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Governance: collective wisdom applied to complex uncertainty

by Peter Swabey on July 24, 2017

The ICSA’s recent conference revealed that reform in the UK is unlikely to involve legislation, that company secretaries play a big role in managing boardroom tension and that governance has evolved into restoring faith in capitalism.

boardroom, conference, corporate governance

Photo: Shutterstock

When the Stronger Governance Better Boards theme of ICSA: The Governance Institute’s 2017 annual conference in London was chosen late last year, Article 50 had not yet been triggered, the prospect of a UK general election was unlikely and expectations of a huge corporate governance reform programme were running high.

Fast-forward to July 2017 and the process of exiting the European Union has begun, Theresa May leads a minority government following an unexpected snap election and corporate governance reform is no longer centre-stage but waiting in the wings. As physicist Niels Bohr once said: “It’s hard to make predictions, especially about the future.”

Despite this, two clear themes emerged during the conference: the continuing importance of good governance, particularly in times of uncertainty; and the central role that company secretaries play in implementing that governance. Former Lord Mayor of London, Sir David Wootton, reinforced both these points in his opening address when he stressed that standards are important and that someone needs to make others aware of them.

It was fitting, therefore, that many of the topics across the two days addressed concerns about board leadership, hubris, corporate governance reform, and how company secretaries play a vital role in managing tension and conflict in the boardroom.

Reform

It was clear from the panel discussion about corporate governance reform that we can expect the government to look to the Financial Reporting Council (FRC) to carry out much of that work. With the Queen’s Speech making no mention of corporate governance, it seems likely that changes to primary legislation are no longer on the table and the FRC’s promised “fundamental review” of the UK Corporate Governance Code is where we will most likely see any material changes.

Independence, discretion, humility, integrity, efficiency and emotional intelligence are all key in facilitating and maintaining boards’ ability to function.

Over time, the Code has become more focused on risk management, and the entrepreneurial role of the board has become suppressed. The FRC is looking to rationalise the structure of the Code and introduce greater balance between principles and provisions as principles can be more demanding for boards to live up to and provisions can lead, and in some cases have led, to box-ticking compliance. There is also a desire for boards to take more responsibility for corporate culture and ethics, so we can expect to see more emphasis on those elements in any revisions to the Code.

Andrew Kakabadse, ICSA conference
Andrew Kakabadse at the ICSA conference

Many of the conference speakers emphasised the key role that company secretaries act as drivers of strong governance, so it was disappointing to learn that no formal recognition of the role of company secretary is currently planned. One thing that is sure, however, is that company secretaries will be awaiting the consultation on the proposed revisions with bated breath as they will be the people ensuring that businesses comply with it.

Andrew Kakabadse, professor of governance and leadership at Henley Business School, and author of new research with the ICSA entitled Conflict and Tension in the Boardroom, stressed the critical role that company secretaries play in tension management and conflict resolution. Thirty-four percent of directors and boards do not agree on mission and vision, and only 33% of directors are adequately engaged, cohesive and able to reach a shared conclusion, so being able to address conflict in the boardroom is a much-needed skill.

Independence, discretion, humility, integrity, efficiency and emotional intelligence are all key in facilitating and maintaining boards’ ability to function. Similarly, organisations will be better able to weather the storm if their internal leadership and processes are culturally and structurally sound.

Company secretaries have a crucial role to play in ensuring this resilience. Using intuition to detect risks and do something about them, having the strength of character to stand firm against the CEO or chairman, and being able to look for the elephant in the boardroom and deal with it, are all skills that boards should require from their company secretaries.

Governance and society

The importance of good governance was underlined by Lady Judge CBE, who provided a comparison of the UK and US corporate governance approaches. She pressed home the idea that good corporate governance is about “making sure the casino isn’t rigged”. She also stressed that while governance is about how you run a company it is also about how you run a society.

Social responsibility is something that all business leaders should keep in mind, yet sometimes the big picture narrows when egos get in the way.

Social responsibility is something that all business leaders should keep in mind, yet sometimes the big picture narrows when egos get in the way. The Rt Hon. Lord Owen CH, chairman of the Daedalus Trust, spoke about the dangers of hubris, highlighting the vital part that company secretaries can play in looking out for the development of hubris in the top team and dealing with it before it damages the organisation. He stressed that mentoring is key for directors and challenged company secretaries to understand hubris and face it, because not doing so can be catastrophic.

Governance is an evolutionary process. As ICSA policy advisor Chris Hodge pointed out in his Untangling Corporate Governance paper for ICSA in February, what we mean by “corporate governance” has changed since the publication of the Cadbury report. 25 years ago it was defined simply as “the system by which companies are directed and controlled”; now “both the government and big business must rise to the challenge of restoring faith in what they do, and in the power of the market economy to deliver growth, opportunity and choice for all”.

As Chris concluded” “In the 25 years since the Cadbury Committee reported, our expectation of corporate governance has gone from “improving control and accountability” to “restoring faith in capitalism.  That is clearly a much bigger job – for boards of companies, but also for the regulatory framework on which we rely”.

It will be interesting to see how corporate governance develops over the coming months and years and whether collective wisdom can ease uncertainty.

Peter Swabey is policy and research director, ICSA: The Governance Institute.

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For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

Andrew Kakabadse, Brexit, corporate culture, corporate governance, corporate social responsibility, good governance, ICSA, Peter Swabey, Queen's Speech, responsible business

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