the doyenne of progressive business practice, the John Lewis Partnership, <a href="http://www.telegraph.co.uk/business/2016/11/02/theresa-mays-plan-for-workers-in-the-boardroom-fails-to-win-over/">said</a>: “We do not believe that encouraging or mandating employee representation on boards will, in isolation, create a strong system of corporate governance.” </p>
<p>The responses from the <a href="http://www.telegraph.co.uk/business/2016/11/02/theresa-mays-plan-for-workers-in-the-boardroom-fails-to-win-over/">Institute of Directors, British Bankers’ Association and CBI</a> – all highly influential business groups – were no more favourable. CBI director-general Carolyn Fairbairn has already echoed May’s new approach, <a href="http://www.personneltoday.com/hr/theresa-may-backs-plans-workers-boards/">commenting that</a> “different approaches will work for different businesses”. </p>
<h2>Vested interests</h2>
<p>Pressure from business must have been pretty concerted for May to drop her flagship policy on employment matters and corporate governance. She would be well aware that the move to bring workers onto boards <a href="https://www.theguardian.com/politics/nils-pratley-on-finance/2016/jul/11/theresa-may-plan-workers-boardroom-reform-extraordinary-tories">would generate big headlines</a>. And, by the same token, dropping it would generate equally big, and disparaging, ones (<a href="https://www.theguardian.com/commentisfree/2016/nov/21/guardian-view-workers-representation-theresa-may-betrayal">as it has done</a>). </p>
<p>But it is not just the matter of headlines that is important. May promised to sweep out the old guard of vested interests, best epitomised by her predecessor’s “old boy network”, in pursuit of her agenda of <a href="https://www.theguardian.com/politics/2016/jul/16/theresa-may-one-nation-britain-prime-minister">“one-nation Tory” social justice</a>. The act of caving in, and so quickly, to business interests on this matter severely tarnishes her claim to be capable of following through on her more broad-ranging reforms of the economy and society in Britain. </p>
<p>May has scored a big own goal here. In a twisted echo of Britain’s first female prime minister, Margaret Thatcher – who <a href="https://www.youtube.com/watch?v=rQ-M0KEFm9I">famously pronounced in 1981</a>: “You turn if you want to. The lady’s not for turning” – Britain’s second female prime minister has made it clear that she is a lady who is for turning if enough pressure from the right sources is applied.</p><img src="https://counter.theconversation.com/content/69235/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregor Gall is editor of the Scottish Left Review magazine and director of the Jimmy Reid Foundation.</span></em></p>Theresa May has dropped her pledge to put workers on company boards. It’s a big concession to vested business interests.Gregor Gall, Professor of Industrial Relations, University of BradfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/680682016-11-04T00:28:40Z2016-11-04T00:28:40ZCompany directors can be held legally liable for ignoring the risks from climate change<p>Company directors who don’t properly consider climate related risks could be liable for breaching their duty of due care and diligence, a <a href="http://cpd.org.au/2016/10/directorsduties/">new legal opinion</a> has found. </p>
<p>Although the alarm for business leaders has <a href="https://static1.squarespace.com/static/569da6479cadb6436a8fecc8/t/56e211bb27d4bd91a217cd88/1457656252528/Directors_liability_inaction_February_2015.pdf">been sounding for some time</a>, the release of <a href="http://cpd.org.au/wp-content/uploads/2016/10/Legal-Opinion-on-Climate-Change-and-Directors-Duties.pdf">the opinion</a> by senior barristers and leading solicitors confirms the potential liability for Australian company directors.</p>
<p>Australian companies are particularly <a href="http://www.afr.com/business/legal/directors-ignore-climate-change-risks-at-their-own-peril-20161101-gsf6lv">exposed</a> to the physical, transition and liability risks posed by climate change. The <a href="https://theconversation.com/the-paris-climate-agreement-at-a-glance-50465">Paris Climate Agreement</a>, which comes into force today, <a href="http://www.bankofengland.co.uk/publications/Pages/speeches/2016/923.aspx">brings the transition risks (and opportunities) forward</a>, given the policy and business changes necessitated by the agreement’s commitment to a sustainable economy.</p>
<p>Directors’ liability hinges on the foreseeability of risks or opportunities material to the best interests of the company. Courts have long experience of finding fault for inadequate responses to foreseeable risks, even where there is supposed uncertainty. Examples of this are when health risks associated with HIV and asbestos were improperly understood or managed. A defendant can be liable even though they are ignorant, if a reasonable person would have known about them. </p>
<p>Some corporate leaders might want to hit the snooze button again, but today’s challenges to business as usual are acute. The long foreseen economic and environmental impacts of a changing climate are intensifying. Legally, any excuse that prior uncertainty about the science or impacts of climate change may have previously afforded directors has expired. </p>
<p>Corporate leadership ignoring interdependent economic, social and environmental risks and drivers of value has never been a sustainable long term strategy. Here are four reasons why there is only upside for business leaders to change course:</p>
<p><strong>1. Markets are supporting the transition</strong> </p>
<p>Investors are demanding <a href="https://www.theguardian.com/sustainable-business/2016/oct/27/investment-advice-retirement-portfolio-tips-climate-change-financial-risk">better information</a> about companies’ carbon emissions and risk management strategies so they can properly understand the near and long term prospects of the companies they are investing in. Increasingly, they are getting it. Large <a href="http://www.businessinsider.com.au/blackrock-ceo-larry-fink-letter-to-sp-500-ceos-2016-2">institutional investors like BlackRock have led the charge on board-level</a> management of climate and other sustainability risks.</p>
<p>Underpinned by better information, new opportunities are being supported by <a href="http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech923.pdf">financial instruments such as green bonds</a> or <a href="https://www.cleanenergyfinancecorp.com.au/what-we-do.aspx">government backed financing</a> for clean technology or renewable energy projects. Such instruments help capital flow towards investments that are consistent with decarbonisation of the economy in the longer term. </p>
<p>These initiatives are being reinforced by economy-wide measures like carbon pricing schemes to ensure that market prices reflect true costs of emissions-intensive activities. The latest example is Canada’s decision to impose a <a href="http://news.gc.ca/web/article-en.do?nid=1132149">benchmark price</a> on carbon pollution. </p>
<p>Under this plan, Canadian provinces can decide how the revenue raised is spent, but are required to have an effective price of C$10 per tonne of carbon pollution in 2018, rising by C$10 each year to C$50 per tonne in 2022. </p>
<p><strong>2. Risk disclosure will improve and converge</strong></p>
<p><a href="https://www.fsb-tcfd.org/">Michael Bloomberg’s Taskforce on Climate-related Financial Disclosures</a> will update its (voluntary, business-led) framework for climate risk disclosure in December 2016. This is the next step in accelerated global efforts to increase transparency of physical, liability and transition risks. </p>
<p>In Australia, <a href="https://theconversation.com/new-asx-guidelines-to-force-sustainability-reporting-24885">enhanced ASX guidelines</a>, which commenced in July 2014, require listed entities to disclose any exposure to economic, environmental and social sustainability risks, and how such risks will be managed. </p>
<p><a href="https://theconversation.com/risky-business-how-companies-are-getting-smart-about-climate-change-65221">Calls to renew</a> the lapsed Senate Economics Committee inquiry into carbon risk disclosure have been answered; the committee will report in early 2017.</p>
<p>However, significant issues remain around consistency and comparability of disclosures. The <a href="http://www.asx.com.au/documents/asx-compliance/asx-corp-governance-kpmg-report.pdf">level of variation</a> of disclosure of carbon-related and other sustainability risks by entities in the same sector, including Australia’s <a href="https://www.acsi.org.au/images/16_Senate_Carbon_Disclosure_Inquiry_April_2016Final.pdf">banks</a>, is concerning. </p>
<p><strong>3. Regulators are focusing more on climate risk</strong> </p>
<p>Global regulators are stepping up supervision of firms exposed to disruptive climate related changes in asset prices, technology, and policy. <a href="http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech923.pdf">Bank of England Governor Mark Carney, said</a> that regulators and investors expect much more than “static” disclosure of risks.</p>
<p>Australian regulators are <a href="http://www.apra.gov.au/Speeches/Pages/Preparing-for-the-unexpected-Insights-from-APRA%E2%80%99s-2015-Life-Insurance-stress-test.aspx">sending similar signals</a> that more sophisticated stress testing and scenario-based analysis of climate related risks will be par for the course.</p>
<p><strong>4. Better political dynamics</strong></p>
<p>With the <a href="https://theconversation.com/the-paris-climate-agreement-at-a-glance-50465">Paris targets locked in</a>, more ambitious national policy settings needed to deliver them will not be far away. Years of policy reversals and missteps domestically and globally have been replaced by the policy certainty business craves. </p>
<p>Pressure from Australian businesses for the government to take ambitious commitments to Paris in 2015, including through the <a href="http://www.australianclimateroundtable.org.au/">Australian Climate Roundtable</a>, is a sign the game has shifted, albeit after years of diversion and delay for which business leaders share some responsibility. </p>
<p>This trend was reinforced when <a href="https://www.theguardian.com/australia-news/2016/nov/03/new-south-wales-unveils-plan-to-reach-zero-emissions-by-2050?CMP=twt_a-environment_b-gdneco">NSW became the latest state government</a> to commit to a net zero emissions target by 2050. Policy changes inevitably create transition risks. But by supporting the implementation of effective, proactive policy, business can reduce the risks of sharper and unpredictable responses later.</p>
<p>Corporate governance will be tested against this backdrop. The implications are clear: at a minimum, where they are not already, climate and other sustainability issues must be elevated to the board level. Boards must establish the information channels, governance processes and technical capabilities. They must also be able to cultivate shareholder support for effective long-term strategies, rather than short-term sugar hits.</p>
<p>The coming into force of the Paris Climate Agreement promises to be a historic global tipping point in accelerating the transition to a net zero carbon economy. The release of this legal research on directors’ duties is a timely and powerful reminder of the risks, opportunities – and responsibilities – which Australian company directors face in addressing this challenge.</p>
<p><em>This piece was written with Sam Hurley, Policy Director of the Centre for Policy Development’s Sustainable Economy Program.</em></p><img src="https://counter.theconversation.com/content/68068/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Travers McLeod is CEO of the Centre of Policy Development (CPD), which is funded by philanthropic foundations and donations from community and business organisations. CPD partnered with the Future Business Council (FBC) to commission the legal opinion on directors' duties and climate risks from Noel Hutley SC and Sebastian Hartford-Davis, instructed by Sarah Barker and Maged Girgis of Minter Ellison Lawyers. CPD and FBC also jointly convened the business roundtable to discuss the legal opinion hosted by Minter Ellison Lawyers in October.</span></em></p><p class="fine-print"><em><span>John Wiseman is Deputy Director of the Melbourne Sustainable Society Institute at the University of Melbourne and a Research Fellow at the Centre for Policy Development.</span></em></p>Company directors who ignore or don’t properly asses climate related risks could be found liable for breaching their duty of care.Travers McLeod, Honorary Fellow in the School of Social and Political Sciences, The University of MelbourneJohn Wiseman, Professorial Fellow, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/680652016-11-02T19:09:09Z2016-11-02T19:09:09ZLack of cyber security knowledge leads to lazy decisions from executives<figure><img src="https://images.theconversation.com/files/144189/original/image-20161102-27228-11g5tln.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Business executives need to pay more attention to the information they are protecting.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>The numbers and size of cyber security attacks are increasing and Australia is one of the world’s largest targets. The Federal government noted the current impact of cyber attacks on the Australian economy <a href="https://cybersecuritystrategy.dpmc.gov.au/assets/img/PMC-Cyber-Strategy.pdf">is A$17 billion annually</a>. </p>
<p>The reasons are many and include a lack of direction and commitment to understanding information security at the strategic level. <a href="http://nsc.anu.edu.au/news-events/news-20161102">Research from the Australian National University shows</a> executive/board knowledge of cyber risks among medium sized businesses is inadequate and board-level governance of cyber security risks varies wildly between organisations. This is troubling given the ultimate accountability of board directors. </p>
<p>The report found that only 58% of cyber security professionals thought their board had a sufficient understanding of cyber risks. Less than half (46%) said their board discusses cyber security rarely or never. Almost a third (30%) even said their board does not receive reports of cyber threats to the company. </p>
<p>Research from Cambridge University and retail bank Lloyds, also shows this level of uncertainty is causing boards to realise they have no idea what they are dealing with and giving up. Boards are doing this by simply outsourcing the risk of a cyber attack through the purchase of cyber insurance. The report comments:</p>
<blockquote>
<p>“The amount of cyber insurance being purchased in Australia [has] increased 168-fold (16,828%) in the last two years, as more and more businesses seek to protect their balance sheets from this emerging threat.”</p>
</blockquote>
<p>The problem with this approach to cyber risk is that too little effort is being made to understand the value, control and cost of the information that an organisation holds. </p>
<p>Cyber insurance is a product that covers businesses for the risk of data breaches, employee errors in mishandling data and computer hacking attacks. It covers liabilities and the expense involved in responding to a cyber attack. For example, Sony estimated that it <a href="https://www.wired.com/2011/05/sony-psn-hack-losses/">spent US$171 million in cleaning up</a> after its PlayStation Network was famously hacked in 2011. </p>
<p>Simply outsourcing the risk of an attack by purchasing cyber insurance fails to protect an organisation’s reputation from repeated and sustained cyber attacks.
