topic 6

Bob Tricker

Chapter 13Board Leadership - the reality

of the boardroom

Corporate Governance – Principles, Policies and Practices 2e

Tricker: Corporate Governance 2e

- in which we consider:- how people, power and politics affect practice- the chairman’s leadership role- sources of governance power- games directors play - board styles and the culture of the board- the ethical dimension: corporate values and

business ethics- corporate codes of ethics and their enforcement- implementing corporate governance below board

level

Board Leadership - the reality of the boardroom


People, power and politics affect practice

Some authorities assume that:• Directors behave rationally• Board level discussions are analytical• Decisions are reached after a careful consideration of alternatives

Experience of governing bodies, suggests that directors’ behaviour is:• Influenced by inter-personal relationships• Affected by perceptions of position and prestige• Involves the processes of power• Can be inter-personally political



In fact, corporate governance is more about human behaviour than structures and strictures, rules, and regulations.

Corporate governance involves the use of power. It is a political process.



The significance of the chairman

• Chairman of the Board - not chairman of the company

• Subject to the constitution, chairman is chosen by directors from among the board members

The chairman’s leadership role


• few statutory demands or expectations• role varies from the powerful chairman who:

– acts as a leader of the company– influences its strategic direction– interacts strongly with the chief executive– provides wide ranging leadership of the board

• to the weak chairman who just runs board meetings



• The chairman’s role in good corporate governance is crucial.

• Chairmen are primarily responsible for – the working of the board– its balance of membership subject to board and

shareholders’ approval– ensuring that all relevant issues are on the

agenda,– ensuring that all directors, executive and non-

executive alike, are properly informed and– enabled and encouraged to play their full part in all

board activities



Chairmen should be able to stand sufficiently well back from the day-to-day running of the business to ensure that their boards are in full control of the company’s affairs and alert to their obligations to shareholders.”

(Cadbury Report)



• Leadership of the board• Management of meetings• Strategic leadership• Linking the board with management• Arbitration between board members and

others• Being the public face of the company



᾿The need for leaders who know how to make a difference in the world has never been greater than it is todayῊ qualities that are fundamental to good leadership (include) judgment that leads to sound decision-making, an entrepreneurial point of view, the ability to listen and communicate effectively, a deep sense of one's values and ethics, and the courage to act, based on those values and ethics. The need extends beyond business to the social, government, and non-profit sectors as well....῀

Dean Jay Light Harvard Business School



The formal power of the board is delegated from the shareholders, reinforced by the company’s constitution and company law.

However, a board can be influenced in a number of other ways:• by a majority or dominant shareholder putting pressure on the board• from the threat of a potential take-over • by the prospect of litigation• through the influence of the auditors• from the effects of legislation and regulation• from media pressure and other external exhortation• by a dominant or charismatic leader• and, obviously, through changing business circumstances

Sources of corporate governance power


Source of directorsᾼ power

Individual directors derive power from:• Personality

- the charismatic or a dominant individual • Knowledge

- access to information, skills or experiences not available to the other directors

• Sanction power • Political power • Power derived from position • Networking power• Power derived from contacts and acquaintances of use to the company and useful in board decisions. • Power derived from a position of influence in the external society• Ownership power • Representative power • Power delegated from an external power source


5

Games Directors Play

Alliance building Coalition formingCronyism Deal makingDivide and rule Empire buildingHalf truths Hidden agendasLog rolling MeetingPropaganda manipulationRival camps ScaremongeringSnowing SpinningSponsorship Sub-optimisationWindow dressing


Board Style is a function of:• Board leadership

– The chairman’s role, abilities, and performance• Board size• Board composition

- Balance of executive and outside directors• Board membership• Board culture

– History, tradition, experience– Cultural context– Need to balance concern for relationships with concern for

achieving board success (task)

Board style and culture


The way the board behaves• Inter-personal relations between directors• Expectations of directors about board meetings• Perceptions of directors about their roles• Interactions during meetings• Traditions, beliefs, corporate culture



Criteria that influence board culture• Board traditions• Corporate vision• Attitudes to innovation• The exercise of control by the board• Decision taking by the board• Leadership of the board• Commitment of directors• Adaptability by directors• Collaboration between directors• Conflict between directors• Relationships between directors• Communication between directors• The significance of status• The importance of conformity• The extent of trust



