Aujourd’hui, j’ai choisi de publier un récent billet du groupe de discussion LinkedIn, « Boards & Advisors » qui relate une discussion très intéressante sur l’avenir de la gouvernance, notamment sur le rôle du conseil d’administration eu égard aux communications avec les actionnaires/investisseurs.
Ce billet est issu d’une prise de position de Drew Stein, partagée par Richard Leblanc, et commentée par plusieurs experts en gouvernance.
Un premier courant de pensée stipule que la communication des administrateurs avec les actionnaires est inappropriée compte tenu que ceux-ci sont élus annuellement par les actionnaires pour les représenter…
Mais voilà, un autre courant de pensée, prône la communication avec les actionnaires étant donné, qu’avec le temps, les administrateurs sont devenus moins représentatifs puisque ce sont eux qui proposent les administrateurs aux actionnaires !
Quel est votre point de vue sur ce sujet controversé ?
« Corporate Governance as a professional discipline has over recent decades been subject to numerous influences. Gone are the days when a corporate “`Mission Statement “ was viewed as the guiding light which all corporate wisdom would be asked to worship. Gradually governance as a discipline has been accepted by most professional business practitioners as an enabling vehicle which provides a platform for determining sound corporate behaviour and structured decision making. Over the years I’ve read and worked with boards on numerous governance documents and it’s interesting to note the maturing of the discipline as it’s morphed from Mission Statement through various stages of re incarnation to today where the governance document and its inherent disciplines are considered mandatory to ensuring professional leadership processes. Most directors accept that a soundly based and structured governance document is one of the most significant discipline and corporate behaviour enablers contributing to a company’s success.
As the governance discipline has in the past continually changed its shape and matured there is no doubt it will continue to do so as the winds of change in the corporate world blow across the business community. It needs to be remembered that governance as a discipline is a living breathing entity which continually requires stroking and attention otherwise it will stagnate and lose its ability to be one of the prime enablers contributing to above average board performance.
Therefore it is my opinion that at present there is a very real risk that governance as a discipline will begin to lose focus of its prime purpose if it does not address strategically important emerging issues. As a result it risks being relegated in status to a simple process driven ideology rather than an enabler to address future pressures and provide the structured platform required to meet new challenges required by today’s market. Let me explain.
Most current governance documents remain relatively silent on the key issue of shareholder communication. Yet as we’ve seen from the growing influence of the shareholder activist groups this is an issue which won’t go away and in some cases is becoming a festering wound. Now it is my contention that within the governance document there should be a highlighted section on how the board manage shareholder communication. Such detail on this extremely important issue will ensure the governance discipline can fulfil its purpose as a high level corporate enabler by providing a structured communication bridge between shareholder/investors and the board. Naturally there will need to be discussions with the major shareholders and agreement reached which would certainly take the distrust out of the current argument. In addition it would cement in place the role of the governance discipline as a high level enabler towards achieving corporate excellence.
I appreciate some readers will not agree that the governance discipline is the place to address shareholder board problems. I’ve seen some commentators suggest that changes in the company’s “Articles of Association” need to occur. However this appears to be a sledge hammer driving a drawing pin when if covered with real purpose in the governance document the resulting platform should be sufficient to engender real harmony and a sense of combined purpose between shareholders and their elected board.
My final comment may not sit well with some business professionals. Never the less it is my belief that some boards have assumed a position of almost arrogance and conferred self-importance upon themselves, conveniently forgetting that they are accountable to the shareholder/investors. Further I believe through judicious application of the governance discipline the balance of accountability can be restored and shareholder/investors will claw back their rightful position as the ultimate stakeholders in any company structure. »
Thank you for posting this Richard. I really enjoy Drew Stein’s insights into business and governance. As a note to Drew, I am very comfortable with his statements about board arrogance and lack of connection to shareholders or membership having lived through a lot of that. Shareholders and membership needs to be treated as the ownership they are and board’s need to think of themselves less as business or organizational elite than stewards of the ownership investment.
To me good governance is less about structure and rules than being focused, effective and accountable. Structure and rules are tools to be focused, effective and accountable but structure and rules are not good governance in and of themselves.
I agree with what Drew articulates. However, just to emphasize, more important than the CG document/code itself is the ability and willingness of shareholders, board members and senior management to adhere to and practice the principles. I am sure all of us still remember that one of the best document/code ever written was that of ENRON (which later sold for 1 cent on E-bay).
