The latest of Board Intelligence’s regular Chairman Think Tank Dinners was held a few weeks ago. As always, bringing together a selection of experienced chairmen round the table resulted in a fascinating discussion about the pleasures and perils of the role.
This article does not attempt to record the full conversation but to reflect on a few of the themes that emerged during the discussion that evening.
Loss of public trust
As is often the case in such discussions, one of the dominant themes was the loss of public trust and ideas on how this can be regained. There has been a visible trend in many sectors to attempt to achieve this through more state regulation, and it sometimes seems that the go-to solution is to create another rule or policy.
This can become a vicious circle. If the reflex reaction to every example of bad behaviour is to add yet another rule, the length of the rulebook continues to increase indefinitely, as these behaviours can never be entirely eliminated.
As one of the participants at the dinner put it, “regulated trust does not create real trust”. Unfortunately, however, it does not necessarily follow that, if regulation intended to create trust is removed, real trust will emerge in its place.
Arguing that regulators should show themselves out of the boardroom, and that politicians and the public should essentially will themselves to believe things will be better as a result, is asking for a leap of faith that few are likely to take.
So if pure self-regulation is not feasible, and if heavy state regulation is not desirable, where does this lead you? There are two strands of the current corporate governance debate that may provide partial answers.
Focus on the principles
The first considers whether it is possible to reconfigure regulation so that it is more concerned with outcomes than process, allowing more room for judgement.
In discussing what they look for in board members, one of the dinner participants wanted people who “act on the principles, rather than by the letter”. Perhaps we should seek the same from our regulators.
Interestingly, for its forthcoming review of the UK Corporate Governance Code, the Financial Reporting Council has set itself the objective of getting listed companies and investors to focus more on the Code’s principles.
The other strand is stakeholder engagement — how boards can better understand the interests of groups such as their workforce, their customers and the local communities in which they operate, and so on.
If you add all those groups together, you have a pretty good proxy for ‘the public’ or ‘society’. Organisations who engage meaningfully with those groups, and whose boards take account of the impact on them when reaching decisions, may have a better chance of earning the right to be trusted.
Even if they succeed in doing so, though, trust is never granted in perpetuity; it is something that needs to be continually earned. It can be undone by a single action or decision.
This observation is relevant to what the chairmen at the dinner identified as one of their biggest challenges. One of them described becoming a chairman as being “a crash course in unintended consequences”. No matter how thoroughly a board debates an issue before reaching its decision, the full consequences of that decision cannot be known until after it has been implemented, and sometimes not until long after it was made. The impact of some decisions linger long after those who made them have moved on.
To some extent this is unavoidable. There are too many factors outside the control of the board for it to be otherwise. But while boards cannot eliminate unintended consequences entirely, they can perhaps reduce their frequency — by focusing on principles not processes, and by relying on both their instinct and the evidence gained from stakeholder engagement.