Marketing Shareholder Primacy 4: Play Mind Games

Shareholder advocates are keen to point out the risk of company directors becoming captured by "groupthink".

But while the shareholder primacy movement is all over this danger in the boardroom, they ignore the presence of groupthink in their own thinking about the boardroom.

This is the fourth instalment in the marketing shareholder primacy series.  It considers whether the investment industry plays mind games to entrench the "virtue" of maximising shareholder value and defend their rivers of gold.


Groupthink is the “mode of thinking that persons engage in when consensus seeking becomes so dominant in a cohesive in-group that it tends to override realistic appraisal of alternative courses of action.” 

First described by social psychologist Irving Janis in 1972, groupthink is characterised by a group that sets itself above the law and protects itself at all costs.   Instead of trying to find the best solution, the group uses a variety of techniques to encourage conformity.

The dangers of groupthink are well known.   The board and officers of Enron, WorldCom and more recently Citigroup in the lead up to the global financial crisis were all accused of groupthink.  Under the influence of groupthink, these boards engaged in commercially unjustifiable risk taking.

Janis documented eight signs of groupthink:

  1. Illusion of Invulnerability: Members ignore obvious danger, take extreme risk, and are overly optimistic.
  2. Illusion of Morality: Members believe their decisions are morally correct, ignoring the ethical consequences of their decisions.    
  3. Collective Rationalisation: Members discredit and explain away warning contrary to group thinking.
  4. Out-group Stereotyping:  Members construct negative stereotypes of rivals outside the group.
  5. Pressure to Conform:  Members pressure any in the group who express arguments against the group’s stereotypes, illusions, or commitments, viewing such opposition as disloyalty.
  6. Self-Censorship: Members withhold their dissenting views and counter-arguments.
  7. Illusion of Unanimity: Members perceive falsely that everyone agrees with them.
  8. Appearance of Mindguards: Some members appoint themselves to the role of protecting the group from adverse information that might threaten the group.

According to Janis “When more of these symptoms are present, the likelihood is greater that groupthink has occurred, and therefore the probability is higher that any resulting decisions will be unsuccessful, possibility even catastrophic.”

Unfortunately, in the absence of catastrophic failure, it can be difficult if not impossible to diagnose group think let alone convince those afflicted.  Just ask economist Nouriel Roubini who anticipated both the collapse of the US housing market and the worldwide recession which started in 2008.

Groupthink and Shareholder Primacy

Characteristic symptoms of groupthink can be seen amongst the members of shareholder primacy movement.

But before I go on to explain why, I freely admit that a handful of quotes and anecdotes is not an argument but a structured form of observation.    It would be easy to argue that all I've done is constructed a bogeyman of straw by selecting a few self-serving examples.  

But I'll leave it for you to judge the difference between a paradigm of knowledge and a psychological condition.

Illusion of Invulnerability

The first sign of groupthink is that members are overly optimistic and ignore danger, leading to greater risk taking.  Under the illusion of invulnerability, group leaders begin to believe they are infallible and always right.

Lucian Bebchuk, professor of law, economics and finance at Harvard Law School and director of its corporate governance program is the current day champion of the shareholder-centric corporate governance model.

Now consider this statement from the Professor’s article entitled, “The Long-Term Effects of Hedge Fund Activism”:

Empirical studies show that attacks on companies by activist hedge funds benefit, and do not have an adverse effect on, the targets over the five-year period following the attack.
Only anecdotal evidence and claimed real-world experience show that attacks on companies by activist hedge funds have an adverse effect on the targets and other companies that adjust management strategy to avoid attacks.
Empirical studies are better than anecdotal evidence and real-world experience.
Therefore, attacks by activist hedge funds should not be restrained but should be encouraged.

Bebchuk promotes hedge fund attacks despite the dangers of rent seeking behaviour being recognised as far back as Adam Smith.    Moreover, he ignores the warnings from those that work for and within corporations.

But what he ignores most is commonsense.  Should we also encourage arson because forests regenerate in the years after an attack?   It's nonsense wrapped up in the pretense of science.  Callously indifferent to the impact on anyone but the investment industry.   

But none of this seems to temper Bebchuk’s aggressive encouragement for risk taking in the form of increasing activist attacks nor his unbounded conviction that he, and his colleagues, are right.     

Belief in inherent morality

The second sign is the belief in a group’s inherent morality.   This belief causes members to believe they are the arbiters of what is morally right and just.

Shareholder value maximisation is firmly entrenched in a moral framework.  Shareholders are often described as the moral owners of the corporation and directors are said to owe a moral duty to shareholders.   

The morality of shareholder primacy can be traced to its founding father, Milton Friedman.  In Capitalism and Freedom, Friedman makes the following remark:

“there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud .... Few trends could so undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible”

This is the highest form of moral justification for shareholder primacy and exploits all the tricks of linguistic rhetoric.  

Friedman argues that that the morally right thing for business to do is make as much money for shareholders as possible.   He even warns that the very foundations of a free society are threatened by any other moral code of the corporation.   And to this day no other management idea creates the same sense of moral panic and outrage when questioned. 

Collective rationalisation

The third symptom of groupthink is the group rationalisation of warning signs that would otherwise cause members to question or abandon their assumptions.   Negative information reinforces the group’s commitment and is the cue to invest even more resources to rationalise that they are making the right decision.

If there was ever a warning sign that all was not right it was the rolling global financial crisis that began in 2008. 

The response of the industry is telling.   While a minority have used the crisis to reconsider the assumptions of shareholder primacy, the majority have responded by recommitting to the principles of shareholder ownership under the banner of the “shareholder spring”. 

Rather than question whether the principles and practices of corporate governance contributed to the global financial crisis, the response to the crisis is to agitate for a purer form of corporate governance where activist shareholders,  hiding behind the corporate veil, increasingly demand the right to call the shots.

The push is on for greater shareholder influence and more good governance – more independent directors, more shareholder influence and more monitoring. 

Nothing will dissuade corporate governance experts from their collective rationalisation of what occurred in 2008 and the years leading up to the crisis. 