On the comment about arrogance, while agreeing, we should keep in mind the level of sophistication of the shareholders. So it would depend on the market (and I work a lot in emerging markets). At times, the BOD needs to show the way, even to the shareholders. Of course, this should not breed arrogance
David FinchAgree with Dean, but at the risk of stating the obvious (my apologies – Internal Auditors & Risk Managers do this all the time), actions speak louder than words; actions take time and are expensive, while words are instant and cheap…
We need frameworks, but more than anything, we need the right « tone at the top » – a tone which, like the Captain on his ship, is able to work the engine (actions) and rudder ( framework) to steer the vessel through choppy waters and reach the desired destination.
Enron had some nice words, but the overall framework was rottten. The good rudder was missing its equally essential rudder stock, and the engine ploughed on to take the ship into dangerous waters.
So apologies again for a bag of mixed metaphors, but I trust you get my « drift »
While ensuring a company or board has the right framework and governance structure is very important, it is relatively easy to accomplish. The more complex equation is getting the people, culture, accountability and performance right. In order to thrive, both elements are essential.
Commenters – If you read Drew’s other posts you will see that he promotes accountability, culture, ‘tone at the top’, and action. A sound approach in one area of governance does not preclude a positive focus on other attributes of good governance.
You make some good points Drew, well done.
The core of the tension with many shareholder-owner relationships seems to come down to ‘power’, especially in PLCs where the owner is not easily identified. That hubris and other similar attributes abound in the boardroom doesn’t help either. Thankfully, the problems you describe are somewhat less apparent in privately-held businesses, where the owner (and the wishes of the owner) are more readily identified and asserted.
Notwithstanding this, your proposal, of documenting the relationship, is not the complete answer though, is it? To define how the board and shareholders should correspond and work together (or not!) is one thing. To get boards and shareholders to comply is something else in my view. David Finch’s comment, about ‘tone at the top’ is crucial, as is a very clear division of labour between the owner, the board and management. Have you turned your mind to this problem (of how to achieve the appropriate tone), especially as it relates to PLCs and given the fractious proxy access situation?
Great insights, Drew.
There is a dilemma for how shareholders should engage the BoD and management, especially since hedge funds win most proxy fights. If there isn’t some CG in place, the shareholders can become more of a distraction to the BoD and management which will further support their reason for being disgruntled. Without governance, shareholders can cut off their nose to spite their face.
At the same time, there are many savvy shareholders who can be extremely valuable to management and the BoD. Therefore, it is in the best interest for boards and shareholders to have collaborative communication. Otherwise, it can be hubris on the board’s part and an example of squandering critical intellectual capital.
I have another concern. If any company becomes an amalgamation of processes, eventually they may lose their way. While processes are important, they cannot navigate the course of a business. They are simply tools for navigating. In other words, my concern is that businesses will lose sight of their prime purpose. Perhaps prime purpose was the difference between Steve Jobs and John Skully.
Ted, I completely agree with your last paragraph re processes. In my view, one of the many things that is wrong with current governance is that it is too process driven thereby obscuring the primary responsibility of the board around value maximization. Private equity governance is just the opposite in that there is very little process and a substantial amount of substance as it relates to the performance of the business. To take your analogy a step further, public company governance would be John Skully and PE portfolio company governance would be Steve Jobs.
Thanks, Henry and well put. There was an article posted in the WSJ that addressed exactly what you are saying about PE back companies. I will post it in this group.
Governance as a discipline is naturally divisible into various sectorial accountability groups. Some of these groupings are entirely process driven with clearly identifiable boundaries while others are more judgmental by nature being influenced by experience and current market conditions but still being applied within designated boundaries.. It’s important to accept that governance documents require continual review and refreshing in order to fulfil their purpose as one of the most important strategic enablers available to board members. Chairman demonstrate their leadership of the board in many ways including being the sponsor and controller of the governance document and as such providing guidance to the directors on the application and accountability of the various factors shaped within the document.
Ted – did you post the WSJ article that you referenced in your last comment?
Yes, I did post it. It went up the next day. Here is the link to the article: http://blogs.wsj.com/privateequity/2014/10/29/pe-backed-companies-expand-revenue-faster-than-non-pe-peers/
Thank you, Ted. In another study that was done by Ernst & Young, when compared to their publicly traded peers (same industry, same size business, etc.), over a 5 year period PE owned companies increased Enterprise Value 33% more than the comparable public companies. The PE governance model was singled out as the prime driver of this outperformance.
The following is a link to another study done re PE portfolio company performance with McKinsey attributing the high performance of the PE companies not to financial engineering but to the PE governance model. I have argued for years that the public company model is in need to being reshaped to approximate the PE model.
You’re welcome, Henry. Thanks for adding the McKinsey study. I will read it.