Another problem is that the erosion of an organisation’s competitive advantage through the loss of trade secrets through cyber attacks, is difficult to measure and insure. </p>
<p>My research shows executives should be identifying the value and sensitivity of the information in their organisations. Only then can they make sensible decisions about what IT infrastructure should be used and whether to seek expert help by outsourcing.</p>
<p>However identifying all the information that an organisation holds is not as easy as it first sounds. For example, some business conversations take place on social media platforms such as <a href="http://www.linkedin.com/">LinkedIn</a>. Businesses need to consider whether those conversations are within the realms of responsibility for employers and therefore if employees should be admonished or supported for holding these electronic conversations.</p>
<p>Organisations can sometimes hold vast pools of information that are secret. However holding sensitive, secret information that is non-strategic is costly and may be pointless. Consider for example a retail organisation that has an online ordering website. This sort of organisation shouldn’t be recording and holding the credit card details of customers, if it can be helped.</p>
<p>Outsourcing the payment for goods or services to finance service intermediaries makes good business sense. By not holding credit card details and effectively outsourcing that function, an organisation has made itself safer because it simply can’t end up on the front page of a newspaper for leaking credit card details. </p>
<p>Sometimes sensitive information is necessary for conducting business operations. If this is unavoidable, then organisations might need to ask whether the security controls they have in place to protect their sensitive information are enough. This might also extend to information being used by suppliers or customers. </p>
<p>If the assessment reveals that security controls are not enough, then a business case needs to be made for increased budget to the board. This may be costly, but if sensitive information is necessary for conducting business operations, then it must be protected and the security budget should be approved. </p>
<p>Organisations routinely fail to fully assess and protect against the risks introduced by storing or sharing information with other organisations. Examples include sharing with suppliers, customers, regulators and contract staff. </p>
<p>High profile cyber bungles from supplier-side attacks include <a href="http://www.securityweek.com/target-confirms-point-sale-malware-was-used-attack">the Target attack</a> in December 2013, where the point-of-sale machines, supplied and operated by a third-party supplier, were infected with a virus that siphoned off all the credit card details of customers. </p>
<p>Board directors not taking the time to understand information security strategy can lead to a blanket approach of mitigating all risk of a cyber security attack by simply purchasing cyber insurance. This clumsy approach is not sustainable and consumers should be demanding more from our business leaders.</p><img src="https://counter.theconversation.com/content/68065/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Craig Horne is affiliated with the Australian Computer Society. </span></em></p>Instead of relying on cyber insurance to protect businesses against the damages of attacks, executives should get to know the information they are protecting.Craig A. Horne, PhD candidate, Chairman of the Australian Computer Society in Victoria, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/660532016-10-17T19:20:49Z2016-10-17T19:20:49ZExecutives’ short-term outlooks the real killer of Australian innovation<p>Malcolm Turnbull’s <a href="http://www.innovation.gov.au/page/national-innovation-and-science-agenda-report">Innovation Agenda</a> focused attention on startups and technology-driven innovation, but this is not enough to overcome the <a href="https://theconversation.com/australias-innovation-problem-explained-in-10-charts-51898">broader problems inhibiting innovation in Australia</a>. Businesses may be looking to the government to ease red tape as a means to increase innovation but what’s really blocking innovation is the short-term view of senior executives, our research finds.</p>
<p>We interviewed 12 board Chairs and nine CEOs of top ASX-listed companies, one-on-one in wide-ranging interviews to try and find out what the leaders of large Australian businesses are thinking and doing in the innovation space.</p>
<p>Our interviewees pointed out there is no real interest among senior executives in taking a risk that may pay off in the long-term because of current risk-reward practices <a href="https://theconversation.com/we-need-to-change-more-than-pay-for-executives-to-do-better-66113">that reward short-term outcomes</a>. One CEO said: </p>
<blockquote>
<p>“People try and blame shareholders, but it’s not. It’s management saying, ‘am I really going to be here in 10 years’ time when this actually kicks off’?”</p>
</blockquote>
<p>And another board chairperson agreed:</p>
<blockquote>
<p>“Does great innovation come out of Australasia? Not normally because the risk-reward perspective is skewed towards I must turn up with my number.” </p>
</blockquote>
<p>As a result of this short-term thinking, the amount of money allocated to innovation projects is conservative and released through a stage gate process with the need to report on outcomes. We also found there were <a href="https://hbr.org/2015/06/you-need-an-innovation-strategy">very few innovation strategies</a> within these companies. </p>
<p>Executives were risk averse even when a company could afford to make significant investment in innovation. For example one CEO said:</p>
<blockquote>
<p>“We are deliberately followers in pretty much everything we do whether it is financial structuring or application of technologies and it’s borne of a risk profile that is a consequence of our market position…we might distribute a couple of hundred million dollars, (and have) A$1 million to spend on something that’s risky.”</p>
</blockquote>
<h2>Who needs to lead innovation?</h2>
<p><a href="http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-big-companies-can-innovate">Executives</a> and <a href="http://quarterly.demos.co.uk/article/issue-2/innovation-and-growth/">academics</a> have argued that innovation often takes place in large, established businesses. Yet, there is evidence that big business <a href="http://www.forbes.com/sites/henrydoss/2015/01/12/why-big-business-fails-at-innovation/#3e32597a6ae9">mostly fails at innovation</a>. </p>
<p>In Australia, the <a href="http://news.nab.com.au/wp-content/uploads/2015/09/Innovation-Report-Summary.pdf">2015 NAB report on business innovation</a> showed that only 29% of very large firms (ASX 300) rated themselves as highly innovative. A recent study by the Centre for Workplace Leadership at the University of Melbourne revealed that just <a href="http://www.abc.net.au/news/2016-05-30/businesses-face-innovation-shortfalls-leadership-crisis-study/7457874">18% of private sector organisations reported high levels of radical innovation</a>. </p>
<p>The people we talked to as part of this study identified various challenges for innovation in Australia. They pointed out that the Australian market is too small and the Australian culture too laid-back, resulting in less motivation to innovate and disrupt.</p>
<p>Others blamed the large and complex system of government regulations, corporate tax levels, inflexible industrial relations, and the tall poppy syndrome. </p>
<p>However there was little evidence of global aspiration or ambition. Nor was there much discussion about companies’ positioning in a global marketplace. </p>
<p>Some CEOs and Chairs agreed that they are too risk averse to engage in radical innovation, but blamed the short-term orientation of the market and shareholders for their failure to innovate big.</p>
<p><a href="https://hbr.org/2012/09/why-big-companies-cant-innovate">As recognised by others</a>, large organisations tend to frame innovation in terms of improving existing business models rather than disrupting them. As one chair described it: </p>
<blockquote>
<p>“I don’t think innovation requires [betting] the business. Innovation now is much more about improving, constant change, constant improvement.”</p>
</blockquote>
<p>Based on the interviews we conducted, the current outlook for innovation being fostered by Australia’s established companies is bleak, as summarised by this interviewee:</p>
<blockquote>
<p>“Talking about business in Australia, I have a lot of concerns, because I don’t think that there’s enough people in the bigger companies in Australia saying, ‘OK, let’s develop a strategy, let’s develop a business plan, let’s engage with the market and tell them what we are doing, in a very open way, and let them take the rise and fall with us, as to if we get there we get there, if we miss it by a little bit, [let’s] explain to them why we missed it. That doesn’t happen.’ ”</p>
</blockquote>
<p>A lot has to change for Australian big business to become more innovative. As a start, companies need to introduce <a>long-term incentives for executives</a>, change attitudes to support <a href="https://hbr.org/2012/10/big-companies-cant-innovate-halfway">taking risks and thinking big,</a> and focus on <a href="https://hbr.org/2015/06/you-need-an-innovation-strategy">developing innovation strategies</a>.</p><img src="https://counter.theconversation.com/content/66053/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Spencer Stuart, Second Road and UTS Business School jointly funded the collaborative research study. </span></em></p><p class="fine-print"><em><span>Spencer Stuart, Second Road and UTS Business School jointly funded the collaborative research study.</span></em></p>Research shows the short-term view focus of senior executives may be inhibiting a long-term investment in innovation.Linda Leung, Honorary Associate, University of Technology SydneyJochen Schweitzer, Director MBA Entrepreneurship and Senior Lecturer Strategy and Innovation, University of Technology SydneyNatalia Nikolova, Senior Lecturer in Management, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/666932016-10-12T12:16:15Z2016-10-12T12:16:15ZHow Britain could benefit by bringing workers into the boardroom<figure><img src="https://images.theconversation.com/files/141234/original/image-20161011-12034-1o68tq8.jpg?ixlib=rb-1.1.0&rect=150%2C319%2C5840%2C3427&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-144905017/stock-photo-group-of-multiethnic-business-people-at-conference-table.html?src=AyzTYLkgQopRL7AqAP0kOA-2-65">bikeriderlondon/Shutterstock</a></span></figcaption></figure><p>In a throwback to the 1970s, a British political leader has called for workers on company boards, attacked top pay, denounced company directors who take exorbitant dividend payments and praised the idea of more interventionist government. Quantitative easing has been criticised for benefiting the wealthy while expansionary fiscal policies and infrastructure investment are back in favour. There are promises to promote “working class” interests. </p>
<p>So has Labour leader Jeremy Corbyn finally fallen off the left of the political spectrum? No, this all comes from <a href="http://www.telegraph.co.uk/news/2016/10/05/theresa-mays-conference-speech-in-full/">Conservative Prime Minister Theresa May</a>.</p>
<p>Politics is in a strange place. Witness the <a href="http://www.standard.co.uk/business/business-welcomes-uturn-over-naming-of-foreign-staff-a3365066.html">u-turn</a> on the public shaming of companies which employ large numbers <a href="http://www.independent.co.uk/news/uk/politics/amber-rudd-conservative-party-conerence-hitler-mein-kampf-james-obrien-a7347251.html">of foreign workers</a>. Policy creation at the moment seems to be a mixture of populism, realism and corporatism, and we might be able to see all three in that proposal to bring corporate employees into the boardroom.</p>
<h2>Voice over</h2>
<p>The idea was seen by Germany as an important part of their post-war economic miracle. It applied first in the coal and steel industries and was extended to other sectors. It is now regulated by <a href="https://www.law.upenn.edu/journals/jil/articles/volume2/issue2/MertensSchanze2J.Comp.Corp.L.&Sec.Reg.75(1979).pdf">the Codetermination Act</a>, which requires companies to consider the interests of employees as well as shareholders, with employees included on works councils and supervisory boards. </p>
<p>The idea is simple: to give them a “voice” in governance. In the case of German codetermination, it is the voice of the employees and their trade union representatives. Factory committees with participation rights emerged at first on a voluntary basis, but were made compulsory in 1916 to help the war effort. </p>
<p>The UK has never had a general policy of employee representation at the micro level, but at the macro level the <a href="https://en.wikipedia.org/wiki/National_Economic_Development_Council">National Economic Development Office</a> brought together management, unions and government to seek to improve the country’s economic performance. It survived for more than 30 years only to be abolished under John Major. I’m reminded of impersonator Rory Bremner’s line on Major: “When I was elected, British industry was nowhere; today, it’s all over the place”.</p>
<p>At a micro, organisational level, there are individual British examples of employee representation on boards. Today, the best-known example is probably the <a href="https://www.johnlewispartnership.co.uk/about/the-partnership.html">John Lewis Partnership</a>, which includes the Waitrose supermarket chain. The company is owned by a trust, with the trustees obliged to operate in the interests of current and future employees. This is backed up by extensive rights to consultation and participation, including to elect employee-representatives to the board. </p>