Countryclub

Professional board style

Rubber stamp board

Representative board style

High

Concernfor the boardrelationships

Low

Low Concern for the board tasks High



Implementing corporate governance Successful corporate governance depends on:• the regulations and law of the country concerned (the local culture)• the company’s traditions, board leadership, and style

(the corporate culture)• the leadership ability and competence of the

chairman of the board

The reality of the boardroom


Business decisions depend on cooperation, transparency, and honesty

Ultimately business decisions are based on trust – employers need to be able to trust their employees– customers to trust their suppliers– societies to trust the companies that operate in their midst

The issue concerns morality, the values and beliefs that individuals, companies, and communities have about good and bad, right and wrong; in other words, about acceptable behaviour

Ethics and corporate governance


Many boards believe that the corporate culture, corporate values, and ethical issues are properly the responsibility of the board as a whole– some create and enforce statements of corporate values

and codes of conduct Some delegate responsibility for developing ethics

policies and codes to their audit committee Other boards create a corporate governance, ethics or

compliance committee of the boardWhilst for some boards corporate culture, corporate

values, and ethical issues are not considered in the board room

Corporate culture, corporate values, and ethical issues


A successful ethics policy reflects a company’s core values, stems from its corporate mission, and is consistent with its corporate strategies.

Board and top management involvement and commitment are vital for successful, ethics policies are unlikely to succeed.

Corporate codes of ethics


A successful ethics policy reflects a company’s core values, stems from its corporate mission, and is consistent with its corporate strategies

Board and top management involvement and commitment are essential to successful ethics policies

Ethics policies


Companies develop ethics policies to:– set standards for employee behavior and require

employee compliance with those norms seeking to enforce discipline

– to encourage commitment to good relations with all stakeholders..

Ethics policies


A sound ethics policy will:• be orientated towards corporate values, rather than

organizational discipline • seek genuine commitment rather than being a

cosmetic exercise • recognize the cultural context• avoid credibility gaps between ethical codes and

actual behaviour • link with corporate governance policies and practices• have associated ethics management systems,

including information and control systems, regular audit, policy review procedures, and social accounting systems

• demonstrate accountability with regular reports

Ethics policies


A corporate ethics policy is usually supported by a corporate code of ethics or code of conduct

An explicit statement setting out the ethical standards expected of everyone in that organization.

Ethical codes can be found at various organizational levels:

• corporate codes that relate to a single corporate entity

• professional codes that apply to the members of a profession

• industry codes that are developed for use in a specific industry

• group codes that are used within a given set of members, eg in a marketing standards programme



Codes of ethics can be used to:• define and create the value system in an organization• define and set standards of expected behaviour • improve individuals ethical awareness and judgment• promote high standards of practice• set benchmarks for self- evaluation and monitoring by

peers and others• inform external stakeholders of the values of the

organization



Informing on situations thought wrong Dangers

– victimization– labelled ‘troublemaker’– loss of career prospects or dismissal– claims for slander, defamation wrongful allegation,

invasion of privacyEncouragement

– Company policy to encourage and protect whistle blowers– Law

• UK, the Public Interest Disclosures at Work Act (1998) • Sarbanes Oxley Act US listed companies to provide

systems for reporting unethical behaviour

Whistle blowing


Links between the board and management depend on the underlying corporate governance model

In the US rule-based approach– the combined chairman/CEO wields power– COO and CFO on board reinforces that power– board predominantly of outside directors advises

CEO, approves CEO strategies and oversees performance

Implementing corporate governance below board level



In the UK/Commonwealth principles-based approach (comply or explain)– considerable freedom for boards to delegate or

retain control between:• delegating power to top management, similar to US

model• or retaining power with the board deciding strategies, and

polices and requiring top management to follow those plans




In the Continental European model, the two-tier board structure requires:– the management board to carry out the

performance-orientated management role– the supervisory board. to carry out the

conformance responsibility




In the Asian family-centric model the head of the family is typically the head of management as well as leading the board.



The implementation of corporate governance below board level goes to the heart of corporate governance: it is about the reality of power.

Who wields what power over the corporate entity and in what way?

The ultimate challenge is to achieve compliance with competence



We have considered:- how people, power and politics affect practice- the chairman’s leadership role

- sources of governance power- games directors play

- board styles and the culture of the board- the ethical dimension: corporate values and business

ethics- corporate codes of ethics and their enforcement- implementing corporate governance below board level


topic 6

Documents

good corporate governance

board levelboard leadership

e leadership

board meetings

corporate values

board activities

good leadership

politicalboard leadership