Out-Group Stereo Types

The fourth symptom of groupthink is the group's stereotyping of adversaries.  A “with us or against us” attitude leaves no middle ground.  Adversaries are seen as unenlightened and weak-minded and undeserving of a serious response. 

No two individuals capture the lopsided polarisation of opinion between the 'shareholder first' in-group and everyone else than Martin Lipton and Lynn Stout.

Lipton is a founding partner of New York law firm Wachtell, Lipton, Rosen and Katz. He has been credited with inventing the concept of the poison pill and is active in questioning the shareholder-centric governance of corporations. To many he is the enemy of the “shareholder democracy”:

Speaking with the enemy: how the OSC's dialogue with Martin Lipton threatens those whom the OSC is charged with protecting

     Fasken Martineau LLP

No one would accuse Lipton of being feeble minded.   Instead he is stereotyped by his profession.  A popular commentator is known to flippantly dismiss Lipton’s arguments on the basis that, as a lawyer he’s engaged by management and therefore you wouldn’t expect him to argue for anything else than management’s interest.  

Cornell Professor Lynn Stout is also in the crosshairs following the publication of her academic best seller The Shareholder Value Myth.   And like Lipton, she is also stereotyped by her profession.

When Stout published an op-ed article, "Why Carl Icahn is Bad for Investors", activist investor Icahn and his loyal followers were quick to play the “academic" card:

In my opinion, the article was so wrongheaded that I am surprised that it was afforded an appearance in a premier business newspaper. I hope better academic guidance is provided for students in California than that exemplified in the editorial.

Carl Icahn: The Icahn Report

Stout is presumably a tenured professor, thereby immune to the market forces that everyone in the private sector - from McDonalds workers to Icahn - not only lives with, but thrives upon.


Prof. Stout obviously has studied the results of many business deals over the years; but that she presumes to understand their underlying causes is pompous, even a bit silly.


Stout is an Academic. Not a practitioner. So, her opinion should be discounted at a much higher rate than that of someone who is actually in the business doing deals every day. Academics make me laugh.


These are not isolated examples but representative of the general attitude to Stout’s work as undeserving of serious consideration because she’s "just an academic".    And, if you have any doubt about the "with us or against us attitude" consider Mr Icahn's latest in-group only forum and the inflammatory imagery on the home page.

But I’ll leave the last word on the fourth sign of groupthink to Professor Stout:     

Yes, it’s pretty common to find that people who disagree with my ideas sometimes resort to vilification and ad hominem attacks.  I personally always find this reassuring, as it suggests they have no good substantive critiques of my ideas, which in turn suggests I am probably getting it right.

Illusion of Unanimity

The fifth symptom of groupthink is that the majority view and judgments are assumed to be unanimous.   Group leaders reinforce this phenomenon by publicly and prematurely stating that the group has come to consensus.

If there is one sign of groupthink that is hard to miss it’s the illusion that everyone that matters agrees that shareholder wealth maximisation is the objective of corporate governance and corporate law.  

In Britain and the United States, maximising shareholder value is universally accepted as management's paramount goal.

The McKinsey Quarterly, No. 2

“Corporations are almost universally conceived as economic entities that strive to maximise value for shareholders”

Jonathan Macey

“There is no longer any serious competition for the view that corporate law should principally strive to increase long-term shareholder value "

Hansmann and Kraakman

The “shareholder value” model has come to be accepted by most directors, shareholders, creditors, customers, academics, judges, legislators, and others over the last three decades as the optimal framework, or perhaps even the only cogent framework, underpinning corporate governance

The Conference Board

The pervasiveness of the belief has even led the godfathers of shareholder primacy to ominously conclude that resistance is useless:

 It will not pay the individual citizen to invest much in understanding the issues surrounding the corporation controversy. If he is at all realistic he will understand that he is virtually powerless to do anything to effect the outcome.

Jensen and Meckling


The sixth symptom of groupthink is that members who disagree with the group will stay quiet and not express their disagreement.   Group members self-censor their dissenting behaviour to preserve their place in the group.

It's difficult to measure self-censorship.  First, people don't recognise they do and second, if they do, they're usually a little embarrassed to admit it.

How would tweeting this perspective make you feel?

Direct Pressure on Dissenters

The seventh sign of groupthink is that members are under pressure not to express arguments against any of the group’s views.   Social pressure is applied to members who stand up and question the group’s judgement.

The continuum of pressure on people who don’t conform to the 'shareholder first' view of corporate governance ranges from none-too-subtle personal threats to the worst form of institutional pressure – the "comply or else” regime.

'Comply or explain' is a regulatory approach used in a number of countries whereby listed companies must either comply with the requirements of the code, or if they do not comply, explain publicly why they do not.

To be clear, there is no empirical evidence to support the comply part of these codes including their obsession with independence.   For example Nell Minow, credited as one of the founders of the governance industry, has recently stated:

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

Despite the lack of evidence, public companies are expected to 'out' themselves if they do not comply.  This is a form of direct pressure on dissenters who are required to publicly explain their actions in “deviating” from an unvalidated norm.

Companies must either conform to the norm or disclose their competitive advantage in not conforming to their competitors.  This entrenches the norm as there is no incentive to innovate.      

Self-appointed ‘mindguards’

The last sign of groupthink is the emergence of self-appointed “mindguards”.  Individual members take it upon themselves to protect the group and the leader from information that is problematic or contradictory to the group’s cohesiveness, view and/or decisions.

No one has "mindguard" on their profile.   However, thanks to the phenomenon of business networking site LinkedIn, it’s possible to see the mindguards of shareholder primacy at work.

Apologies for the indulgence but here are three examples of mindguards in action taken from my experience on LinkedIn:


This post that compared the current state of corporate governance research with pre-Copernican astronomy was removed from a LinkedIn governance group days after being published.


When I published this essay which questioned whether governing and directing are different was removed from the same LinkedIn governance group.  A link to the essay was not posted to the group nor was I an active member following my earlier experience of censorship.    