<p>John Lewis introduced profit-sharing and a representative staff council in 1920 and in 1950 the Partnership became the property of its employees. Its performance in terms of quality of products and service, and its corporate <a href="http://www.thenews.coop/108647/news/co-operatives/can-john-lewis-teach-us-better-way-business/">resilience over time</a>, have been generally <a href="http://www.cityam.com/236434/john-lewis-grows-market-share-in-challenging-conditions-but-pbt-falls-as-pension-charges-and-property-declines-take-hit">regarded as successful</a>, indeed sector-leading. </p>
<p>Corporate ownership does play a role in performance. The final report of the UK’s Ownership Commission argued that the economy is stronger with a <a href="http://www.kellogg.ox.ac.uk/wp-content/uploads/2015/05/ownership_commission_2012.pdf">range of ownership and governance forms</a>. This could include mutually-owned companies such as John Lewis, alongside shareholder-owned and privately-owned ones, as well as ownership through local, regional and national governments. </p>
<h2>Ownership rights</h2>
<p>Mutuality means being member-owned, where the members are employees or customers (as in co-ops), or members of the local community or other such “stakeholders”. I was chair of Shareholders United, an organisation of Manchester United supporters who bought shares in an effort to mutualise the club, along the lines <a href="https://www.theguardian.com/football/2011/nov/07/barcelona-not-for-sale">of Spain’s Barcelona</a>. That was <a href="http://www.dailymail.co.uk/sport/football/article-3078197/Manchester-United-Glazers-10-years-takeover-mystery-surrounding-American-owners-remains.html">before the Glazers intervened</a>.</p>
<p>I also helped found Supporter Direct which assists supporters at all clubs to take ownership stakes to achieve <a href="http://www.supporters-direct.org/">effective board representation</a>. The key, in terms of Theresa May’s pledge, is that a supporter, or a worker, on the board will achieve little without an organisation behind them to help define and support their goals. </p>
<p>Mutuals are thus an attractive option, and they add to corporate diversity, which is important for economic resilience. The 2010 coalition government pledged to make financial services more diverse by supporting mutuals – but then failed to check on progress. <a href="https://www.soas.ac.uk/staff/staff50616.php">SOAS professor Christine Oughton</a> and I have devised an index to do just this; it shows that the government failed completely. The sector became <a href="http://www.cefims.ac.uk/documents/research-109.pdf">even less corporately diverse over their term</a>, according to our findings.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/141241/original/image-20161011-12031-sngsmz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Diversity of structure has not blossomed in the City.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/neilsingapore/16467417825/in/photolist-r6aPAZ-q7oDER-oUbnhe-qafsxy-rcESFA-qoSFZm-dwPT1M-heNH4t-pQpXhd-etodiZ-ohsHP4-c7J5U1-qocPJK-eeF4Ei-DUDXRE-b9BkSc-f8Pjf8-kmfEpR-etrpSm-FWnKTf-Gf6Kdq-pwafyS-ra1uen-heNXzc-nV9Txc-crDivS-D6jpkp-fdoGLG-qhf7gA-k2tCzp-em12BR-dkmros-qncCke-nqEz5g-axrykv-axrxWc-9pQxbB-axrxag-cwStZQ-axuess-9Qe6MF-FNqi6t-dsaDPe-axud4d-h7z8wN-Jqkiyw-idwdh2-cKzpoh-heMEwQ-DhRauh">Neil Howard/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>It is important not to miss opportunities like this. The historical and international evidence is that workers on the board can be beneficial both to the business and to the wider economy. German companies tend to <a href="https://www.theguardian.com/global/2016/mar/30/the-uk-could-learn-a-lot-from-germanys-long-term-industrial-strategy">invest for the long term</a>, including in research and development and training, and enjoy large export surpluses and high output per head. John Lewis employs 88,900 partners, and has continued to share surpluses throughout the past decade of crisis and austerity. </p>
<p><a href="http://employeeownership.co.uk/resources/facts-and-figures/">Research over 2012-2013</a> showed that the UK’s top 50 employee-owned companies increased employment by 3.3%, productivity by 4.5% and operating profits by 25.5% – better than the rest of the economy. However, this approach requires the employee representatives to have some degree of authority, and this is unlikely with no ownership stake. </p>
<p>In the US, widespread use of <a href="https://www.nceo.org/articles/employee-ownership-esop-united-states">employee share ownership</a>, is used in some cases to provide and support employee voice. In Britain, however, such schemes are weak and tend to be limited to individual holdings which provide no support for collective voice. </p>
<p>For workers on the board to be effective, such ownership stakes need to be pooled into employee trusts. John Lewis might offer a glimpse of how employee representation can be made to work during Theresa May’s prime ministership. It represents, after all, a comfortable benchmark – away from left-wing ideas of worker rights – for the middle England voters that form the rump of Conservative support and for the MPs who could vote it through.</p><img src="https://counter.theconversation.com/content/66693/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Michie was a member (unpaid) of the Ownership Commission, and is Director (unpaid) of the Oxford Centre for Mutual & Employee-owned Business at Kellogg College, University of Oxford, which has received research funding from the Building Societies Association and other private and public bodies.</span></em></p>A High Street store may give Theresa May the model for bolstering the role of employees in how companies are run.Jonathan Michie, Professor of Innovation & Knowledge Exchange, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/632702016-08-17T00:37:18Z2016-08-17T00:37:18ZGood corporate governance is good for banks’ bottom line<p>Sound corporate governance not only boosts banks’ efficiency, it is also good for the profit of Australian banks and their shareholders. </p>
<p>However, <a href="http://www.sciencedirect.com/science/article/pii/S1042443116300336">new research</a> shows that factors such as the number of board meetings, the involvement of large shareholders in boardroom decisions and whether or not the board has independent members don’t play a significant role in achieving those goals.</p>
<p>Our study, published in the <a href="http://www.sciencedirect.com/science/journal/10424431/43/supp/C">Journal of International Financial Markets, Institutions and Money</a>, investigated the effectiveness of certain corporate governance measures on the performance of 11 Australian banks from 1999 to 2013.</p>
<p>It showed Australian banks improved efficiency after the introduction in 2003 of the <a href="http://www.asx.com.au/regulation/corporate-governance-council.htm">Australian Securities Exchange (ASX) Principles of Good Corporate Governance</a>, which aimed for improved governance mechanisms and thus better control over bank management.</p>
<p>The principles meant all ASX-listed firms should have certain board attributes. It is recommended, for example, that a board’s chairman should not be part of the executive team, that boards should consider size and composition (such as gender equality) to meet the reasonable expectations of most investors in most situations, and that different committees for detailed oversight be established. </p>
<h2>What makes a difference?</h2>
<p>The study assessed the impact of corporate governance by the number of directors, the proportion of non-executive directors, the number of board meetings, committee meetings, and the largest share of the individual shareholders in Australian banks.</p>
<p>After the introduction of the ASX’s principles, the Australian banking industry performed better in maximising its total revenue (from lending and non-lending activities) for any given level of borrowing and operating expenses. The results also revealed that the “Big Four” banks – National Australia Bank (NAB)
Commonwealth Bank (CBA), ANZ and Westpac – performed better in this than any competing regional banks. </p>
<p>We found that board size and committee meetings improve bank efficiency. This suggests that larger boards bring higher knowledge into the decision and supervisory process. </p>
<p>Committees considered in this study were: audit, nominating, remuneration and risk. These committees are seen as the main influence on boards’ most important decisions. </p>
<p>However, the number of independent board members and number of board meetings had no significant impact on a bank’s technical performance. </p>
<p>The study didn’t find any evidence of large shareholders executing power to affect banks’ performance. </p>
<p>Good corporate governance has intrinsic links to profit. Shareholders want value for money in paying board members. Regulators seek fewer failures and higher stability. And banks intend their corporate governance arrangements to deliver stronger oversight of management.</p>
<p>Investors have become more concerned about the role of the board in recent decades, especially in the wake of major corporate collapses including Ansett, OneTel, HIH and Bankwest in Australia. As a result, investors have demanded stronger corporate governance.</p>
<p>The consequences of ignoring risks and weak governance can be costly. For example, two former National Australia Bank (NAB) foreign currency options traders who were sentenced in 2006 for manipulating foreign exchange spot trades that falsely inflated profits and hid losses. The Australian Securities and Investments Commission (ASIC) <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2006-releases/06-221-former-nab-foreign-currency-options-traders-sentenced/">noted</a> in 2006 that </p>
<blockquote>
<p>By 13 January 2004, when the fictitious trades were discovered by the NAB, the loss incurred was approximately $160 million.</p>
</blockquote>
<p>After revaluation, the incurred losses for NAB totalled <a href="https://www.finextra.com/newsarticle/11398/nab-purges-staff-as-pwc-rogue-trading-report-slams-systems-and-culture">$360 million.</a></p>
<p>In its March 2004 <a href="http://www.apra.gov.au/MediaReleases/Pages/04_09.aspx">report into the case</a>, the Australian Prudential Regulation Authority (APRA) noted that while the irregular trades did not threaten the bank’s viability or its capacity to meet its obligations to depositors,</p>
<blockquote>
<p>the governance and risk management weaknesses identified in the report were serious… NAB will need to address these issues promptly so that it meets “best practice” standards in its treasury area and problems of this kind do not recur.</p>
</blockquote>
<p>Regulators have also developed new tools to supervise financial markets, stock exchange and financial institutions and to avoid corporate collapses. In 2008, APRA <a href="http://www.apra.gov.au/adi/prudentialframework/pages/adi-prudential-standards-and-guidance-notes.aspx">prudential standards</a> particularly for credit institutions to ensure their stability.</p>
<p>Our research results can be seen as good news for Australian banks in general and the Big Four in particular, in a dynamic and turbulent banking environment. However, regulators must continue to improve corporate governance principles and further strengthen the supervisory conducts of boards.</p><img src="https://counter.theconversation.com/content/63270/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Good corporate governance is good for efficiency and profit in banks. But having independent board members and the number of board meetings don’t play a role, research shows.Amir Arjomandi, Lecturer, School of Accounting, Economics and Finance, University of WollongongJuergen Seufert, Assistant Professor in Accounting, University of NottinghamRuhul Salim, Associate professor, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/548752016-03-10T11:12:00Z2016-03-10T11:12:00ZWhen good intentions aren’t supported by social science evidence: diversity research and policy<figure><img src="https://images.theconversation.com/files/114137/original/image-20160307-31275-mlwc4c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Successful group outcomes aren't guaranteed by the simple recipe of 'Just add diversity.'</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-273543236/stock-photo-business-people-diversity-talking-communication-concept.html">Talking image via www.shutterstoc.com.</a></span></figcaption></figure><p>You’d be forgiven for assuming a quick and sure way to multiply profits and amplify organizational success is to increase the gender and racial diversity of any group. According to claims in the mainstream media, the effects of gender and racial diversity are universally favorable. News stories tend to mirror this 2014 <a href="https://www.washingtonpost.com/news/on-leadership/wp/2014/09/24/more-women-at-the-top-higher-returns/"><em>Washington Post</em> article’s claim</a> that “researchers have long found <a href="http://www.americanbanker.com/bankthink/women-on-boards-improve-a-banks-performance-1063776-1.html">ties between having women</a> on a <a href="https://www.washingtonpost.com/news/on-leadership/wp/2013/11/27/more-women-on-boards-cheaper-mergers/">company’s board of directors</a> and <a href="http://www.washingtonpost.com/blogs/on-leadership/wp/2014/06/04/an-index-fund-that-bets-on-women/">better financial performance</a>.” </p>
<p>And as <a href="http://www.nytimes.com/2013/10/24/opinion/kristof-twitter-women-power.html">Nicholas Kristoff wrote</a> in <em>The New York Times</em> in 2013:</p>
<blockquote>
<p>Scholarly research suggests that the best problem-solving doesn’t come from a group of the best individual problem-solvers, but from a diverse team whose members complement each other. That’s an argument for leadership that is varied in every way — in gender, race, economic background and ideology.</p>
</blockquote>
