APPOINTMENTS BOARDMOVES Wemustmakeboardsbetter · 2017-06-22 · C orporate governance in its...

Corporate governance inits current form is adangerous sham. It doesnot deliver what it saysonthe tin formost organi-

sations because they are not coveredby the Corporate Governance Code.Worse still, it encourages politi-

cians, civil servants and businessleaders to churn out platitudes in aneffort to convince the public thateverything is under control. Theytend to see corporate governance asa silver bullet to solve any lack oforganisational direction or manage-ment. It is not.The whitewash of the Financial

Services Authority’s report on thefailings of the Royal Bank of Scot-land board is the latest manifes-tation of not taking enforcementseriously, as set out in the directors’duties under the 2006 Companies Act.The term “governance” derives

from the classical Greek, kubernetes,and has two meanings. First, thehelmsmanof a ship, fromwhich thepresent direction-giving notionsderive. Second, and often not appre-ciated by boards, is the concept ofcybernetics — the feedback systemsthat show if the direction taken wasthe one intended.So, effective corporate govern-

ance is about the real-time learningof a board. It involves balancing theirresolvable dilemma of any director— how do you drive the enterpriseforward while keeping it underprudent control?Sadly, most corporate governance

tends to be seen only as a tick-boxexercise to be completed once a yearbefore organisations get on with the“real” work ofmanaging.This is against theword and spirit

of the law. Effective corporate gov-ernance can only be developed in anational legal framework of laws ofproperty and contract, and withspeedy redress through the courts.Britain is well positioned for this.However, it makes little of it. Whatcan be done to rectify this?At national level, government

needs to understand better whateffective corporate governance is. Itsbiggest mistake is the failure toapply the act and the code to allregistered organisations — private,public and not-for-profit. South

Africa has recently done so and it isconcentrating minds wonderfully.Here, government proclaims theneed for corporate governancewhilewriting daft laws and regulationsthat often cut across the well-con-structed Companies Act 2006 andthe curate’s egg of the 2010 Corp-orate Governance Code.For example, the government en-

couraged Monitor, the independentregulator of NHS foundation trusts,to follow a version of the CombinedCode, the 2010 code’s forerunner, asbest practice, yet has not created thetrusts as legal entities.So the directors have no ultimate

authority over organisations they“direct”. Matters are made worse bythe civil service insistence that thechief executive rather than thechairman is the accountable officer.This means that they can short-cir-cuit their boards and go straight totheDepartmentofHealth if theydis-agreewith board decisions.Matters are then made worse by

the introduction of two boards. Thenew board of governors has beengiven draconian powers to selectand dismiss the chairman, ratherthan this being a key function of theboard of directors.It is worth noting that the Fin-

ancial Services Authority and theFinancial Reporting Council havequietly set themselves up as comp-anies limited by guarantee, so thatthey have a legal basis under theCompanies Act. Will NHS founda-tion trusts ever have the courage todemand the same?The negative, tick-box attitude is

still strong but there are some forcespushing for corporate governance to

be taken more seriously. The sevennon-exhaustive duties of a director(see panel below) codify 300 years ofcommon law in the Companies Act2006. Will the government and thecourts have the courage to applythem? Maybe the Bribery Act 2010will act as a spur.In spite of what the French may

say, there is no “Anglo-American”approach to corporate governance.America has a “principles-based”system, which means there is a lotof boxes to tick and they must all beticked. But, once you have done so,you can do anything else. Enronwas

100% compliant at the time of itsdemise.The UK and many Common-

wealth countries use a “comply orexplain” system: if a companywishes to do something outside thecode but within the law, it must getthe agreement of the shareholdersto do so.This has been taken further in

