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Peter Tunjic Presenting at Better Boards

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What is Directorship ?

Definition of Directorship

  1. Directorship noun the office of a company director and the period for which that office is held.
  2. Directorship  noun the practical skill of a company director to create value* encompassing a director's acumen in decision making,  ability to guide and inspire those to whom power is delegated, willingness to assist when required and desire to learn and improve (neologism).
  3. Directorship noun the research area concerned with the long term existence of a corporation through the mastery of capitalization - the process by which a corporation efficiently accumulates, converts and exchanges value* with customers, employees, suppliers, shareholders and other groups (neologism)

* value being the useful energy stored or accumulated in various capitals. Defined by the International Integrated Reporting Council to include- natural, human, social, intellectual, manufactured and financial capital. 

Etymology

Used to describe a position or profession, the suffix "ship" has traditionally combined with the noun "director" to describe the office - "She held three directorships".

But ship is more often used to denote an individual's capacity or skill.  Think leadership, scholarship and sportsmanship.   Ship coming from old english -sciepe "state, condition of being and schaeppen "to create a thing of value"which in turn is derived from the base word skap - "to create, ordain, appoint,". 

Now consider that value creation and appointment at the core of the work of the Board:

"the board's most important role is to appoint and work with the CEO"

AICD

"Governing boards should take more active leadership of the enterprise, not just monitor it's management"

Ram Charan, Dennis Carey and Michael Useem

Directorship literally means value creation and is therefore the obvious term to describe this aspect of a director's work.

Usage

I started using directorship in this way in "Directorship Made Simple". Published by the AICD in its flagship magazine in 2009, the article focused on the ways in which the board creates value.  

Since then, the AICD has drawn a distinction between governance and directorship.  Their website stating "We produce a range of publications on good governance and directorship"  and  "Our publishing arm provides up-to-date expert research, knowledge and insights on directorship, governance and performance."   Likewise the AICD promotes their "highly-regarded and established governance and directorship programs".  Though what they mean is unclear,  it is implicit that governance and directorship are some how different.

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source: http://aicd.companydirectors.com.au/resources

Grant Thornton's report The Board: creating and protecting value, draws the same distinction between directorship and the board's more traditional role.

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Source: http://www.grantthornton.co.uk/insights/the-board-creating-and-protecting-value/

 Copyright in the above images are owned by the AICD and Grant Thornton respectively and are used for the purpose of review and reporting.     Use of the images should not be taken as an endorsement of this post or its content by either organization.

Origins

The broader meaning of directorship emerged out of necessity.  There being no term in the language of corporate governance to describe a company director's role and skill in the process of value creation. 

Historically the term "corporate governance" has been used to describe what company directors do.  From the Greek "to steer".  It was invented by Richard Eells in 1960 to denote "the structure and functioning of the corporate polity" and which has come to be closely associated with board structure, process and composition and "agency theory".  In short, value protection with a traditionally strong  emphasis on financial capital and share price.

To overcome this narrow definition of what directors do and to avoid the confusion of using the same term to describe antonyms, a new word was required.  How could the broader concept of value creation in the boardroom be understood,  let alone researched and improved, if no word existed to describe the concept?  And the only word used, more often than not, was used to describe the opposite.

  "It is impossible to speak of the objects of any study, or to think to think lucidly about them, unless they are named." (Blackwelder)

Governing and directing are different.

Abraham Zaleznik, the Harvard Professor who, in 1977 wrote Managers and Leaders: Are They Different?, recognized the same problem when he asked whether managing and leading were different.  

Zaleznik's insight was the recognition that not only do managers and leaders perform different tasks but they do so with a different ethos and approach to risk and value.  Something that had previously been lost or overlooked by simply listing the tasks of management.   But by splitting the two, he released an energy that continues to drive debate and learning.

The state of the boardroom mirrors the state of the c-suite before the professor's seminal paper.   It's all called corporate governance.  Often reduced to a list of tasks - strategy formulation; policy making; monitoring and supervising; and, providing accountability (Tricker).   The list may be accurate but misses Zaleznik's point.  Hiding among the tasks is the insight that each can be grouped according to the mindset and system of thought and action aligned to performance.   In the same way that the c-suite approaches the task of leading and managing differently, by giving directorship a name, the boardroom can now ask whether governing and directing are different and act accordingly.  