Since publishing Governing and Directing: Are They Different an owner or moderator of a LinkedIn group took it upon themselves to block me from posting to all LinkedIn groups without approval from the owner or moderator.  This lasted for well over a year.     

Shareholder Primacy: Paradigm or Groupthink?

Are all symptoms a coincidence or nothing more than a paranoid and skeptical straw man?   

Or, is it just business?  After all, shareholding is, first and foremost, a business model with its own marketing strategies for success.

Playing mind games might be yet another of the sublime strategies used by the investment industry to ensure funds keep flowing in their direction.  Why rely on a compelling value proposition to generate revenues when the grip of groupthink on the minds of those holding the corporate purse will do the same thing at a fraction of the cost?

But, if it's just business, business leaders need to know when they're being played and not get suckered in to believing the spin.

So too regulators, that continue to expand the rights of shareholders.  They should remember Janis' ominous warning - “When more of these symptoms are present, the likelihood is greater that groupthink has occurred, and therefore the probability is higher that any resulting decisions will be unsuccessful, possibility even catastrophic.”

About the Marketing MSV SeriesAs a participant in the 2014 Annual Global Drucker Forum,  I'm posting a series of unofficial perspectives on the way maximising shareholder value (MSV) has used marketing to turn capitalism into the personal business model of the finance industry.


The Evolution of Management

1960's Management


1980's  Leadership


1990's Governance



2015 Directorship


Directorship is the next piece of the management puzzle. 

In 2015, management thinking will expand to complete the 2x2 matrix that captures all four forces that shape the modern corporation.  I call it the DLMA Matrix:

The DLMA Matrix is designed to show the forces that impact on the direction and performance of firms.   Their similarities and differences.   

The horizontal axis represents “Value Creation” on the right and “Value Protection” on the left.  The vertical axis has “Hands Off” at the top and “Hands On” at the bottom.

Running clockwise from the top right-hand corner are the four forces or functions of management in its broadest sense. “Directorship”, then “Leadership”, then “Management” and finally “Governance or Assurance”.  

The top two quadrants comprise the board of directors.  The bottom two, the executive.

The right half represent the functions that share the characteristics of leadership captured in the phrase “right things”.  The left half represents functions that share managerial qualities captured in the phrase “things right”. 

Don't be confused.   Directors and managers do different things.   But when they govern and manage they approach those tasks with the same mindset.  Likewise, when directors direct, their attitude should be that of a leader.   

On the diagonals are governance and leadership and directorship and management.  Curiously, governance and leadership are states of mind or attitudes.  The latter are positions within the firm.  Only managers manage and directors direct.  But leadership and governance can be practiced throughout the firm.  Recognising the board's unique position in a broad model of management is a natural evolution. 

Finally, a brief description of directing and leading qualities appears on the right of the DLMA Matrix.  Whereas the qualities associated with managing and governing appear on the left.

Within the DLMA Matrix is every organisation.  Each with a different focus.  Some will have strength in leadership, others in governance, fewer still in directorship.   I believe great corporations understand the tension between all four and get the balance right.    Likewise within every failure is a company that failed to recognise that it needed all four to grow and prosper.

More on the difference between governing and directing.


Next post continues the marketing shareholder primacy series. Winning their minds examines the curious relationship between universities and the investment industry.   

Marketing Shareholder Primacy: 3 - Win Their Hearts

Consider these words - "asset owners", "activists", "shareholder spring", "shareholder rights", "shareholder advocates", "good governance", "shareholder funds", "democratic capitalism".  Are these neutral descriptions or are they spin?

Over recent years, the shareholder primacy movement has developed a sophisticated PR language designed to maintain a positive public image despite the industry's sometimes ruinous business practices.

Here are some of their key linguistic strategies:

From Sinners to Saints

Carl Icahn is lauded as a hero of capitalism.  But it wasn’t always this way.  In the 1980’s he was better known as a “corporate raider” and a “green mailer”.  Destroying companies like TWA in the process.  But few call him that now.  He’s now an activist investor, a defender of rights and an advocate for shareholders.

His business model is essentially the same as back then - target companies with savings and convince the board to put it into his pocket.  But you’d never guess that from the words used to describe how he and his competitors approach making money.  Words like “activism”, “advocacy”, “constructivism” or, my personal favorite, “suggestivism” don't capture the ruthless way in which they pursue their targets.

Icahn and his colleagues are engaged in a none-too-subtle exercise in positive stereotyping.  Using words to convince everyone from journalists to SEC regulators that they’re the good guys protecting innocent shareholders from management, when they’re just out to take a buck and will say just about anything to get it.

You’ve been Framed

I first heard the expression “democratic capitalism” a few years back.  Bob Monks was presenting his L’Appel or Call to the elite of the corporate governance industry in Paris:

"The first agenda item for rejuvenated owners is to recognize that the ultimate issue may be survival of what we call the system of democratic capitalism and all that this means for the strength and prosperity of the world"

Not long after, I was reading Professor Macey's response to Lynn Stout’s critique of shareholder primacy when I came across this passage: “shareholder primacy has an ideological component, just as other notions such as 'democracy' and 'freedom of religion' and even 'capitalism' do”.

What is going on?  How can they be aligning or comparing what is essentially a business model with a foundational idea of western civil society?

According to Tamara Belinfanti, we may be being framed.

In her excellent paper, Forget Roger Rabbit—Is Corporate Purpose Being Framed?, the Associate Professor examines how shareholder primacy uses language to construct self-serving meaning:

"Proponents of shareholder primacy describe shareholders as 'owners'. This notion of ownership taps into a deeply held value in American society of the benefits of acquiring property, having a homestead, and the general ability and freedom to exercise dominion over something that one owns (within the confines of law).  Similarly, shareholder proponents use terms such as 'shareholder rights' and 'shareholder democracy'. The values of 'rights' and 'democracy' are near universal truths and are held as ideals that should not be tampered with. Other linguistic choices of shareholder primacy proponents include calls for increased 'transparency', 'governance', 'independence', and 'accountability', all of which tap into most people’s desire to live in a stable and law-abiding environment, where people bear responsibility for their actions, and where those in charge do not exercise imperialistic or clandestine power".