South Africa where the new King 3code has moved to “apply orexplain”, so companies have to giveexamples of what they are doing ifthey deviate from the code.In the wake of Sarbanes-Oxley —

the legislative crackdown that fol-lowed Enron— America seems to beteetering on the edge of a corporategovernance collapse, if the currentparty politicisation seen throughthe negative business responses tothe recent SEC proxy access rulingis typical. It may seem unlikely butBritain and South Africa are seen tohave the most advanced systems ofcorporate governance in the world.Why should this be so? Britain

has completely revised its Compa-nies Act and additionally has threeseparate initiatives, all backed by atleast secondary legislation runningin parallel — the 2010 CombinedCode of Corporate Governance;uniquely, the Stewardship Code forshareholders, introduced last year;and the ongoing Walker review ofUK banking.It looks an impressive structure

but the regulatory mechanism isfaulty. UK corporate governancedoes not have its own regulator butis a minor subset of the FinancialReporting Council and is, therefore,weak and not independent. Mostworryingly, the remit of the codeextends only to listed companies.So this rarely feeds through to

improving the attitude and behav-iour of directors. South Africa’s King3 review applies to all organisations— private, public and charities —has a conceptual base of sustainabil-ity and is seeking to make “apply orexplain” real. Again, the challenge isto achieve effective implementation.But a deeper issue in getting any

code to improve the quality of theboard linkedwith the quality of busi-ness output concerns the lack of rig-orous selection, induction, develop-ment, appraisal and deselection ofboardmembers.More imagination is needed in

the selection and induction of suffi-ciently diverse directors, and muchmore external help is required in therigorous and regular appraisal of theboard, its committees and each indi-vidual director.n Bob Garratt is a visiting professorat Cass Business School and theUni-versity of Stellenbosch, SouthAfrica.His latest book, The Fish Rots fromthe Head: Developing EffectiveBoard Directors (Profile Books), isavailable post-free for £8.50 fromTheSundayTimesBookshop on0845271 2134 or thesundaytimes.co.uk/bookshop.

YOU are working in a team on animportant project and depend on othersdelivering on time— your career rests onit. You email a crucial teammember abouthis progress, and he replies: “I’ll . . . . . . .have it ready in twoweeks.”Consider the following 10 words that

might go in the dotted space: definitely,hopefully, potentially, probably, possibly,likely, maybe, try to, unlikely.Think about eachword and put a

confidence percentage next to each. Thus,youmay believe that if he says “definitely”you have a 90% expectation that it will bedone, while “possibly” yields only 30%.It is most fun to do this exercise in a

multinational company because widevariations occur. It shows how peoplecode and then decode what they thinkrather differently. Just as in some culturesit is impossible to say no, so in othersprobabilities are coded rather subtly. So tosay one cannot or will not do somethingsounds rude or insubordinate, and thestatement is coded.The British under-exaggerate, the

Americans over-exaggerate, but with luckthey understand the codes of their ownpeople. Problems arise when dealing withthosewho are not from the same countryand codedmessages aremisunderstood.This issue is also about notions of time.

All cross-cultural researchers are awarethat people think and talk about timedifferently. Some countries aretime-bound (Germany, Britain,Switzerland), whereas others aretime-blind (Spain, Portugal, Greece).Time-bound societies emphasiseschedules, deadlines, time-keeping, a fastpace of life. Time-blind societies aremorerelaxed and casual about time.Hencewhat is late in one society is not

necessarily so in another. As societiesbecomemore time-bound, they have amore competitive attitude to time, and so“fast” is better. Time-bound societies seetime as linear, time-blind societies see itas cyclical. Time-bound societies centrework round clocks, schedules, deliverydates, agendas, deadlines. This canmakefor seriousmisunderstandings at work.Then there is the time-blind culture’s

distinction between sacred time andprofane time. The former is for eating,family and sleeping. Profane time is usedfor everything else. Hence in Spain,meetings can be interrupted; time is notdedicated solely to themeeting.There is also the distinction between

mono- and polychronic time. Time-boundsocieties aremonochronic— they do onething at a time. Time-blind societies arepolychronic, happily ignoringappointments, deadlines and tolerating

interruptions. Third, there is the issue oftime-orientation: past, present and future.The British are thought to be interested

more in the past and so do not invest somuch in the future, whereas the Germanshave a longer view of the future, investingin research, education and training.The understanding and use of time is

crucial in business. Not only does it lead tohow,when and where work is done, butpeople with conflicting ideas and theoriesmay have very different conceptions andexpectations. This can lead tomiscommunication and animosity.As with cultural differences, there are