<p>The truth is there’s actually no adequate scientific basis for these newsworthy assertions. And this lack of scientific evidence to guide such statements illustrates the troubled relations of science to advocacy and policy, that I have <a href="http://doi.org/10.1111/josi.12163">analyzed in an article</a> in the current Journal of Social Issues.</p>
<h2>A chasm between research findings and advocates’ claims</h2>
<p>I began to think more deeply about these issues during my recent service as president of the <a href="http://www.spssi.org">Society for the Psychological Study of Social Issues</a>. This organization has worked since 1936 to join social science findings to responsible advocacy and effective social policy.</p>
<p>This goal is laudable, but the task is supremely challenging. As I’ve come to realize, different camps have varying goals. Scientists aim to produce valid knowledge. Advocates work to promote their favored causes. Policymakers hope to efficiently deploy resources to attain social and economic ends. And they’re all assuming their claims are supported by the same body of social science research.</p>
<p>In politically sensitive areas, advocates may eagerly invoke social scientific data that support their objectives but ignore nonsupportive findings. They may highlight politically congenial findings that are unrepresentative of the available scientific knowledge. </p>
<p>Researchers, in turn, may fail to communicate their findings effectively. Communication is challenging when study outcomes are more complex and less affirming of advocates’ goals than what they desire and expect.</p>
<p>These issues often arise when research addresses controversial questions of social inequality. That’s where social science myths can and do emerge.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/113898/original/image-20160304-17734-yyab4k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Does who fills these empty boardroom chairs affect the bottom line?</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic.mhtml?id=141135247&src=lb-29877982">Boardroom image via www.shutterstock.com</a></span>
</figcaption>
</figure>
<h2>Case study: diversity research</h2>
<p>To illustrate these problems, consider two prominent social science myths about diversity.</p>
<p>One concerns the effects of the gender diversity of corporate boards of directors on firms’ financial performance. The other pertains to the effects of the gender and racial diversity of workgroups on their performance.</p>
<p><a href="https://www.2020wob.com/sites/default/files/2020GDI-2015Report.pdf">Advocates for diversity</a> generally maintain that the addition of women to corporate boards <a href="http://www.catalyst.org/knowledge/companies-behaving-responsibly-gender-diversity-boards">enhances corporate financial success</a>. And they hold that diversity in task groups <a href="http://www.forbes.com/sites/stevedenning/2012/01/16/why-is-diversity-vital-for-innovation/#1cb510fa4e7c">enhances their effectiveness</a>.</p>
<p><a href="http://dx.doi.org/10.1016/j.obhdp.2012.06.003">Abundant findings</a> have accumulated on <a href="http://doi.org/10.5465/amj.2013.0319">both of these questions</a> – more than 140 studies of corporate boards and more than 100 studies of sociodemographic diversity in task groups. Both sets of studies have produced mixed outcomes. Some studies show positive associations of diversity to these outcomes, and some show negative associations.</p>
<p>Social scientists use meta-analyses to integrate such findings across the relevant studies. Meta-analyses represent <em>all</em> the available studies on a particular topic by quantitatively averaging their findings and also examining differences in studies’ results. Cherry-picking is not allowed. </p>
<p>Taking into account all of the <a href="http://dx.doi.org/10.2139/ssrn.2696804">available research on corporate boards</a> and diversity of task groups, the net effects are very close to a null, or zero, average. Also, economists’ studies that carefully evaluate causal relations have <a href="http://dx.doi.org/10.1016/j.jfineco.2008.10.007">typically failed to find that women cause superior corporate performance</a>. The most valid conclusion at this point is that, on average, diversity neither helps nor harms these important outcomes.</p>
<p>Given these overall findings, further studies are needed to identify the conditions under which diversity has positive or negative effects. And there is some progress here. </p>
<p>For example, research suggests that diversity tends to make decision-making groups more effective if their members <a href="http://dx.doi.org/10.5465/amj.2009.0823">create norms that foster personal ties</a> across the races and genders as well as the exchange of ideas. Also, a <a href="http://dx.doi.org/10.1016/j.obhdp.2013.03.003">positive and inclusive mindset about diversity</a> increases the chances of favorable effects on group performance.</p>
<p>But such conditions are often absent. <a href="http://dx.doi.org/10.1037/a0025767">Diversity can create tensions</a> within groups, and the newly introduced female or minority group members may encounter resistance that makes it difficult for them to gain a foothold in decision-making. It’s hardly surprising that the results of empirical studies are inconsistent. These kinds of interpersonal relationships are messy and complicated – it makes sense that upping diversity, on its own, wouldn’t be a magical key to success.</p>
<h2>A worthwhile social outcome</h2>
<p>What’s the harm in journalists announcing false generalizations about diversity if such statements help increase the number of women and minorities in important roles? After all, most people would agree that it would be an egregious violation of equal opportunity and antidiscrimination laws to exclude women and minorities from opportunities merely on the basis of their sex or race. Isn’t any and all support for inclusion valuable? My answer to this question is no.</p>
<p>First of all, social science myths make a mockery of evidence-based advocacy and policy. In fact, an unusually large body of social science evidence has emerged in tests of the effects of diversity on corporate success and group performance. Advocacy and policy should build on this research, not ignore it.</p>
<p>Myths also set people up to expect that corporate financial gains and superior group performance follow easily from diversity. Of course they don’t. That expectation could sideline people from understanding and overcoming diversity’s challenges.</p>
<p>Finally, false generalizations can impede progress toward better science that may disentangle the causes of diversity’s varied effects on group and organizational success.</p>
<p>Social scientists should freely admit that diversity science doesn’t have all the answers. At the same time, they should not silently tolerate distortions of available scientific knowledge to fit advocacy goals. Ideally, researchers are honest brokers who communicate consensus scientific findings to the broader public. Only then can social science make a meaningful contribution to building sound social policy.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/113901/original/image-20160304-17723-1xsw5gj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">There are other reasons to value diversity in the group.</span>
<span class="attribution"><span class="source">Table image via www.shutterstockcom</span></span>
</figcaption>
</figure>
<h2>Social justice goals are valid on their own</h2>
<p>Many advocates and policymakers share the admirable goal of producing a more just society. But they’re narrow-minded if they focus only on whether diversity and inclusion foster outcomes such as business profits or effective group problem-solving. The more fundamental gains from diversity pertain to social justice. Diversity and inclusion can serve social justice goals by countering discrimination that may have put women and minorities at a disadvantage.</p>
<p>Beyond countering possible discrimination lies an even more fundamental social justice consideration – that of equitable representation. This principle holds that citizens in democracies should have equal access to influencing the decisions that shape their lives. To the extent that women and minorities are not represented in decision-making groups in proportion to their numbers in the population, they are unlikely to have their interests fairly represented. </p>
<p>As <a href="http://dx.doi.org/10.2307/2647821">political scientists have pointed out</a>, the ideals of democracy are violated if decision-making is dominated by the rich, the white and the male. Then the <a href="http://dx.doi.org/10.1111/j.1540-5907.2011.00569.x">needs of the poor, the minorities</a> <a href="http://dx.doi.org/10.1146/annurev.polisci.11.053106.123839">and the female</a> likely are neglected.</p>
<p>Most advocates, policymakers and social scientists may not be aware of sharp divergence in their claims about diversity. Yet, policy based on sound social science should be a shared goal. Without understanding the causal relations in society that this research helps identify, policymakers lower the odds they’ll reach their targets. Policy based on myths and hunches has little chance of success. To achieve evidence-based policy, all parties should take a close look at what diversity research has produced so far. Rather than selectively featuring congenial results, they should work together to untangle diversity’s complex effects on group and organizational performance.</p><img src="https://counter.theconversation.com/content/54875/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alice H. Eagly does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The relationship between social science research and advocates and policymakers is undermined if they cherry-pick evidence that supports their goals, ignoring the wider field.Alice H. Eagly, Professor of Psychology; Faculty Fellow Institute for Policy Research; Professor of Management and Organizations, Northwestern UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/497872015-10-29T13:58:24Z2015-10-29T13:58:24ZTargets to bring women into the boardroom are missing the point<blockquote>
<p>When a measure becomes a target, it ceases to be a good measure. (Goodhart’s law)</p>
</blockquote>
<p>Women should make up a third of boardroom positions at the UK’s biggest companies within five years. This conclusion, <a href="http://www.theguardian.com/business/2015/oct/29/a-third-of-boardroom-positions-should-be-held-by-women-uk-firms-told">from a government-backed report compiled by Lord Mervyn Davies</a>, a former banker and trade minister, is Britain’s latest effort to redress a problem that affects the corporate sector worldwide.</p>
<p><a href="http://www.ft.com/cms/s/0/96f65730-65da-11e5-a57f-21b88f7d973f.html#axzz3pxZyeP7K">Proposals</a> to increase the number of female directors are based on the idea that, regardless of concerns over equality, this will be beneficial for governance and, ultimately, firm performance. These views have been at the heart of a number of reforms aimed at increasing female representation on executive boards. </p>
<h2>Quota, unquota</h2>
<p>These range from the requirements in the US and in the European Union for firms to disclose their gender diversity policy in board recruitment, through to enforced gender quotas. Recently, <a href="http://www.nytimes.com/2015/03/07/world/europe/german-law-requires-more-women-on-corporate-boards.html?_r=0">Germany</a> became the latest country to set a gender quota for corporate boards. Our research indicates why these measures are not likely to address the more fundamental issue of inclusive decision making.</p>
<p>In the UK, women now fill a quarter of FTSE 100 director roles, a fact which is highlighted in Davies’ report, and which indicates clear progress since that target was set in 2011. The report also <a href="http://www.ft.com/cms/s/0/d0268198-7d85-11e5-98fb-5a6d4728f74e.html#axzz3pwmFQyxQ">makes the new target</a> for a third representation applicable to 150 more companies. </p>
<p>This comes at a time when the EU is contemplating <a href="http://ec.europa.eu/justice/newsroom/gender-equality/news/121114_en.htm">mandatory gender quotas</a> for listed firms. Now, meeting an arbitrary headline target on gender diversity is a step in the right direction, but legislation can be too blunt a tool to tackle the genuine issues of gender diversity.</p>
<h2>Evidence hunting</h2>
<p>Even though the rationale for improving gender diversity is clear, there is surprisingly little evidence to support the economic case for increasing female representation on corporate boards. The evidence that exists for the US and the UK is not supportive of a positive effect from female board representation. </p>
<p><a href="http://personal.lse.ac.uk/FERREIRD/gender.pdf">One study</a> of US companies found having females on the board had a negative impact on firm performance, despite better attendance records and more effective monitoring in firms with more gender-balanced boards. For the UK, there is <a href="http://onlinelibrary.wiley.com/store/10.1111/ecoj.12102/asset/ecoj12102.pdf?v=1&t=ig984pxf&s=44de462c74c9b2bb4ae1dcd521357ed58383b489">no evidence</a> that the gender composition of the board affects firm performance. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/100137/original/image-20151029-15355-1uo7iqw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Slotting into place. The perils of tokenism.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dragontomato/4975089626/in/photolist-7asdoC-7KVErk-7aoozz-7aoopD-94EcJg-4bF9WJ-5MXXY3-6oAPzK-diqddi-hoCMx-HcRBo-7aooJn-7KZCUS-8zCCPm-anjjna-8LZ7F3-5hzsu3-5hv6W2-6oAPDF-5tQgpm-9q6mfB-4ELoJy-qpJJVo-5hv6yi-5hv7xZ-bZN5Bs-2YRnSq">Andrew_Writer</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>There is also little evidence that <a href="http://ftp.iza.org/dp8266.pdf">quotas are successful</a> in bridging the gender wage gap. A potential danger with quotas is that it can quickly degenerate into tokenism.</p>