Words do the heavy lifting for the shareholder primacy movement.  Indeed, if corporate governance is power, as Monks himself admits, language is the key way the shareholder primacy movement has taken it for their own business objectives.

The appeal to transparency ensures the flow of information required to run their business model.  The appeal to democracy, the right to require decisions that align with their business objectives.  The appeal to independence creates an allegiance of the board.  The appeal to rights and ownership obviates the need for commercial justification for corporate decisions in the shareholder's favor (this is also an example of exploiting the firmly held belief that conflates the ownership of a share with ownership of the company).

Again, like getting them young, and staying on message, identifying shareholder primacy with our belief systems is brilliant (and should be taught as a case study) and if you’re in the business of buying shares it just gets better:

“Once a frame has been successfully constructed, when people encounter facts that do not fit the adopted frame, they discard these facts and keep the frame intact”.

Not only does shareholder primacy leverage our strong emotional connection to core values for their personal profit, their linguistic rhetoric traps us into forever believing that any other way would be contrary to the values that our men and women fought and died for.

Good Governance Bad Governance

What does the anti-abortion movement and the shareholder primacy movement have in common?   Both use what British journalist Steven Poole called “unspeak”.

Unspeak is a technique whereby words such as “pro life” and “good governance” neutralise argument.    Those who disagree with their policies are instantly branded “anti life” or advocating “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.

At this week's Hawkamah conference on MENA corporate governance I lost count the number of times the representatives of the investment industry reminded the audience of the need for "good governance".   But this was no neutral description.  "Good governance" , in this context, has become a synonym for policies explicitly designed to (or have the effect of) enhance shareholder access to information and to ensure boards are structured in a way that is most advantageous to the investment industry.    

Make no mistake, “good governance” is as important to the viability of investment as a business model as any investment analysis undertaken or relied upon.   And, to the really big index investors like Vanguard and Black Rock, promoting good governance might just be their only leverage.

The power of the expression “good governance” can’t be understated.   As Poole reminds us ”As an Unspeak phrase becomes a widely used term in public debate, it tends to saturate the mind with one viewpoint and to make an opposing view ever more difficult to enunciate.”  

This insight is particularly salient to the development of corporate governance in the MENA region. 

My hope for emerging economies in the Middle East and North Africa is that they will not be captured by "good governance" and instead embrace the opportunity to develop an alternative framework for their boards that gives these nations a competitive advantage.

When You think about it

French philosopher Jacques Ellul explains why expressions like "activist investor" or "shareholder democracy" are so useful to propagandists (and marketers alike). It is because it "helps [humans} to avoid thinking, to take a personal opinion, to form [their] own opinion".   Until politicians, business leaders and the broader public start to think about what all these words really mean, the investment industry will continue to work the linguistic rhetoric all the way to the bank.

About the Marketing MSV SeriesAs a participant in this year's Annual Global Drucker Forum, November 13-14 in Vienna, I'm posting a series of unofficial perspectives on the way maximizing shareholder value has used marketing to turn capitalism into the personal business model of the finance industry.

Marketing Shareholder Primacy: 2 - Stay on Message

To sell effectively stay on message.  That's the advice of communications expert Carmine Gallo:

“Every product, idea, or initiative should have a single, key message that is delivered consistently, word for word, across all of your marketing and branding platforms. [... ] Every single person in your company believes in those messages and has them memorized, ready to tell them to anyone who asks about your product; consistency is the key"

Whether by design or accident, the investment industry is a case study in how to market and promote the interests of an industry by staying on message.

The strategy is straightforward.

First draw four bubbles on a blank page.  In the center write "maximize shareholder value".  A neat, simple and memorable idea.  In the remaining bubbles write "Shareholders are owners", "Directors are agents" and "Good for society".  These supporting messages reinforce the central soundbite of shareholder primacy:


Next, repeat the message over and over, word for word.

Sovereign wealth fund, Oslo-based Norges Bank Investment Management (NBIM) got the memo.  It describes the "universal" role for the board in this note:

  • The board must act as a representative of the owners of equity capital;
  • The board is responsible for establishing a corporate governance system that alleviates agency costs; and
  • The board must ensure adequate and honest information to the market and the shareholders.

So did business leaders like Yahoo who released a statement this week that it "remains focused on creating shareholder value through its world-class internet assets", and politicians like Sir Vince Cable who recently asserted that shareholders “own” banks and media outlets like the Economist that report:

Shareholders own companies. Managers and directors should serve them. If the owners do not like the way their servants are performing, they have a right to do something about it.

It seems all but a vocal minority of journalists are keeping to the script.

That business leaders and politicians stay on message is perhaps understandable.  After all, that's what many have been taught.  But how did the independent-minded media get caught up as the mouthpiece for the investment industry?  One answer is that reducing commercial decisions to a shareholder value equation makes reporting easier.  Another is the way journalists are instructed to report on corporate governance. 

In 2012, the International Finance Corporation published Who's Running the Company -  A guide to Reporting on Corporate Governance.  This Guide is designed for reporters and editors to help journalists develop stories that examine how a company is governed.  While the guide reflects the importance of stakeholders throughout its many pages, in a number of key areas it clearly keeps on message:

The board’s responsibilities broadly are to protect the company’s interests and the shareholders’ assets and ensure a return on their investment.

Yet another perfect strategy in marketing MSV.  

If the investment industry promotes the message of maximizing our (shareholder) value it's self-serving.  If the media does it it enough times it must be true.

About the Marketing MSV SeriesIn the lead up to this year's Annual Global Drucker Forum, November 13-14 in Vienna, I'm posting a series of unofficial perspectives on the way maximizing shareholder value is marketed.  My point is not that shareholder primacy is wrong (it doesn't have to be), but that if we don't address the ways MSV is marketed, we'll never know if there's something better.


Marketing Shareholder Primacy : 1 - Get them Young

Today's law, economics and business students are tomorrow's politicians, CEO's and board members.  Most graduate believing that the purpose of the corporation that they will one day regulate, lead and govern is to maximize shareholder value (MSV).

