Holistic responsibility CEO Report

  • Date:01 Jun 2005
  • Type:CompanyDirectorMagazine
We have said earlier that the duties of directors are well defined in the law and don’t need change. Let’s consider some consequences of the duties. Directors have a collective responsibility for the company as a whole. Shareholders put the fate of their company in directors’ hands. Through the CEO whom they appoint, directors must take the ultimate and highest-level responsibility for all aspects of what the company does.

Holistic responsibility

We have said earlier that the duties of directors are well defined in the law and don't need change. Let's consider some consequences of the duties.

Directors have a collective responsibility for the company as a whole. Shareholders put the fate of their company in directors' hands. Through the CEO whom they appoint, directors must take the ultimate and highest-level responsibility for all aspects of what the company does.

Among these aspects, the board has ultimate responsibility for the strategy of the company over the long term as well as the short; it must look to the building and protection of the competitive position of the business, and its brand value and reputation; it must take an interest in the development of the people the business needs, including their training, their productivity, their health and safety and the values or behavioural norms of the company; it must watch for the big risks that might affect the business, including its environmental exposures.

To cap all, the board has to watch the CEO and see that he or she runs the company so that these factors are coherent, aligned and mutually reinforcing.

This is a holistic responsibility. No part of it makes much sense on its own at board level, and the whole is greater than the parts.

To fulfil this responsibility well, a board needs more than correctness with regard to the structural factors that are often described - a majority of directors unrelated to the company, a chairman who is not the CEO and is independent of management, and so on. These have been the focus of much of the recent discussion and new regulation to do with corporate governance.

Getting them right is important, but it is a necessary and not a sufficient condition for good corporate performance.

Getting the structural factors right is like having a nice football ground and two teams that look OK and leaving it at that.

The point of football is the game itself, and for boards the point is what goes on inside the meetings.

A new book, Inside the Boardroom* by Canadian academics Richard Leblanc and James Gillies, goes beyond the structural factors, as very few other authors have done (notably Colin Carter and Jay Lorsch).

They have studied what actually happens when the board is in session. The AICD brought Richard Leblanc to Australia last year.

Leblanc and Gillies have a radically new point of view on boards. They say you need the right structure and the right people and the right board processes to have a high performing board.

On the people side, they say you need to start with well-defined roles and duty descriptions for the board, the chairman, the directors and the committees, visible for all to see.

You should populate the board with directors, all very capable people and competent in business, whose special competencies collectively cover the needs of governance of that company.

Controversially, Leblanc and Gillies call for disclosure of the special competencies required for the business and of which directors have them - which might create adverse legal exposure in Australia.

In addition, they say (and this is their most radical proposal), directors should be deliberately selected who play different behavioural roles - like different positions on a sports team. They call these roles "change agent", "challenger", "counsellor" and "consensus builder". They add that there should usually be a "conductor" as chairman, and a strong one at that. (Each of these types has a dysfunctional opposite, whom you would not want on any board.)

Once a well-balanced board has been assembled - and this and board renewal are key board processes in their own right - much of what must follow is up to the chairman. He or she should lead the board with subtlety and diplomacy, drawing out the varied points of view, pushing towards consensus, yet not wasting time. He or she needs to see that certain specific board processes are carried out, notably evaluation and counselling of the CEO.

Leblanc and Gillies are strongly of the view that the board should take itself through a regular process of evaluation of its own performance and, in the advanced cases, of evaluation of the contribution of individual directors.

The Canadian authors admit they haven't found the unicorn, the perfect formula for a board, but they claim to have gone closer than anyone before. They certainly present an interesting model.

It obviously makes little sense against this background for functional specialists of various kinds to argue that they or their profession "must" be on the board. We have heard this from IT people, HR people, supply-chain people, marketing people. Even the Tax Commissioner wants to escalate every day tax matters to board level. Except in specialised companies, all of these belong among management responsibilities, although the board should satisfy itself as to the strategy being followed and should approve any major new commitments of the company.

* Inside the Boardroom: How Boards Really Work and the Coming Revolution in Corporate Governance by Richard Leblanc and James Gillies, will soon be available in Australia and will be stocked by the AICD. We will announce when copies are available

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