<h2>Adding value</h2>
<p>To focus simply on a certain proportion of female directors is to miss the bigger picture. The association between board gender diversity and good governance is more complex than imposed gender quotas. That the economic case for board gender diversity doesn’t hold up well under statistical scrutiny indicates that organisations may not reap the benefits of gender-diverse boards automatically. </p>
<p>In <a href="http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2015_023.pdf">our recent research</a> we examine the mechanisms through which female directors can add value to the firm. In particular we look at the integration of female directors in the governance mechanism. </p>
<p>To a great extent the way a board works is through committees that focus on narrowly defined jobs, such as the nomination committee, remuneration committee, and the audit committee. These groups of executives articulate the goals and strategic plans of the organisation in an area, and serve as a source of specialised expertise. They are fertile ground to closely examine the appointment of female directors, and the performance impact of such appointments.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/100145/original/image-20151029-15348-1qjnqk5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">From two out of 27 to 25%…</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/center_for_jewish_history/3420953499/in/photolist-6dihhT-4wVHmj-bBZitR-dPQLqq-mXzTyQ-6xmG7C-bu7Enk-gWc8Co-gJAFuK-gJzjZ1-gJzBbt-61UPSK-dNfPob-6LmWc2-dTBLxF-gJzmvC-by31c8-dSz2kd-bk88bN-bk8787-aewke7-uxjJ7m-bk7XNQ-e1DS8N-bp8DzY-8dEa99-vrDHnw-atJETW-76D4Ex-eai81B-kXLgC7-hn44wy-hn3yPz-hn44w3-hn3yV6-hn44zE-hn58uF-hn3ZNy-hn3yRi-hn3Zvu-hn3yVr-hn3yPK-hn58JD-hn3yEr-hn58Mp-hn3Zzh-hn58H6-hn58sg-hn3yA8-hn3ZDA">Center for Jewish History, NYC</a></span>
</figcaption>
</figure>
<p>The point is that although regulatory and institutional pressures can lead to appointments of female directors to the board, they do not necessarily ensure that those women are directly involved in the nuts and bolts of governance. For any director to add value, they need to be appointed to positions in which they can influence governance, and consequently firm performance.</p>
<p>In our sample of large European firms, women are more likely to be appointed to monitoring-related committees, like the audit committee. However, they are less likely to be appointed to nomination and remuneration committees, where new CEOs are appointed and where pay and bonuses are set. The fact that fewer female directors make it on to these committees might partially explain the persistence of a gender pay gap at executive level. </p>
<h2>Numbers game</h2>
<p>Appointing a single female director to the board, or increasing the proportion of female directors seems to have no significant impact on firm performance. But, we find that firms do gain value if they appoint female directors to key board committees. </p>
<p>Let’s delve into the statistics. We found that a one standard deviation increase in the proportion of female directors on key committees enhances firm performance by 0.6 of a standard deviation, in other words a 5% increase in firm value <a href="http://www.investopedia.com/articles/investing/110613/market-value-versus-book-value.asp">based on market-to-book value</a>. In comparison, a one standard deviation increase in female board representation overall increases firm performance by a more modest 0.18 of a standard deviation, or a 0.9% increase in firm value. </p>
<p>Simply put, the performance benefit to the firm of appointing female directors to the key committees is three times greater than just appointing them to the board. The implications are important and twofold. First, appointing women to the board in response to regulatory pressure has, at best, a limited effect on firm performance. Second, putting women on the key committees may be indicative of a flexible board that simply includes high-ability individuals in the governance mechanism to enhance firm performance.</p>
<p>Quotas don’t necessarily advance the underlying cause of gender equality. Female directors appointed for Norwegian firms to meet the gender quota earned the unfortunate <a href="http://www.theguardian.com/business/2011/jul/01/norway-golden-skirt-quota-boardroom">“golden-skirts”</a> epithet. </p>
<p>But there is little evidence that targets are any more effective. Even though FTSE 100 companies have achieved the target of gender diversity set by Lord Davies, we believe that it is the deep integration of female directors into the mechanism of governance that is the key challenge for modern corporations. Companies need to be encouraged to embed female directors in the decision-making process. Without that, new female director appointments designed to meet a new target of 33% representation, risk drifting once more into the realm of token symbolism.</p><img src="https://counter.theconversation.com/content/49787/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Measures to bring more female directors into the executive suite are failing to boost performance. Here’s why…Swarnodeep Homroy, Assistant Professor in Economics, Lancaster UniversityColin Green, Professor of Economics, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/410322015-05-04T01:55:24Z2015-05-04T01:55:24ZSuper connected directors not helping super fund performance<figure><img src="https://images.theconversation.com/files/80041/original/image-20150501-12652-x4wqyj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Research has found when super funds share the same directors, fund performance can suffer.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>Superannuation regulator APRA has thrown its weight behind calls for more independent directors on super fund boards, arguing they improve board governance.</p>
<p>Despite a number of improvements in the area, including disclosure and the management of conflicts of interest, some issues have not received as much attention, in spite of their importance. For example, the practice of multiple directorships.</p>
<p>The fact that super fund board members can hold appointments on other super fund boards is unique. It sometimes happens when an external professional trustee company acts as the super fund’s board. In the corporate setting, directors rarely serve on the boards of competing companies due to anti-competitive concerns. </p>
<p>Multiple directorships exacerbate the already complex governance framework of super funds, and according to my research can impact fund performance.</p>
<h2>Boards play a unique role in super</h2>
<p>The external mechanisms that keep corporations in check are not always adequate in the case of the superannuation sector. Research conducted by the World Bank argues that within the super industry, external market mechanisms are weak. </p>
<p>There is no product market for some fund members (i.e. defined benefit plan members who cannot transfer benefits to another fund while they are employees of its sponsor), there is no equivalent market for corporate control, as there is in the listed company setting and there are no block shareholders who help to increase monitoring capacity. </p>
<p>This means super fund boards play a vital role and must be effective enough to address the imbalance. Practices such as multiple directorships are likely to impact on the board’s efficacy and consequently affect fund performance.</p>
<h2>The impact on performance</h2>
<p>In my study I examined the trustee directors of 249 superannuation fund boards, and found when a super fund experiences a reduction in the number of directorships its trustee directors hold, overall fund returns increase and fund expense ratios decrease. </p>
<p>At the same time, different types of multiple directorships were found to have differing detrimental effects on fund performance. That is, while both types decrease fund performance, individual directors who hold multiple directorships appear to be more problematic than professional trustee company directors. These directors’ access to networking, expertise and resources etc. may in fact alleviate some of the negative effect.</p>
<p>Overall the results of the study suggest that trustee directors’ time and effort is constrained when they hold multiple board appointments and as a result, fund performance suffers. </p>
<p>While the issue of multiple directorships was briefly highlighted in the Cooper Review, future regulatory reform should pay closer attention to the issue. As the industry continues to consolidate and the pool of trustee directors becomes smaller, it is likely that specific regulation of multiple directorships will become necessary. </p>
<p>Rather than placing a ban on multiple directorships, a more flexible approach which considers the different types of multiple directorships and their varying effects on fund performance may be appropriate. </p>
<p>Continued governance reform of the super industry is vital in order to safeguard our superannuation savings. While Australian regulators and policymakers should be commended for their actions to date, there is still work to do.</p>
<p>Superannuation assets in Australia now total almost A$2 trillion. That’s more than Australia’s gross domestic product and makes our super industry the fourth largest pension market in the world. The considerable growth of superannuation assets over time is largely attributable to the compulsory flow of money into super funds each year. In fact it is estimated that the industry will be larger than the Australian banking sector within the next two decades. The effective governance of these funds is therefore paramount.</p><img src="https://counter.theconversation.com/content/41032/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Ooi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Super funds are being asked to improve board governance, and their starting point should be to consider stamping out multiple directorships.Elizabeth Ooi, Lecturer, Finance, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/395012015-03-30T18:58:31Z2015-03-30T18:58:31ZDaniel Andrews, board quotas and the myth of ‘insufficient women’<p>Victorian Premier Daniel Andrews has set <a href="http://www.abc.net.au/news/2015-03-28/women-to-make-up-50-pc-of-vic-boards-under-new-rules/6355282">gender quotas for appointments to Victorian government boards</a>, but his rationale may be counterproductive. </p>
<p>Andrews stated that, because of his policy: </p>
<blockquote>
<p>“By the end of 2018, no director of an ASX company will be able to look me in the eye and tell me there aren’t enough women in our state who are qualified to join them at the table.” </p>
</blockquote>
<p>Although this policy is no doubt well intentioned, Andrews’ comment reaffirms two unhelpful assumptions. Firstly, that the reason there are not more women on boards is a lack of qualified women. Secondly, that prior experience on an equivalent board is the only legitimate precursor to future board positions. These assumptions are both untrue and unhelpful.</p>
<p>The assertion that there are insufficient qualified women for board positions is an argument used worldwide to defend gross gender inequality which cannot be justified any other way. However, in the UK, considering that 200 female board appointments would change the landscape of UK board gender diversity, <a href="https://books.google.com.au/books?id=7V300nO5xscC&pg=PA343&lpg=PA343&dq=e+%E2%80%9CWomen+and+the+Governance+of+Corporate+Boards%E2%80%9D&source=bl&ots=p68TTf0jQF&sig=Kz1y0H0qpsOYlnPv3WW_hyhm89U&hl=en&sa=X&ei=I9UYVc_DAozi8AWkoYGIAw&ved=0CCQQ6AEwAQ#v=onepage&q=e%20%E2%80%9CWomen%20and%20the%20Governance%20of%20Corporate%20Boards%E2%80%9D&f=false">researchers identified</a> 2551 women with sufficient executive level experience, debunking the common excuse that there are insufficient qualified women. </p>
<h2>Not for a lack of talent</h2>
<p>Australian <a href="https://www.blackrockinvestments.com.au/advisers/literature/press-release/blackrock-press-release-glacial-change-in-diversity-asx200-companies-en-au.pdf">research</a> suggests female directors are held to a higher standard; of directors appointed to ASX200 boards, 80% of male directors but only 57% of female directors had no prior experience on an ASX200 board. Not only are there a great number of qualified women who could benefit the boards of ASX200 companies, but the number required to bring about equality in new appointments (which is the issue Andrews seeks to address) is small. </p>
<p>There have been only 24 <a href="http://www.companydirectors.com.au/Director-Resource-Centre/Governance-and-Director-Issues/Board-Diversity/Statistics">new appointments</a> to ASX200 boards so far in 2015 and only seven of these appointments were female. Just five qualified women would be required to bring parity. In 2014 an additional 53 women would have brought parity to new ASX200 appointments. The issue is not the availability of appropriate females but the will to appoint them. Pretending the fault lies with women is illogical to the point of offence.</p>
<h2>Changing the path to directorship</h2>
<p>There is no shortage of women with experience relevant to ASX200 boards, but there is an even greater pool of women who could benefit boards with their alternative fields of experience. Prior service on an equivalent board must no longer be the only legitimate qualification for “a seat at the table”. </p>
<p>A board of diverse talents and experience is <a href="http://www.sciencedirect.com/science/article/pii/S0749597805001524">far more equipped</a> to address complex problems and avoid “group think”.</p>
<p>Despite this, board recruitment often relies on narrow requirements. Decisions about the necessary skills for a board director remain <a href="https://cel.edu.au/our-research/targets-and-quotas-for-women-in-leadership">largely unquestioned</a> and experience is overused as a surrogate for job skills. Although the statement “past performance is not a reliable indicator of future returns” is oft repeated, it is rarely applied to board recruitment decisions.</p>