According to Colin Mayer, professor of management studies at Oxford’s Saïd Business School:

“The prevailing view in business schools has been that a primary function of corporations is to further the interests of their shareholders”

Is producing leaders, perfectly sympathetic to the needs of the investment industry, the goal of business school?  Consider the following.

Using curricula, syllabi and interviews of both faculty and students the Brookings Institution made a number of findings in its report "The Purpose of the Corporation in Business and Law School Curricula" published in 2011:

  • most business schools don't teach the purpose of corporations
  • those that do are more likely to emphasize the goal of maximizing shareholder value, especially in law schools
  • some law schools only teach the shareholder value model
  • after completing business school, students are more likely to sees shareholder value as the most important goal of the corporation

The Brookings study is re-enforced by Aspen Institute findings.  Melissa Korn of the Wall Street Journal reported a survey conducted by the Aspen Institute claiming that “60% of new M.B.A. students view maximizing shareholder value as the primary responsibility of a company; that number rises to 69% by the time they reach the program’s midpoint”.  The Wall Street Journal is not alone in reporting that management education is grounded in shareholder primacy.  The Financial Times reports in an editorial entitled “Mixed Messages In the Classroom”:

“Surveys, studies and papers point to the fact that shareholder primacy remains the organising principle behind the MBA in many business schools and dominates management education culture”.

Perhaps surprisingly, the credit for inculcating MSV thinking within business schools doesn't go to those who stand to gain the most.  According to Sarah Murray ["MBA teaching urged to move away from focus on shareholder primacy model"], the universities are responsible.  She argues the reasons range from the tenure system to institutional inertia and she has the support of a number of those within the system.  More on this soon.

Investors are more the opportunistic beneficiaries of an education system that inexplicably tilts the playing field in their direction.

If business education is rooted in shareholder primacy, its strongest branch is the finance faculty.  In a Memo published by the Purpose of the Corporation Project, the authors conclude that the main purpose of "financial reporting is to provide information to the capital markets, accounting standards are developed and legitimized based on their ability to convey the value of corporations".  It is hard to imagine an industry having a more perfect competitive advantage.   Graduates, rising through public companies and throughout the economy, ready to do what is needed for the finance industry to prosper.

The long term challenge for the investment industry is that not all students are co-operating.

The International Student Initiative for Pluralism in Economics (65 associations of economics students from over 30 different countries) recently published an open letter calling for three forms of pluralism that must be at the core of curricula: theoretical, methodological and interdisciplinary within education.  Their message is simple: they're not going to take it anymore.  And educators are starting to listen and talk openly about change.

However, in the short term this development shouldn't be a problem.  80% of the class of 2002 believed in MSV and they're making their way to the top of the ladder ready and willing to stay on message.  More on this next post.

If you want to learn more about the role of MSV in business education I recommend Unrealized Potential: Misconceptions About Corporate Purpose and New Opportunities for Business Education.  According to author Miguel Padro of the Aspen Institute, "Business education is uniquely positioned to develop business leaders and investors who exercise sound judgment, resist the allure of the short term, and thus help realize the full potential of the corporate form".  Well said.

About the Marketing MSV SeriesIn the lead up to this year's Annual Global Drucker Forum, November 13-14 in Vienna, I'm posting a series of unofficial perspectives on the way maximizing shareholder value is marketed.  My point is not that shareholder primacy is wrong (it doesn't have to be), but that if we don't address the ways MSV is marketed we'll never know if there's something better.



Twelve Ways to Increase Shareholder Value*

To critics of shareholder primacy not only does it get the law wrong, it gets both the economics and evidence wrong too.

But none of that matters.

The industry that promotes the virtues of maximising shareholder value gets the most important thing right - the marketing.

Despite increasing recognition that the idea of putting the investment industry first is bad for listed businesses, shareholder entitlement remains entrenched in the consciousness of business leaders, politicians and business schools.

The almost universal acceptance of shareholder primacy is no accident.  With global equity markets capitalised to 64 trillion dollars, it is naive to believe the investment industry leaves its growth and profitability to chance.

The challenge for these businesses is that shareholding is a modest business model.

Typically, an industry relies on its value proposition for growth.  But, outside funding an ever diminishing number of listed corporations (and providing unsolicited advice), what value do the increasing number of shareholding businesses offer listed businesses to sustain their existence let alone profitability?

The solution to the shareholder's dilemma was a once-in-a-century market-capturing innovation.

Using a variety of marketing techniques that would make the tobacco industry blush, equity investment has risen from an important but small part of the economy, to the apex of capitalism.  With the unwitting help of academics, journalists, governments and company directors, a once-unassuming business model now exercises a level of influence over the world economy completely and utterly disproportionate to its inherent value proposition.  

At the 2014 Annual Global Drucker Forum - November, 13-14 in Vienna - a number of leading management thinkers took a stand against "the dumbest idea in the world".

Richard Straub in the conference description entitled “The Great Transformation: Managing our way to prosperity” says “We have arrived at a turning point...

Either the world will embark on a route towards long-term growth and prosperity, or we will manage our way to economic decline… the very coherence of our societies is at stake. Incremental changes won’t suffice… What does it take to reshape management as an effective social technology… for transforming our institutions and organisations?”

In dedication to the 6th Global Drucker Forum I'll be posting my own unofficial posts that expose the techniques that transformed capitalism from an ideology designed to grow the wealth of nations to nothing more than a business model designed to grow the wealth of Wall Street.

The Marketing MSV Series is not an assault on shareholding.  It is an attempt to confront the ways shareholder value is artificially increased.