Criticism

Though we take the difference between managers and leaders as integral to our understanding of management, the Professor’s obituary reminds us that change is often hardest for those who promote the virtue of change:

Zaleznik's analysis was so out of keeping with the common belief at the time that managers and leaders were one and the same that it evoked cries of disbelief from business people and academicians alike.

Scholars still lead the resistance to change.   In one camp are those who argue that over the last decades the term has been corrupted to include meanings that were never intended.   In that sense, they see no need for new language but rather wish to reclaim governance from the governance "industry" and restore its original meaning.  

But which one is the authorized or legitimate definition? 

Corporate governance is peculiar in that there is no agreement as to what it actually means.   The Puzzle of Corporate Governance Definition(s): A Content Analysis, examines 22 definitions of corporate governance to reveal how little consensus there is.  

In another camp are those who argue that it's time to redefine corporate governance to include value creation.   Ram Charan and his fellow authors proposing that:

"In light of the far-reaching and irreversible developments in company leadership...this is a good moment to redefine our working concepts to more accurately characterize the emergent reality of board leadership"  .... "rarely do traditional definitions of corporate governance make much reference to company leadership"...."Yet given the emerging leadership practices by the board that we have chronicled here, a revised definition would wisely incorporate the new reality that board are now leading directly and in partnership at many enterprises - and should in our view, be doing so at all companies"

But even if the scholars could agree on a single definition, in practice that ship sailed long ago.   If the trend toward short termism among public companies is any measure, there is no doubting what governance means.   The practical reality is reflected in this note from Sovereign wealth fund Oslo based Norges Bank Investment Management:

 NBIM's goal is aligned with a commonly accepted definition of corporate governance, namely the way that suppliers of finance assure themselves a return on their investment

To be clear, this is not directorship.   Indeed, as recent case law suggests, this version of corporate governance can be the opposite of directorship.

For those who think there is no difference between governing in the interest of investors and directing in the best interests of the corporation I recommend reading Justice Edelmans decision in ASIC v Cassimatis (No 8) [2016].   The distinction is not  semantics.   Directors duties are not concerned with governance as defined by practice but something much closer to the concept directorship.  And more particularly, promoting the long term existence of a corporation through the mastery of capitalization.  According to this judgement profit is not the universal measure of a corporation's interest.   

But how would a director know a corporation's interest when the word used to describe their role reinforces the interests of shareholders. 

The challenge in using only one one word to describe what a director does and for what purpose, is that only so much intellectual progress can be made before confronting what philosopher of science, Thomas Kuhn, called incommesurability.  The tendency of those who understand words to mean different things to nod their heads in furious disagreement.  Unaware that, by approaching the same subject matter from a different direction but using the same language, they pass each other likes ships in the night. 

A situation made worse when one group claims their definition to be "good" governance.   A rhetorical trick that British journalist Steven Poole called “unspeak”. 

Unspeak is a technique whereby words such as “pro life” and “good governance” are used to neutralise argument and debate.    Those who disagree with their policy goals are branded “anti life” or advocating for “bad governance”. Poole sums up the effectiveness of the technique as follows:

“it tries to unspeak – in the sense of erasing or silencing – any possible opposing view, by laying claim right at the start to only one way to looking at a problem.

I experienced both challenges  first hand when I mistakenly flew 24 hours to Paris to attend the International Corporate Governance Networks annual conference.   I arrived only to find a room of full of fund managers and investment bankers whose sole purpose was to increase the return on their investments by lobbying for "good" corporate governance.     

Summary

Corporate governance can mean anything.  

The dozens of definitions of corporate governance reflecting that there is no broadly held theoretical base for what a director does (Tricker) and only multiple polarizing views (Letza and Sun).  And even the shareholder value theorists can't validate their claims or predict outcomes (Daily, Dalton and Cannella).

Directorship only means value creation in the boardroom:

  1. Directorship  noun the practical skill of a company director to create value* encompassing a director's acumen in decision making,  ability to guide and inspire those to whom power is delegated, willingness to assist when required and desire to learn and improve.
  2. Directorship noun the research area concerned with the long term existence of a corporation through the mastery of capitalization - the process by which a corporation efficiently accumulates, converts and exchanges value* with customers, employees, suppliers, shareholders and other groups. 

 

 

 

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