<h2>Quotas successful internationally</h2>
<p>Implementing quotas on government owned boards is a popular and effective means of promoting gender diversity on boards. Many countries have taken this step, including Austria, Brazil, Canada, Denmark, Israel, Kenya, Slovenia and Switzerland. Indeed, Israel and Norway have had gender quotas for the boards of government owned companies for decades. </p>
<p>Also, policy regarding government boards does not have to address the social contract vs free market argument regarding governmental intervention in private company affairs. In supporting the use of quotas Premier Andrews has notable supporters such as former Federal Sex Discrimination Commissioner <a href="http://www.mamamia.com.au/news/christine-milne-quotas-for-women-on-boards/">Liz Broderick</a>, former Governor-General <a href="http://www.smh.com.au/executive-style/quotas-wrong-difficult-and-tokenistic-20110308-1bmmn.html#ixzz317hvh98l">Quentin Bryce</a>, Treasurer <a href="http://www.smh.com.au/executive-style/quotas-wrong-difficult-and-tokenistic-20110308-1bmmn.html#ixzz317hrfaz2">Joe Hockey</a> and Greens Senator <a href="http://www.mamamia.com.au/news/christine-milne-quotas-for-women-on-boards/">Christine Milne</a>. </p>
<p>Nevertheless, despite the attempt at positive action by the Premier, his comments may serve to reinforce the very mechanisms serving to lock women out of certain positions of power. Defining accessibility by existing access and measuring capability solely by past performance are antiquated approaches firmly embedded as means of excluding outsiders. We cannot expect to see sufficient change in any arena, including gender diversity on corporate boards, if we permit the repeated application of failed norms.</p><img src="https://counter.theconversation.com/content/39501/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katherine Watson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>By assuming that prior service on a board is the prerequisite to success, companies are overlooking a large pool of talented women.Katherine Watson, PhD Candidate, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/348292015-01-13T06:10:28Z2015-01-13T06:10:28ZUniversity Challenge and a lesson on quotas for British business<figure><img src="https://images.theconversation.com/files/68701/original/image-20150112-23801-14uk8wf.jpg?ixlib=rb-1.1.0&rect=33%2C61%2C955%2C518&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">"Can I quota you on that, Jeremy?" </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/dafyd/180746293/in/photolist-gYnzp-wk9RV-5arv68-5KD2pb-b7PKzR-v5aeH-gRyVVx-gRyVRK-gRzLM8-gRzLKe-31dix3-dDvBqF-hmtJN-pKvDFt-q2H3w4-p66bCJ-gYp7Q-gYpaG-g66Vn6-gE9ME9-hsWEV8-7fT39b-8JFmDt-gYpJp-tLNQh-CqVP-oV74zx-drgjSH-doWWm8-5HnYCq-2VuG7g-5V58qi-34wEVN-4mSSP4-A3zu-7AyjKx-7AC65J-7AyjMk-7AyjLF-BLHd9-8ua9wo-dA2mBv-6w4sbE-PWKt1-jaaGDq-91Zzdj-pBbSNi-e696h7-h2WB3-qr5Pc3">Dafyd Jones</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>For a cultural benchmark of our nation’s best and brightest, there’s something wrong with the <a href="http://www.bbc.co.uk/programmes/b006t6l0">BBC show University Challenge</a>. If you tuned in over the festive period for the seasonal special final, you might have noticed that there were three women among the eight people in the competing teams - that was encouraging. But if you watched on Monday nights for a full season of the regular programme, you might also notice that it’s very much mostly men you’re watching in the competition. </p>
<p>It is a remarkably similar situation in Britain’s corporations, holders of great economic as well as cultural weight, and self-styled paragons of meritocratic performance purity.</p>
<p>University Challenge is openly promoted as a pinnacle of British academic life, but it also houses this clear gender imbalance, especially obvious on the not-infrequent occasions when both teams are all-male and the camera pans away from the nine men on the stage to the audience where we see women watching and supporting. </p>
<p>The chance to appear on the programme is afforded through university and then <a href="http://www.theguardian.com/commentisfree/2014/sep/15/gutted-university-challenge-paxman-diversity">BBC-led “casting” processes</a> rather than purely on ability to answer obscure questions. This probably shouldn’t come as a surprise – we all know that merit in terms of skill, experience or qualifications can be a relatively minor aspect of a selection process, especially when there is this level of competition and reward. </p>
<h2>From studio to boardroom</h2>
<p>Chief executives of large organisations also claim to operate purist meritocracies – their recruitment and selection systems are designed to ensure the most talented, the hardest working, rise to the top and are rewarded, right? However, oddly, British corporate boardrooms are often as masculine as University Challenge line-ups, and have been for a long time. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68699/original/image-20150112-23807-1spyi9f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Angela Ahrendts.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/fortunelivemedia/8973742484/in/photolist-eEYM11-eEWx2X-eEYHKY-eETRwB-eF2VLw-eF1pUS-ata4GB-eF3GXQ-daFMJd-eF1mgS-eEVRYc-eEUabe-eEUb8p-eF1qDu-eEYR5Y-eEUdq6-eEZ4xs-eEZ2qL-eEU93R-eEZ8ys-eEU9Nv-eEVWTR-eESSwK-eF1nEG-eEYWzf-eESMfP-eF3bZW-eF16xo-eETUBT-eETe1g-eEU31c-eF3hPm-eF1ajq-eF19XE-eEUkEi-eEWoEP-eF3vXw-eEWy5g-eESU4k-eETYNK-eEZiVm-eEYJeo-eEZWf5-eEWc9i-eEWgfB-eESWrM-eEVFEa-eEU6iD-eEYPXf-eEVUip">Fortune Live Media</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>When Angela Ahrendts resigned as chief executive of Burberry <a href="http://www.dailymail.co.uk/news/article-2622213/Revealed-Ex-Burberry-boss-Angela-Ahrendts-handed-68million-golden-hello-joining-Apple.html">to join Apple</a>, she single-handedly reduced the proportion of women FTSE 100 CEOs by 33% – in other words, she was one of three. Ahrendts is clearly very good at what she does, but why was she one of only three? Why do large British organisations remain so stubbornly male-dominated at that level? And is it something that a government should do something about, perhaps by introducing quotas for representation on boards? </p>
<p>Quotas are problematic. If a woman like Ahrendts were to be offered a job purely because she is a woman, and told that were the case, it’s easy to image her saying “no thanks” (or something more blunt). She would probably feel insulted and then receive a frosty welcome from other board members who believed they had been appointed on merit, and might feel that the performance purity of their organisation had been diluted. </p>
<p>University Challenge, however, might be ready to bite the bullet and move ahead of corporate boards in reflecting the constitution of society. BBC producers seem finally to have realised there’s a problem with the low number of women competitors (43 from 224 in the past two years) and all-male programmes. Reports claim they might <a href="http://www.independent.co.uk/arts-entertainment/tv/news/university-challenge-final-is-a-starter-for-men-bbc-criticised-for-not-ensuring-a-minimum-of-female-competitors-in-the-tv-quiz-9241182.html">introduce a quota system</a> though they’re also considering whether to simply ask universities to ensure teams represent the student population (<a href="http://www.universitiesuk.ac.uk/highereducation/Documents/2012/PatternsAndTrendsinUKHigherEducation2012.pdf">55% women at undergraduate, 47% at postgraduate</a>). </p>
<p>This raises the very obvious question. If quotas can be considered in this context, why then not in corporate life, <a href="http://www.reuters.com/article/2013/09/30/us-nordic-investment-fund-idUSBRE98T0LM20130930">as, most famously, the Norwegian government has done</a>? </p>
<h2>Quota, unquota</h2>
<p>Economists and researchers with an enthusiasm for econometric analysis and statistical significance usually say quotas would <a href="http://www.thedailybeast.com/witw/articles/2013/07/13/the-trouble-with-gender-quotas.html">negatively affect corporate performance</a>. They also raise vague objections about equity, meritocracy, and the potential for women to exploit an initiative that would promote their interests above men’s. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68700/original/image-20150112-23812-1fka72e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Building new leaders, block by block.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/clement127/15020941773/in/photolist-6YiZbS-8LgooQ-8LgnBm-buVUpy-8LgoA9-jtkdqw-642Yb-39T9xq-66YEJJ-7mfXjj-fk8Tjf-oTmfEH-9eJHHg-93iFPA-8PgrTT-8LgnVm-8Ldjqv-a3Mw5M-dC3bAq-7AtjXA-7wZNzL-9ukxHT-dK8Qjo-8LgoFd-6qVASg-pwpWY-e2xmpS-miV9vz-dt7k6H-8FLSGN-haoM6j-9ntmzb-6EpjRB-dpjCk-8JdakB-7HLMNs-8TSmMy-97iHXM-8okk61-8Ldjfz-93MF3S-8LgodN-8nje2T-ad1ZNT-dBGK29-kzTFfB-aJVw2g-94ziQP-7MFUJJ-dNDkib">clement127</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>The students I work with are either hostile (men, mostly) or dubious (women, usually, who recognise the social or cultural challenge that comes from being appointed partly on the basis of chromosomes). However, a guest lecturer some weeks ago said something striking that for me means we need to think very differently. </p>
<p><a href="https://www.linkedin.com/in/katejonesconsulting">Kate Jones</a> had a 20-year career at investment firms such as BlackRock and Schroders, latterly in senior positions. She is now an independent consultant specialising in executive coaching in banking and finance, and perhaps more sympathetic to affirmative action than she has been. As Kate told a final year undergraduate group on the subject of boardroom quotas:</p>
<blockquote>
<p>I’m torn. On the one hand, the last thing I want is to be given a job simply because I’m a woman. On the other hand, I’m tired of women being excluded from those senior posts because men feel more comfortable with men; preferably men who are like them and like what they like.</p>
</blockquote>
<h2>Merit</h2>
<p>This is, surely, the centre of this debate. Anyone who has sat on an interview or appointment panel knows that merit, if it can be clearly assessed, is only one of a range of ways applicants are judged. Stereotyping, snap judgements, gossip, even straightforward prejudice can all play a part. If we lived in a rational, evidence-based meritocracy where we all agreed on what we were assessing and the values we wanted to embody, then there would be no need for quotas. </p>
<p>But we very clearly don’t live in that kind of world, so it seems obvious that quotas would be helpful in reshaping representation to reflect the wonderful diversity of the UK, change macho organisational cultures for the better, and achieve a greater degree of social and professional justice that is not based on dubious notions of purity or performance. </p>
<p>Above all, quotas or affirmative action forces people in positions of power into contact with those they don’t usually engage with – that’s exactly what makes them effective. The actor and comedian Lenny Henry demonstrated this very clearly when he guest edited <a href="http://www.bbc.co.uk/programmes/b04vkhjc">the BBC’s flagship morning news programme</a> recently. Henry chose to work with an all-Black, Asian and minority ethnic presenting team. Henry’s argument for more positive action in relation to race and the media is compelling and clear. He wants to challenge the dominant white, male perspective through which most of us get our daily news. </p>
<p>When we look at boardrooms, the sources of this form of white, male dominance are many and varied. The <a href="http://www.hrmagazine.co.uk/hr/features/1146811/getting-headhunters-board-diversity">homogenising effect of corporate headhunters</a>, for example, on senior executive searches is well documented. Headhunters recommend people they think “look like leaders” for interview, for example. Unsurprisingly, these people tend to be tall, white, middle-aged, heterosexual men – equally predictably, these headhunters are always opposed to the introduction of quotas. Their self-defined position as kingmakers – uniquely skilled finders of allegedly exceptional talent (for a price) - would also come into question. </p>
<p>It all makes quotas look suspiciously like a win-win all round – except, of course for <a href="https://hbr.org/2013/08/why-do-so-many-incompetent-men/">the mediocre or incompetent men</a> currently sitting around boardroom tables talking comfortably about golf, or the white males being appointed to positions of power they’re not the best candidate for because they “look like leaders”.</p><img src="https://counter.theconversation.com/content/34829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott Taylor does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For a cultural benchmark of our nation’s best and brightest, there’s something wrong with the BBC show University Challenge. If you tuned in over the festive period for the seasonal special final, you…Scott Taylor, Reader in Leadership & Organization Studies, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/326852014-12-02T19:23:31Z2014-12-02T19:23:31ZRisky business: why we shouldn’t stereotype female board directors<figure><img src="https://images.theconversation.com/files/62867/original/6d2vpdxw-1414406984.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Research dispels the myth that if Lehman Brothers had been "Lehman Sisters" it would not have collapsed</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>There is a <a href="http://www.nytimes.com/2009/02/08/opinion/08kristof.html">popular notion abroad</a> that women are not risk takers and their mere presence on a bank board will reduce risky strategies and behaviours. </p>