Key to increasing shareholder value are these twelve techniques designed to assure greater returns to the investment industry:

Twelve Ways To Maximize Shareholder Value

Get Them Young

Teach business students that the goal of business is to maximise shareholder value

Stay On Message

Mould public opinion by repeating the message of shareholder value consistently across all platforms

Win Their Hearts

Associate shareholder value with broader societal values - democracy, property rights and accountability

Play Mind Games

Use psychological techniques to promote the goal of maximizing shareholder value and suppress discussion of alternatives

Lose Their Minds

Have sympathetic friends in universities who act as if under a duty to maximise shareholder value

Exploit a Little Truth

Imply that, because some shareholders have provided capital directly to companies, this is true for all shareholders

Make it Personal

Create the impression that shareholders are people and not businesses

Change the Law

Change the law to give the investment industry a competitive advantage over other industry segments

Re-frame the Problem

Appear on the side of long-term value creation

Divide and Conquer

Pit managers and directors against each other

Open New Markets

Encourage self serving "good governance" in new markets

Use Fear as a Last Resort

Create fear that without shareholder primacy capitalism will collapse

Over the coming months I'll be writing about each tactic and goal in greater detail.  Some are obvious.  That MBA students are almost exclusively taught that the goal of business is to increase shareholder value is easily tested.  Others require disciplined imagination with only the faintest of clues.  Why is there no word to describe the board and management working collaboratively as a team?

These twelve tactics have rendered shareholder primacy largely immune to academic criticism.  Like big tobacco, the investment industry doesn't fear the science.

The medical profession knew the dangers of smoking decades before public policy turned on the tobacco industry.  The game changed when their sophisticated PR tactics were exposed.

The investment industry is equally vulnerable.

Exposing the public relations tricks of the tobacco lobby worked for public health.  I can't see why the same strategy won't work for the public's economic health and ultimately for the long-term health of shareholding businesses that have come to rely on entitlement over value.

* Reworking of an original post titled Hitting Shareholder Value Where it Hurts - In The Marketing.

Read more about the twelve ways to increase shareholder value



Opposites Distract: Why less bigotry is the solution to greater diversity

The solution to a problem is seldom found in the opposite to the symptom.

More risk management is not the answer to excessive risk taking.  The solution is less commercial stupidity.

Likewise, if boards are the proverbial male, stale and pale the answer is not to mandate more female directors. The solution is less bigotry. 

The opposite distracts from the cause of the problem.    By framing the solution by the symptom the board's shame is erased from the record -  whether its underwhelming commercial acumen that led up to the global financial crisis or the prejudice that homogenizes the boardroom.

Companies are now called on to attract more women candidates under cover of empirical research that shows women make better directors or boards with women make better decisions.   More troubling still is the suggestion that somehow it's the fault of women who lack the confidence to apply for board positions.

Almost absent in these calls is the responsibility of those who caused and perpetuated the improbable imbalance between men and women on boards.   These people keep their jobs.  Whilst women candidates must justify theirs.  

Women directors might perform better than men.   But my argument is that boards without bigotry perform best.   There is no competitive advantage in bias and prejudice and that's where we should act first if we are to see the best people on boards regardless of gender.

On How Corporations Work


If you look the right way, you can see that the whole world is a garden.

Frances Hodgson Burnett, The Secret Garden


Several years ago Iwas asked to contribute to a course on board leadership.  My instinct was to start by explaining how corporations work.

A minimum requirement for every company director is that they understand the logic that underpins the corporation they're directing.  In fact, every member of the board should share the same understanding.  It would be strange if boards made collective decisions on the basis of each director's differing opinion on how their corporation worked.

Could you imagine a team of surgeons performing an operation if none had studied the same basics in anatomy and physiology?  Instead relying on their own personal opinion of how the body functioned and having their own language to describe the mechanism's that keep the body alive.  Why would it be different for a board of directors making life and death decisions for their corporation?

How would a board achieve the same level of understanding when it came to their corporation?  By using a model to graphically describe the key parts of their business and how they combined to keep things moving in the right direction.

Sadly, for this generation of directors, understanding how corporations work never made it into best practice.

Bold Idea

To understand how a corporation works (and the the board's leadership role) see the corporation as a system designed to create enough business critical value to survive, grow and prosper in its own right.

Read on to see a general model of the corporation.

Why Modeling Has NEVER Mattered

The board's role is almost universally conceived as protecting and preserving shareholder value by ensuring things are done right.   

Independent directors are expected to review management strategy proposals, reports and question the CEO.  Directors tend to react to information presented rather than pro actively seek out the information they need to make their decisions.  To the extent that an independent director understands how the corporations works, this is likely to be a personal opinion.  But again, this understanding is used to test the CEO's assumptions and ask better questions rather than to come up with better solutions to the challenge of creating value.

Directors monitor management and that doesn't require an understanding of how things work -  they only need the ability to challenge.

Or, do they?

Global thought leaders Ram Charan, Dennis Carey and Michael Useem argue that the role of the board is changing.  Boards must evolve beyond their now traditional role as overseers.  "Governing boards should take more active leadership of the enterprise, not just monitor it's management" they write in their latest book Boards That Lead.

If you're leading it helps to have a map.

To lead the board must understand the logic of value creation.  Whether its called a canvas, map or blue print, understanding the business model is the foundation of great directorship.

Whereas directors mightn't need to understand the business model to govern, they can't successfully direct and innovate without it.  Value creation doesn't happen by accident.

To build a corporation for the long haul, management and the board mustunderstand and "work" the logic of their business model to build strength, resilience and endurance.  

To do any of the following a board must have a collective understanding of how their corporation keeps on going:

  • choosing a CEO that can best "work" the business model
  • deciding the information they need
  • making key capital and other decisions knowing how these will impact on the strength, resilience and endurance of the company
  • manipulating the elements of the business model to come up with better alternatives
  • testing the logic of value creation and looking for where that logic is breaking down

This is not theory.  It's been practiced for a decade. 

I've successfully tested the idea that boards and executives perform better when they have a common language to describe the business model and have a shared understanding of how their corporation works.  To be clear, not all were ready for directorship.  Some board lack the time, ability or willingness to lead.  But, without fail all improved their ability to govern.  The reality is that a board that can read a business model makes for better governance and directorship.

Understanding How a Corporation Works

To help directors lead in the boardroom I'd teach them to draw.

To see their organization all at once boards need a diagram that shows their firm as a system of interconnected and interdependent "elements" or "building blocks".  

