Direct For Strength Govern For Weakness

Directors have become defined by their weaknesses and the vitriol of their critics.

This must stop.

No director should be subjected to constant taunts of inadequacy or worse.   Likewise, no CEO or executive should be subject to the character presumptions upon which shareholder primacy is founded.  In the work place it’s called bullying.  In the boardroom it’s called best practice.

But there is more to this than self interested trash talk. 

The governance industry has become obsessed by weakness and devising new ways to fix what’s wrong with boards.  Directors are accused of being ignorant, neglectful, self-interested, spineless, delusional, inexperienced, and even conflicted if they need the money.  Whereas CEO’s are presumed to warrant constant monitoring and challenge on the basis that they’ll take off with the silver if no one’s watching.

The bias to weakness pervades the Anglo/American model of corporate governance at many levels:

  • At a theoretical level, managers are seen as self interested and are only interested in using a corporation's resources for their own purposes.
  • At a director level, non independents are presumed to be biased towards managers.
  • At an executive level, boards are encouraged to relentlessly monitor and challenge their executives.
  • At an organizational level, board must focus on uncovering weakness in the form of risk.

You need only review the headings to the many online governance forums to get a sense of how the concept of weakness and failure define so much of the discussion of what good governance means.

But by governing for weakness, whether in the boardroom or the c-suite, do we end up with weaker corporations.

According to Marcus Buckingham (and others) focusing on weaknesses is a mistake.  As Drucker put it:

“Nothing destroys the spirit of an organization faster than focusing on peoples weaknesses rather than on their strengths, building on disabilities rather than abilities.  The focus must be on strength… the greatest mistake is to try to build on weakness”

Though he was talking managing, I see no reason why the same could not be said of directing.

Directors are told to focus on their own weaknesses and the weakness of others.  The governance industry is quick to highlight examples of corporate failures as evidence of an epidemic of weakness and mediocrity amongst directors.  But none stop to ask whether they and their prescriptions for improving the performance of boards are part of the problem.    

Evidence is mounting that governing for weakness does not improve performance.  Recent studies have concluded that “best practice” can lead to higher executive salaries and lower performance and innovation.  Despite this experts in governance continue to promote the practices and principles of contemporary corporate governance and deride anyone who would offer an alternative.

But there are signs of vulnerability.  Nell Minow, credited as one of the founders of the governance industry, has recently come out with this justification for director independence:

"No study has successfully drawn a credible connection between independence on the board and reduced risk or enhance returns. That is not because independence is unimportant. It is because our indicators of ‘independence’ are inadequate and flawed."

Is this not the traditional defense of a failing ideology - It’s not the theory that's wrong, they’re just not doing it right.

This must stop too. 

The governance industry must not be allowed to continue to fashion the boardroom through their distorted vision that focuses on weakness rather than strengths.  We must build a new vision for the boardroom that concentrates on what directors can do to foster the strength, resilience and endurance of the corporation.  We must remember what it means to direct again.  Then let directors and shareholders choose whether corporations should be governed for weakness or directed for strength.