<p>Over the past years there has been an increasing trend of female directors on company boards. A leading factor has been the introduction of gender diversity policies. Already women hold <a href="http://www.ft.com/intl/cms/s/0/a24982fa-4f07-11e4-a1ef-00144feab7de.html#axzz3HL5p6eST">23% of directorships</a> in the United Kingdom’s top companies, just shy of the government’s target of 25% by 2015.</p>
<p>According to the <a href="http://www.companydirectors.com.au/Director-Resource-Centre/Governance-and-Director-Issues/Board-Diversity/Statistics">Australian Institute of Company Directors</a>, at the end of August this year, 18.3% of top 200 ASX company board directors were women. </p>
<p>Among the Big Four banks, the ratio ranges from two women on a board of 12 for NAB, to four women on a board of nine for Westpac. On the Reserve Bank of Australia board, three of the nine directors are women.</p>
<p>Does this mean our banks, by virtue of this trend, are falling into an increasingly safe pair of hands?</p>
<p>The <a href="http://www.theguardian.com/business/2011/jun/21/eu-women-bank-directors">safety factor concept</a> has been used in the past to support the argument for gender quotas for boards. </p>
<p>Some of the world’s <a href="http://europa.eu/rapid/press-release_SPEECH-09-344_en.htm?locale=en">leading economic spokeswomen</a> (and men) have very publicly argued women are “typically” more risk-averse and therefore their presence on boards helps contain risky behaviour. This premise led to what became known as the “Lehman Sisters” hypothesis, which arose in the years following the global financial crisis. The theory was if Lehman Brothers had been Lehman Sisters (or brothers and sisters), there would have been no collapse.</p>
<h2>Why more women on boards will not lead to less risk</h2>
<p>Sadly for those who believe banks revel in the occasional risky business, adding more women to the board is unlikely to have an impact.</p>
<p>In a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2380036">research paper</a> I co-authored with the University of Queensland’s Vanitha Ragunathan, we showed that more women on boards will not lead to less risk in banks. </p>
<p>Women who choose to follow a career path leading to a directorship are not the “typical” woman in risk-aversion studies. Instead, female directors are likely to be less risk-averse than the “typical” woman because of selection. That is, they would not have chosen this career path if they were so risk-averse.</p>
<p>Selection is likely to be even more important for financial firms because finance is a business dealing with risk. Women in finance may well have the same average levels of risk aversion as men in finance.</p>
<p>Our research showed that female MBA students who choose to enter finance after graduating are much less risk-averse than female MBA students not entering finance. In fact, female MBA students in finance are less risk-averse than male MBA students in finance. </p>
<p>The research shows the dangers of stereotyping women. Applying gender differences that may occur within the population to the management level does not work.</p>
<h2>But gender diversity has other benefits</h2>
<p>However, though having a greater proportion of women on bank boards may not reduce risk, it does provide other benefits.</p>
<p>Our study reviewed around 300 large publicly traded United States banks and bank holding companies across a four-year period spanning the 2007-2008 financial crisis. We found that US banks with more women on their boards were not less risky during this period. However, they did perform better during the financial crisis. </p>
<p>Male directors on boards with more women have fewer attendance problems. Female directors also tend to perform different committee duties than male directors. </p>
<p>Women are more likely to sit on board committees, especially those with key monitoring duties such as audit or corporate governance committees. However, they are not more likely to sit on banks’ risk committees. Banks themselves seem to not view their female directors as being more or less prone to avoiding risks than their male directors.</p>
<p>We still do not have a complete understanding of how and why gender diversity matters for corporate outcomes. We also do not know when diversity matters. However, the concept of using women on bank boards as a quick fix for bad corporate behaviour is simplistic and devalues the other benefits that diversity brings.</p><img src="https://counter.theconversation.com/content/32685/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renee Adams does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is a popular notion abroad that women are not risk takers and their mere presence on a bank board will reduce risky strategies and behaviours. Over the past years there has been an increasing trend…Renee Adams, Professor of Finance, Commonwealth Bank Chair in Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/329072014-11-06T03:09:29Z2014-11-06T03:09:29ZWhy women should not use the non-profit sector to reach corporate boardrooms<figure><img src="https://images.theconversation.com/files/62786/original/jd36bybs-1414369302.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australian women on ASX200 boards often have strong backgrounds in law, finance, accounting and investment banking.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Australia is one of the worst performers in board gender diversity. In an attempt to combat this, women have been encouraged to head to the not-for-profit sector to gain board experience as a stepping stone to the male-dominated corporate boardroom. Yet this advice is not actually supported in practice. Research shows it is still a corporate career that counts with the big boards.</p>
<p>The opening line on the <a href="http://www.womenonboards.org.au/resources/boards/third_sector.htm">Women on Boards</a> website is:</p>
<blockquote>
<p>The Third Sector is usually a good hunting ground for women seeking directorships. It offers personal satisfaction and rewards as well as valuable experience and networks to up and coming directors. Most ASX directors have at least one Third Sector Board in their portfolio. </p>
</blockquote>
<p>In her top five strategies for cracking a corporate board, research professor <a href="http://www.unisa.edu.au/Global/business/centres/chrm/docs/press/women-on-boards.pdf">Carol Kulik</a> suggests starting small and volunteering on a local charitable board.</p>
<p>Korn Ferry managing director <a href="http://www.afr.com/p/opinion/work_longer_and_rush_slowly_into_xwoJgYQOpK67ZSrmZADu4N">Katie Lahey</a> recently included in her top ten tips for getting a board seat, experience on non-profit, government or smaller boards.</p>
<p>This emerging career strategy for women seeking corporate board membership raises two questions. Do women actually move from non-profit directorships to corporate boards? And what is the benefit for not-for-profit organisations? </p>
<h2>Do women move from non-profit directorships to corporate boards?</h2>
<p>Research conducted in the <a href="https://dspace.lib.cranfield.ac.uk/bitstream/1826/4221/1/Newly_appointed_directors_in_the_boardroom.pdf?origin=publicationDetail">United Kingdom</a> has highlighted the importance of networks and that women recruited to corporate boards are more likely to have experience as directors on boards of smaller firms. </p>
<p>However, the <a href="https://www.wgea.gov.au/sites/default/files/2012_CENSUS%20REPORT.pdf">2012 Census of Women in Leadership</a> reveals that Australian women on the boards of the ASX top 200 companies often had strong backgrounds in the fields of law, finance and accounting. Many women also had careers in investment banking. Around 25% had public sector experience as regulators, politicians or academics. </p>
<p>The question was not asked, but reviewing the figures and the backgrounds of the women on our major corporate boards, no female director had been recruited from a long career working in the non-profit sector. </p>
<p>Moreover, research suggests that when it comes to head-hunting board members, the search is predominantly <a href="https://opus.lib.uts.edu.au/research/bitstream/handle/2100/1206/01Front.pdf?sequence=1">not-for-profits seeking corporate experience</a>.</p>
<p>There are many not-for-profits that require unpaid board and management committee members such as local <a href="http://networkofcommunityactivities.org.au/wp-content/uploads/2014/03/mc_roles.pdf">Out Of School Hours</a> organisations. Some such as the <a href="http://www.ywca.org.au/about-us/our-board">YWCA</a> also specifically seek female board members. </p>
<p>Serving on the board of a not-for-profit can be an enriching experience. Aside from the satisfaction that flows from working for the public good, it can broaden one’s resume in <a href="http://idealistcareers.org/being-nonprofit-board-member/">skills and experience</a>. It may even lead to new job opportunities. </p>
<p>However, the idea that corporates look to not-for-profit boards to recruit board members is not supported by the evidence.</p>
<h2>What is the benefit for not-for-profit organisations?</h2>
<p>Not-for-profits, like women, battle unjustified prejudice. The range of not-for-profit organisations is not dissimilar to the range of for-profit businesses. There are small volunteer-operated organisations, services concentrated within states or nationally, and international organisations with Australian subsidiaries. </p>
<p>Similar to other businesses, some not-for-profits are exceptionally effective in governance and operations and some are not. Nonetheless, the sector is often regarded as amateurish, inefficient and in need of the superior expertise of the business sector. </p>
<p>Not-for-profit boards need expertise in governance, finance, strategy and risk management just like corporate boards. However, they also need expertise in <a href="http://www.companydirectors.com.au/Director-Resource-Centre/Not-for-profit/Good-Governance-Principles-and-Guidance-for-NFP-Organisations/Principle-2-Board-Composition">fund-raising, resource mobilisation and specific not-for-profit and industry knowledge</a>. Someone with skills and experience in one or more of these areas clearly has value to offer a not-for-profit board. </p>
<p>However, viewing opportunities of not-for-profit board membership primarily as a useful stepping stone to corporate boards is not only misplaced but misses the point. One of the major requirements of not-for-profit boards is a belief in the value of the sector and a commitment to the purpose of its work, whether it be reducing Indigenous disadvantage, alleviating child poverty, protecting our environment or helping the local kids at school. </p>
<p>For the vast majority of the nearly <a href="http://www.mdsi.org.au/pub/MDSI_-_Nonprofit_Fact_Sheet.pdf">one million Australians</a> serving on the boards and management committees of Australia’s 600,000-plus not-for-profits these causes are of much greater value and indeed more prestigious than being on the board of an outfit that exists primarily to make money for shareholders.</p>
<p>Encouraging women to enter the sector for the wrong reasons may undermine the goals of individual organisations. While the non-profit sector undoubtedly welcomes more experienced women on its boards, it should be on its terms. </p>
<p>The overriding requirement for any directorship needs to be a belief in the organisation’s purpose and values. Women who enter the non-profit sector with the aim of obtaining a seat on a corporate board might be better off considering a career in investment banking.</p><img src="https://counter.theconversation.com/content/32907/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bronwen Dalton receives funding from the ARC.</span></em></p><p class="fine-print"><em><span>Jenny Green does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia is one of the worst performers in board gender diversity. In an attempt to combat this, women have been encouraged to head to the not-for-profit sector to gain board experience as a stepping…Bronwen Dalton, Senior Lecturer, School of Management, University of Technology SydneyJenny Green, Senior Lecturer School of Management and Director Postgraduate Community and Not-for-profit Management Program, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/298662014-09-26T13:44:10Z2014-09-26T13:44:10ZThe race for boardroom diversity is falling at the first hurdle<figure><img src="https://images.theconversation.com/files/60163/original/nm77fxc5-1411718725.jpg?ixlib=rb-1.1.0&rect=0%2C555%2C1965%2C1035&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fellas. Somethings wrong here.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/savidgefamily/7889693678">srv007</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>As Tesco <a href="https://theconversation.com/new-tesco-ceo-might-enjoy-the-benefits-of-a-dramatic-debut-32046">hits the headlines over accounting</a> and fast-falling profits, 11 kempt faces <a href="http://www.tescoplc.com/index.asp?pageid=79">look out from its website</a>. They are the Tesco board members: three of them women and eight of them men.</p>
<p>That ratio puts Tesco just over the 25% target for female FTSE-100 board membership called for by the UK government’s <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31480/11-745-women-on-boards.pdf">2011 review of “Women on Boards”</a>. It is just under the level demanded by the City’s <a href="http://www.businessweek.com/articles/2012-09-27/helena-morrissey-on-%0Afounding-the-30-percent-club">influential 30% Club</a> and well under the overall 40% mandated by the Norwegian government, and proposed and passed by the European Parliament. So would one more female member have changed things at Tesco? Would the board then have spotted accounting problems or reversed the profit declines of the past few years?</p>
<p>Put like that, the questions sound nonsensical. And they are nonsensical. So why are so many politicians and business people coming out in favour of quotas? Large numbers are, or claim to be, convinced that female quotas on company boards are great for the companies, and great for the economy – indeed one of our best bets as a <a href="http://www.newrepublic.com/article/118596/corporate-diversity-needed-fix-economy">“potential solution to inequality”</a>. </p>