Firms are sustained in the long term by a logic of value creation made up of building blocks.  If all board members could see how those building blocks were arranged on a single page they'd know where they fit and realize there is more to the board than governance.

But to design the right tool, I'd need to get back to absolute basics.

Modelling tools are subjective.  They're designed to allow you to see the corporation through the eyes of the person who created it.  The choice of building blocks and how they're arranged reflect what the designer believes is the firm's purpose.


How Corporations Work Through the Eyes of Milton Friedman

Most business model tools are influenced by economist Milton Friedman who argued that businesses' sole purpose of business is to generate profit to satisfy the needs of shareholders.

Business Model Canvas by Alexander Osterwalder and co is perhaps the most popular tool on the market today.

The purpose of their tool is unequivocal:

"We believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to make money."

And their template is designed to show how:

Business model canvas allows us to see how the corporation works through the eyes of Milton Friedman by tracing the logic of profit creation.  More importantly, it's biased to the sell side of the firm.  Most of the building blocks are directed towards revenue creation.

In what might seem an oxymoron, a model that only capture the creation of money is deeply un-commercial.

Money is only one type of value that a firm needs to survive, grow and prosper.  As enterprise architect Tom Graves reminds us, money is not a synonym for value.  He goes on:

It’s utterly crucial, in all business contexts, to understand that money is only one subset of value – and that whilst all forms of value may interact, and may often be convertible from one form to another, not all forms of business-critical value can be converted to monetary form.

For a corporation to create profits over the long term it needs a rich variety of value or capital.  Put another way, corporations have a range of needs that must be satisfied if they are to continue to be.

Business Model Canvas only tells part of the story.

Don't get me wrong.  Business Model Canvas is useful in different contexts.  It's just the wrong map for directors wanting to understand how their firm creates value over the long term.  Follow a map that just focuses on money and you'lleventually become lost.

How a Corporation Works Through the Eyes of Steve Jobs

To understand how a corporation works, we need to start thinking how corporations survive, grow and prosper by creating business critical value.  But not for shareholders, customers or any other stakeholders.  To understand how corporations work you need to put the corporation in the center.

My innovation is to flip convention and make the company, driven by its self interest properly understood, the customer and everyone else a supplier of cash, things or both.

Apple's chairman knew how corporations worked and didn't need a bunch of lawyers to tell him the rules.  The self interest of Apple was the organizing principle for its board and the corporation.  Through the eyes of Jobs, the only legitimate purpose of Apple was to create and sustain Apple.   Everyone else was a means to that end.

Jobs treated Apple independently of shareholders, suppliers and even the customers it served so well (if he really wanted to delight Apple's customers he would have cut the price in half).  Put Simply, Jobs prioritized stakeholders according to their value to Apple.  If Apple didn't need a stakeholder to satisfy its needs, that stakeholder wasn't going to get its needs satisfied by Apple.  This is hardcore capitalism.

This applied to everyone including shareholders.  Apple ceased declaring dividends when Jobs returned to the Board.  He also rejected calls to buy back Apple's shares.  According to Warren Buffet "He didn't want to repurchase stock", he continued "although he absolutely felt his stock was significantly under priced at two-hundred and whatever it was then".  What Buffet knew is that neither he nor Jobs would "buy dollar bills for 80 cents"What would Apple do with stock that had no value to it.

Is this innovation "nonsense." 

Not if you believe Adam Smith.  Steve Jobs played according to the founding rules of capitalism.

In a commercial society “everyman is a merchant” and self-interest should morally dictate their decisions.  Smith argued that self-interest produces the greatest good.  To Smith the “everyman merchant”:

is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. [...] Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

The invisible hand is the original stakeholder theory of capitalism.  Both shareholder and stakeholder activists alike have forgotten that their needs get satisfied only when the corporations needs are satisfied.  More importantly, under the rules of capitalism no corporation would willingly sacrifice long term business critical value just to give it away out of a misplaced sense of duty.

Jobs treated Apple like Adam Smith's merchant.  A free persons that owed nothing to anyone except what it promised in exchange for what it needed to survive, grow and prosper.

After all, why should there be two rules of capitalism.  One for the butcher, baker and brewer that trades in their own name and another for the butcher, baker and brewer that trades through a company.  One free to act out of self interest.   The other bound, in a form servitude to act in the interest of a shareholder.

It's ironic that Smith gave us the invisible hand and then unwittingly tied it when he quipped about "other people's money".  Thanks to the work of Lynn Stout and others we know that Smith and Milton Friedman made a mistake. Corporations are not owned by the their shareholders and have the right to be run to serve their own interests.  Read more.

Everything looks different from the perspective of the corporation's self interest.  What need of the corporation is satisfied by an exorbitant CEO salary, generous share buy backs or underpaying employees or suppliers?

If the board sees the corporation the right way the solution to these and other challenges is clear.


The key to my model is the purpose of the corporation.

The purpose of a corporation is to be a corporation.  Not for stakeholders but for the corporation in its own right.

My business modelling tool is designed to show directors how their corporation survives, grows and prospers by focusing on what the firm needs to be - now and into the future.

As far as I'm aware it's the first of its kind.

I invented my first model in 1999.  Since then its been tested on for profits and non profits, airlines and insurance companies, start ups and public companies.  What you see now is what I know about corporations not what I've been told.

Here's the 2014 version:


(c) 2014 Tunjic

(c) 2014 Tunjic

Working the map


  1. Start with culture.  As Peter Drucker said, culture eats strategy for breakfast.
  2. Then the 3 P's - The corporation's processes, people and promises.
  3. Next put the corporation in the center of a two sided market.  The trick is to see the corporation as the customer.  From the corporation's perspective what it is doing is buying the customers cash and paying in products and services
  4. On the left are suppliers of things - ideas, time, labor, data, products and services and everything else the company needs (other than cash).
  5. On the right are suppliers of cash.  Customers, shareholders bankers, insurers.
  6. Connect each supplier to the corporation using the same sequence
    • need  of corporation>
    • market for need>
    • value proposition to market>
    • channel to market>
    • Supplier>
    • Value proposition to corporation>
  7. Store value at the top.
  8. Identify resources at the bottom.