individual differences. One distinction isbetween the time estimator and the timecontractor. To the former “I shall see youat 6.30”means any time around 6.30 (so itcould be 6.05 or 6.45) while to the latter6.30 is a contract. If a time estimator is

married to or works with a timecontractor, all hell frequently breaks loosebecause their expectations are challenged.Equally there are those fixated on the

past, obsessed with the present or thoselooking only to the future. RecentlyPhilip Zimbardo, a professor of psychologyat Stanford University in California,identified five key approaches to timeperspective.n The “past-negative” type who focuseson negative personal experiences that stillhave the power to upset, causing feelingsof bitterness and regret.n The “past-positive” type who takes anostalgic view of the past, with a “bettersafe than sorry” approach thatmay holdhim back.n The “present-hedonistic” type who isdominated by pleasure-seeking impulsesand is reluctant to postpone feeling goodfor later gain.n The “present-fatalistic” type who doesnot enjoy the present but feels trappedin it.n The “future-focused” type who isambitious, focused on goals, and has asense of urgency.Our sense of time is shaped by

personality and culture. Also,organisations have unique time cultures.Some do time-urgency seriously. Othersseemmuchmore relaxed. Some areamnesic about the past, believing itpointless to look back. Others are obsessedwith the future, paying strategyconsultants to “predict” and control it.n Adrian Furnham is professor of psychologyat University College London

Wemust make boards betterWhy do we only pay lip serviceto corporate governance when weare so well placed to develop thebest practices, asks Bob Garratt

ON YOURHEADADRIANFURNHAM

Punctuality: do the Greeksreally have a word for it?

GEOFFREYHOWE has beenappointed a non-executivedirector at Close Brothers, theinvestment bank.Howe, 61, is currently

chairman of Nationwidebuilding society and of JardineLloyd Thompson. Previously hewas a non-executive director ofInvestec and JPMorganOverseas Investment Trust, adirector of Robert Fleming andmanaging partner of CliffordChance.nAmandaMackenzie hasjoinedMothercare as anon-executive director.Mackenzie, 47, is globalmarketing and communicationsdirector at Aviva, the insurer,and a director of the NationalYouth Orchestra.nGeoffrey Cullinan has beenappointed to Electra PrivateEquity as a non-executivedirector. The 60-year-old was adirector of Bain & Co from 1997 to2005. Earlier he was chiefexecutive of Hamleys and asenior non-executive director ofDatamonitor.n PaulMountford has become anon-executive director at Volex,the supplier of power cords andcable assemblies. Mountford, 52,who is president of emergingmarkets at Cisco Systems,previously served on the boardsof Palm and Phyworks.n Catherine Claydon has beenappointed a non-executivedirector of Dunedin IncomeGrowth Investment Trust.Claydon, 41, whoworked forGoldman Sachs Internationalfrom 1992 until 2007, is also adirector ofWitan InvestmentTrust and the LondonMetalExchange.n SimonWebb has beenappointed group finance directorby Devro, whichmakes collagenproducts for the food industry.The 46-year-old was groupfinance director of De La Rue,the banknote printer, until Maylast year.n EddieWisniewski is the newfinance director of DesirePetroleum, the Falklands oilexplorer.Wisniewski, 50, hasbeen a non-executive director atDesire since 2005 and previouslyworked for Clyde Petroleum andAlstec in finance roles.

Closecalls forHowe

BOARD MOVES

DIRECTORSmust bear inmind these seven dutiesin all their activities and obtain professional advice ifunsure of what is required in any given situation.n To actwithin the powers of the company and toexercise powers only for the purpose for which theywere conferred.n To promote the success of the company and, indoing so, have regard to the likely consequences in

the long term and to the interests of the employees.n To exercise independent judgment.n To exercise the care, skill and diligence expectedof a director with knowledge, skill and experience.n To avoid conflicts of interest.nNot to accept benefits from third parties.n To declare any interest in a proposed transactionor arrangement.

Late departure: John Cleese fell foul of an obsession with time in Clockwise

Bob Garratt believes cases such as the report on the RBS board’s failings show that we don’t take corporate governance seriously

FRANCESCOGUIDICINI

Seven duties of directors

2 APPOINTMENTS thesundaytimes.co.uk/appointments 09.01.11appointments@sunday-times.co.uk