<h2>Diverse views</h2>
<p>The theory is clear enough. It is about diversity and effective management. Group-think is bad and inefficient: if everyone on a board is much the same, they will miss opportunities, ignore dangers, provide an echo chamber for the same old views. Take an all-male board and insert some women – and straight off, you’ll have different views, greater built-in diversity. </p>
<p>The result? The board will be more effective and more innovative. The company will benefit, both directly, at strategic level and longer-term by noticing and encouraging ignored female talent in its ranks. The economy will grow; at a time when governments are desperately searching for higher productivity and higher growth; here is a business case with social kudos attached. And if signing up gains plaudits from the commentariat, well, so much the better.</p>
<p>And the evidence? Well that’s rather different.</p>
<p>Advocates of quotas claim that companies with more women board members consistently perform better. But the evidence cited for consistent success turns out to <a href="http://catalyst.org/knowledge/bottom-line-corporate-performance-and-%0Awomens-representation-boards-20042008">come from advocacy units</a>. Academic research tells a different story. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/60165/original/vmq7nft5-1411721520.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Danish diversity flagging?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/hugovk/158813147/in/photolist-fN8LKh-fN8Tyj-6P86yg-J1EMB-3Dvvv-e7EpoU-68REAc-9QMDAg-nqbxG4-f2XBH-f2WCn-6XeWgb-7o2CT6-4uiYP-o1jM2g-6VoaXA-9BctkC-dsv9j9-3nkB1b-nyxCUf">hugovk</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>A number of studies using data from the 1980s and 1990s, <a href="http://www.smithers.co.uk/faqs.php">and a “Tobin’s Q” measure of firm performance</a>, come up with conflicting results – some positive, some negative, and a good number which find no evidence of a relationship at all. In Denmark, which prides itself on gender equality but whose private sector boards are highly male-dominated, data showed <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=972533">no relationship between gender diversity and performance</a>. One large-scale 2009 study, using US data on 2,000 firms and 87,000 directorships and employing a wide range of measures found that, on average, the more female boards members, <a href="http://www.responsible-investor.com/images/uploads/Women_in_the_boardroom.pdf">the <em>lower</em> a company’s performance</a>.</p>
<p>This isn’t very encouraging for people looking for an economic miracle pill. But it is also, predictably, difficult to interpret. Company performance depends on vast numbers of things. Effects apparently associated with the number of women directors might also reflect some other factor which was in turn linked to board behaviour (as, indeed, the academic literature often suggests).</p>
<h2>Data crunch</h2>
<p>That is what makes Norwegian data so interesting. Norway was a natural experiment. After quota legislation was passed, firms had to appoint women or suffer heavy penalties; so appoint they did. Boards changed. Researchers could compare their performance before and after. </p>
<p>And the result? The greater the change companies had to make in order to reach the mandated 40%, the more likely it was, in the years that followed, that <a href="http://webuser.bus.umich.edu/adittmar/NBD.SSRN.2011.05.20.pdf">company performance would <em>decline</em></a>. </p>
<p>This does not, I would emphasise, show that (all) women are worse company directors than (all) men. That is as nonsensical, in reverse, as <a href="http://www.telegraph.co.uk/finance/financetopics/davos/10597233/Quotas-%0Aneeded-for-women-in-executive-roles.html">Christine Lagarde’s</a> suggestion that “Lehman Sisters” wouldn’t have <a href="http://dealbook.nytimes.com/2010/05/11/lagarde-what-if-it-had-been-%0Alehman-sisters/?_php=true&_type=blogs&_r=0">brought banking to its knees</a>. If gender-dependent differences in performance were large or consistent, the evidence on directors and company performance – and on how men and women behave at work – would be hugely clearer than it is. Instead there are two likely explanations. First, just appointing women to boards may be a bad way to get diversity. Second, perhaps diversity isn’t all it’s made out to be anyway.</p>
<h2>False positives</h2>
<p>It has never been clear why replacing three male bankers with three female bankers, three male Oxbridge graduates with three female Oxbridge graduates, or three male accountants with three female ones produces more board diversity. But that is pretty much what growing female representation involves. On the whole, female board members of private companies share the same social and educational experience as the men and, with our changing labour market, more and more of them have similar work histories too. </p>
<p>But female quotas certainly make some women rich. In Norway, there was a scramble to get one of the country’s few experienced female directors onto your board, and what Norwegians called the “golden skirts” <a href="http://sciencenordic.com/golden-skirts-fill-board-rooms">piled up multiple lucrative positions</a>. </p>
<p>However, not everyone could hire them. Researchers found that new female directors were, on average, younger and less experienced than pre-quota men who remained on boards. They suggest that companies forced to make major changes at speed often ended up with less experienced directors, but also that the boards were less effective the more they were disrupted. </p>
<p>That sounds very plausible. But it also blows holes in the case for a simple vision of “diversity”. After all, it is exactly those boards which were disrupted – exactly those boards that didn’t hire only the most experienced, well-connected female candidates that had the greatest increase in diversity. And it didn’t seem to yield the promised dividends. One of the few other aspects of diversity on which we have hard data is education levels. And interestingly, having boards that are more or less diverse on that measure doesn’t show any effects at all.</p>
<p>As more and more women enter professional careers and make it into the <a href="http://www.profilebooks.com/isbn/9781846684036/">top echelons of business life</a> inequality between female workers has increased, and <a href="http://www.breakingviews.com/review-inequality-is-the-dark-side-of-leaning-in/21112917.article">done so faster than male inequality</a>. That is actually a positive development, because it the result of female economic success. But the vast mass of women still do traditional jobs, often for very low rates of pay. And I’ve never found any studies that demonstrate a link between high levels of female directors’ pay and changes in female pay levels further down the company.</p>
<p>It is the women at the top, the highly-paid professionals, who are making board-room quotas the feminist cause of the 2010s. Up there, getting females into the boardroom really may seem like a vastly important cause. But the arguments rest on a highly partial interpretation of flimsy data. They don’t offer a magic bullet for the economy, or the well-being of women world-wide. Or, for that matter, for Tesco.</p><img src="https://counter.theconversation.com/content/29866/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alison Wolf does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Tesco hits the headlines over accounting and fast-falling profits, 11 kempt faces look out from its website. They are the Tesco board members: three of them women and eight of them men. That ratio puts…Alison Wolf, Sir Roy Griffiths Professor of Public Sector Management, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/249762014-04-02T03:48:18Z2014-04-02T03:48:18ZWise counsel or passing the buck? The role of board advisers<figure><img src="https://images.theconversation.com/files/45249/original/4d858x7v-1396324055.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Board members don't always have all the answers.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/27616775@N00/252185030/in/photolist-ohvPL-8WaBLp-b7r8YV-6cb3Lk-7JWTLg-5eKDTD-coYmHh-coYnNL-coYndj-593WhF-gXnV7-86Gf2-bdmyH-dnYYDi-5unPpq-fpdqN-5A5YQC-dAmr9w-hJwZH-shAgy-dqkrML-dhtLDJ-3G7TkM-3GccWW-3Gcd7E-84c37i-4Kkmj2-76AadX-76AanP-76E52h-9H6oTM-3Kf1sw-9bAS3H-idYqdd-fc3LXo-fbNu2F-idY6ht-wGQhV-48d8ND-fpdqK-fpdqH-fpdqL-fpdqJ-8NT8Mg-7kqGG7-7kqGGN-7kqGFE-7kmNHF-7kmNJa-9zwTjH-4WW26m">Richard Rutter/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Many employees and investors in large companies believe organisational leaders overuse consultants. Witness the latest broadside at the embattled David Jones board, accused of appointing advisers to take on “<a href="http://www.smh.com.au/business/retail/major-david-jones-shareholder-hits-out-over-myer-merger-advisers-20140318-34z1q.html#ixzz2xQAlUyGg">functions that should be performed by the board and management</a>”. </p>
<p>Boards are often involved in making decisions that affect thousands of jobs and millions or even billions of dollars in shareholders’ funds. So surely we want them to have the best information they can. But when does seeking good advice turn into shirking or abdicating responsibility?</p>
<p>Legally, the board of David Jones has every right to appoint advisers and then rely on that advice under the Corporations Act. ASX corporate governance <a href="http://www.asx.com.au/documents/asx-compliance/cg_principles_recommendations_with_2010_amendments.pdf">guidelines</a> similarly envisage that boards will seek advice, suggesting boards should have “a procedure … to have access in appropriate circumstances to independent professional advice at the company’s expense”.</p>
<p>But the basic legality of appointing advisers doesn’t address the substantive question posed by Simon Marais, director and portfolio manager at major shareholder Allan Gray - are they really necessary? Or perhaps more generously, what are the “appropriate circumstances”, referred to in the ASX Principles, under which advisors should be appointed? </p>
<h2>Can directors hide behind a veil of advice?</h2>
<p>A string of recent court cases highlights directors will find it hard to abdicate their responsibilities. Whether relying on auditors (see the Centro case) or specialists such as actuaries (James Hardie), directors need to bring their own independent judgement to bear on the advice and information provided. Advisers do just that - provide advice and supporting information. The directors are still in the hot seat when it comes to making the decision. </p>
<h2>When to call the advisers in</h2>
<p>Turning to the question of proper engagement, there are three key dimensions to consider when deciding to seek independent advice: competence, independence and impact. </p>
<p>First and foremost, boards need to seek advice when they lack access to the necessary skills. Any reasonable person would accept that boards need advice in specialist, complex areas such as the law, accountancy and so on. It’s also easier to accept that a board will need advice when dealing with business issues outside the normal scope of operations. </p>
<p>Second, boards often need external advice when management are conflicted on the issue before them. Since boards are heavily dependent on information coming from the management team, there is good reason to seek a second opinion when there is a significant chance of self-interest, even unconscious self-interest, tainting the information provided by management. </p>
<p>Third, boards facing major decisions are more likely to seek assistance as a means of assurance. If you’re going to bet the company, it doesn’t hurt to have a second set of eyes to look over the decision you are taking. </p>
<h2>Why David Jones needs help</h2>
<p>So let’s go back to the facts facing the David Jones board. </p>
<p>The Myer merger proposal has the potential to be the most important decision this board will ever face.</p>
<p>The deal is also looking potentially complex with some investors <a href="http://www.afr.com/p/business/companies/djs_investors_want_myer_to_show_EYzqZNapuLRf2KZXT0MbUM">calling for David Jones to spin off its real estate assets</a> as part of any deal.</p>
<p>The board has undergone significant change with the resignation of multiple directors and the newly appointed Chairman commenting on the “<a href="http://www.theaustralian.com.au/business/companies/david-jones-confirms-zahra-to-stay-on-as-ceo/story-fn91v9q3-1226851625775">unsettling time</a>” faced by the company.</p>
<p>Any merger proposal threatens the security and interests of the management team involved, and at the same time, David Jones chief executive Paul Zahra is <a href="http://www.smh.com.au/business/djs-chief-paul-zahra-in-strong-position-after-rolling-firms-board-20140311-34kcf.html">reported as having significant power</a> given recent board ructions. </p>
<p>If ever wise counsel was called for, this would seem to be a prime situation. While there might well be questions as to the scope of engagement (something we can’t comment on) or the independence of advisers (again, something we can’t comment on), it would seem entirely appropriate to retain expertise for this important upcoming decision.</p><img src="https://counter.theconversation.com/content/24976/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Nicholson receives funding from the Australian Research Council to study boards of directors. </span></em></p>Many employees and investors in large companies believe organisational leaders overuse consultants. Witness the latest broadside at the embattled David Jones board, accused of appointing advisers to take…Gavin Nicholson, Associate Professor, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.