Wednesday, 7 December 2011

A 17th century solution to a 21st century problem?

When I was an auditor, a couple of careers ago, I used to reckon that below a certain turnover threshold, I could completely understand any business. Above that level, I knew that the organisation would be too complex for that, and I would have to delegate some of my understanding to my audit team, and trust that I could extract all of their valuable insight in a debrief.

Fast-forward a couple of decades. Companies now are vast and complex. The size of the largest companies in the world far exceeds that of many countries. They span all the continents. Perhaps more significantly, that means they encompass all different types of governance regime and culture. No single person - and that includes the CEO - can fully appreciate what is going on.

Which brings me to the Board. Back in the 17th century, even back in the 20th century, it was appropriate to have a small group of people charged with directing the company. Originally, most of those directors were executives, with day to day responsibilities in the business. Gradually, the role of the non-executive was introduced, and then considerably strengthened in recent decades as we saw the problems that arose in governance, and sought to address them through board direction. Now, the non-executives have an important role in ensuring conformance to regulation, whilst contributing to corporate performance. (Or, more poetically, ‘grounding and star-gazing’, as Lucy Marcus puts it. ).

But tell me. If you were starting from scratch to design a system of corporate governance for today's behemoths - would your obvious choice for governing a large multinational be a group of people working outside of its core business, on a part-time basis?

And would you then hold that group of people legally liable for the actions of the organisation, on the assumption that they should have known and controlled everything it was doing?

This thought came to me very clearly last night when I watched a very capable panel give their considerable insight into how boards and their directors should behave. The seminar ‘Future-Proofing the Board’(#fpboard) brought together an able group of experienced people, who set out an enormous amount of common sense about what a director should do. Their thoughts on board diversity were more sensible than anything I have yet read on that subject; the discussion on critical and strategic thinking from non-executives was insightful.

But I can't help thinking that they were addressing the wrong question, that all of us in the governance world may be asking the wrong question. Perhaps the board of directors is an outdated format, still suitable for governing smaller, national concerns, but not appropriate for the global giants. If these organisations are ‘Too Big To Govern’, then rather than apply ‘more of the same’, and hold the non-executives liable when they fail at their impossible task, perhaps we need a totally different solution. The board was the answer in the 17th century. And the 18th, 19th and 20th. That does not mean it is still fit for purpose in the 21st. What else should we be considering?

To be continued…

I sent this article to Prof Laura Spira for comment, and she referred me to a rather nice paper which expresses similar thoughts, written with more consideration than the brief train journey after last night’s conference afforded me. Beyond the Board, by Kelli A. Alces.  Thanks, Laura!


  1. Thanks for the link to the Kelli Alces paper. It strikes me this is the way many well-run startups do it - directly accountable stakeholders form the majority of the board.

    It also begs the question of whether the large public corporation is the best model for the 21st century, or whether they will be out-competed by agile small businesses. Ronald Coase's time may have passed.

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