For the past 15 years we’ve been monitoring the behaviour and habits of European boards – scrutinising the number of women which sit on them, the time spent running them and how many board members turn up, and how often. There is no doubt, if we cast our eyes back to 1999 when we prepared our first corporate governance report, things have notably improved.
The commitment, diversity and flexibility of boards is on the up; 68% of boards in the Netherlands may still combine the roles of CEO and Chair, and 40% of boards in Poland still have no female directors, but the overall trend is positive.
That’s the story of the data (drawn from the top listed companies in 15 European markets), but our conversations and surveys, tell of a slightly more nuanced story.
Enron and Worldcom definitely left their mark. Greater attention than ever before is paid to the regulations, standards and initiatives of corporate governance of which Sarbanes Oxley and the OECD’s ‘Principles of Corporate Governance’ are amongst the best known. But we have this nagging belief that while the letter of the law is being followed, the spirit of governance is in need of renewal.
Of course, there are exceptions but we increasingly see the focus of boards, not just in Europe, but across the world, shifting from driving the business at hand to an obsession with compliance.
We know leadership starts at board level and that governance should be a means of enabling and driving business performance. All things being equal, well governed companies excel. What we are calling for now is an overhaul in board behaviour, replacing minimal compliance with maximum engagement and impact. This might seem daunting; it may mean challenging members of the executive team about the direction and vision of the company strategy or rolling up sleeves to understand the overspend on that big IT project.
We call this new approach ‘Dynamic Governance’ and it has six key characteristics:
1. Deep Business Knowledge
Board members need to truly understand the commercial DNA of the company
2. Diversity of Thought
European boards are still predominantly male, pale and stale.
3. Engaged Leadership
76% of respondents to our board effectiveness survey thought their Chair was contributing to board effectiveness – we’re worried about the 24% who don’t!
4. Strategic Alignment and Execution
Our evidence shows Chairman and CEOs often disagree about how the company is or should be performing.
5. Capacity to Adapt
Rigid, inflexible corporate governance is out of kilter with the organisational realities of continuous change and relentless competition.
6. Leadership Talent
92% of the board members we interviewed reckoned succession planning was important yet only 55% believe it is being successfully delivered by their board.
The best company boards do not wait to be governed, they shape the debate, they set best practice, and they amplify commercial growth. That’s the essence of Dynamic Governance.
Will Moynahan is UK managing partner of headhunters Heidrick & Struggles. Their latest corporate governance report Towards Dynamic Governance is out now.