It might take a while to see how these building blocks fit together to show the logic of value creation from the perspective of the corporation.  

But keep trying.  The future of your company legally, commercially and logically depends on getting all its needs satisfied.  And, if all else fails, and you still believe Milton Friedman and the idea that corporations exist to maximize shareholder value read this before you make up your mind. 


How the corporation works is just the beginning.  

The reason why modelling matters is that, along with senior management the board is at the heart of the logic of value creation.    Not only is my model designed to show how corporations work,  It's also designed to put the four forces of management at its core:  directorship, leadership, management and governance.

Step 1:  See the board and management in the center of the logic of value creation.

Step 1:  See the board and management in the center of the logic of value creation.

For those unfamiliar with my work, I argue that governing and directing are different. In fact, I argue that governing is most likely a variety of managing and directing is a variety of leading.  All four are needed for  success.

Step 2: See the great dilemma at the center of the corporation. 

Step 2: See the great dilemma at the center of the corporation. 

Whereas Governance is focused on doing things right to preserve value.  Directorship is focused on doing the right things to create value.  


And at the core of Directorship is mechanics.

Mechanics is the logical plan that connects their work to value creation.   For more on my model of leadership in the boardroom click here.  

Step 3: See how people, promises and a great process create value in and from the boardroom.

Step 3: See how people, promises and a great process create value in and from the boardroom.

"The future is already here — it's just not very evenly distributed."

William Gibson

Last month the National Association of Company Directors (NACD)  announced the formation of a Blue Ribbon Commission that will "focus on the board's role in recalibrating the enterprise's corporate strategy in response to market forces". The brief for more than 20 high profile corporate directors and governance professionals is to provide guidance to boards on "recognizing potential disruptors, assessing alternative approaches, and recalibrating the strategic plan".

The NACD will issue the Blue Ribbon Commission on Recalibrating Strategy later this year.  My advice is not to make the same mistake as the organization that refused to include business modelling in their course on board leadership.  Don't waste the head start you've been given.  After all, you're holding the map.

*This is an updated version published 28 May 2014. 

Look Beyond the Forest: A Model of Boardroom Leadership


"Can't see the trees for the forest!"  

When leaders lose sight of the bigger picture and get stuck in the detail, organizations can suffer from being over managed and under led.

But organizations also suffer from being over governed and under directed.

"Can't see beyond the forest from behind the trees!"

It might be a new idiom,  but it's an old story played out in boardrooms throughout the world.   Company directors can find themselves trapped probing behind trees searching out potential threats and weakness.  

The challenge is that developing strategy and tomorrow's leaders requires the board to get above the organization's canopy to focus on what lies beyond the current quarter.   These tasks call for board leadership or , what I call, "directorship".

To give an organization the best chance of success,  firms need the right combination of leading focused on the forest, managing focused on the trees, governing focused on what hiding behind the trees and directing focused on what lies beyond the forest:

For decades, directorship has been practiced in the shadows of the other management disciplines.   Books and blogs describe leading, managing and governing,  but few capture what it means to lead from the boardroom.  

Directorship is leadership in and from the boardroom. Focused on enduring value creaion, directorship describes what boards do to create strong, resilient and enduring organizations.

This short paper is about framing the model of board leadership I'm working on. First, I start by describing what my model isn't.  Then, what it is.   Finally,  I describe where the model fits into the bigger organizational picture. 

What the Directorship Model Isn't

DLMA Matrix - Governing (v1.0.png

Mine is not a model of corporate governance.

Governance models are designed to solve the "separation of ownership" problem that has confounded academics and management gurus for nearly a century. 

Governance is a hands off approach to protecting firm value through a variety of best practice measures - composition, structure and process.

My model of directorship doesn't address the problems you  might typically associate with the board of directors - corporate control, oversight of management, monitoring for risk and regulatory compliance.  All important. Just not directorship.

Read Governing and Directing: Are They Different and see if you agree that there is a fundamental difference between the boards governance and leadership roles.

More importantly, my model won't explain:

  • How to maximize shareholder value

  • How to help directors think like owners

  • Why directors should be independent

  • Why activist investors know best

Why? Because unless your in the business of shareholding, none of these policies have been proven to create strong, resilient and enduring corporations.

What the Directorship Model Is

DLMA Matrix directorship (v1.0 ).png


Mine is a model of leadership in and from the boardroom.

I set out to design a system of directing that puts value creation in the center of the board's purpose and is based on the belief that the overriding purpose of directing is to create a strong, resilient and enduring organization.

Directorship is a hands off approach to value creation that compliments c-suite leadership.

My model of directorship is designed to help directors solve the problem of how they play a role in ensuring their firm's success.

The Directorship Model helps explain:

  • The boards overriding purpose
  • What value is and why it it's important
  • How  boards create value
  • How to prioritize stakeholders
  • When to act, what to do and how to behave to create the greatest value
  • Why boards and management teams break down

To be clear, leadership in the boardroom doesn't mean crossing the line between the executive and the board.   It means the executive and the board deliberately and systematically working together to create the greatest possible value for the firm they both lead but in different ways.



To help directors look beyond the forest, I'm developing a model or framework for directing.  I call it "leadership mechanics".

Within this one page diagram are the key elements of value creation in the boardroom and their algorithmic relationship.

Leadership mechanics is a system of directorship (not governance).  It's not a check list, a catalogue of heuristics or a calendar of board activities.  It's a coherent and logical model that connects directors to their role as value creators and ultimately ensures stronger, more resilient and enduring organizations.

More importantly, just like leading doesn't make managing any less important, directing is not intended to make governing any less important.    Yes, both are in tension, but done right that tension ensures value is created and protected in equal measure.  

The purpose of DLMA Matrix and leadership mechanics is to help directors get the balance right more of the time. 

Below is an introduction to the current version of leadership mechanics.    Like all good "software" it's continually being worked on with updates described in the Ideas section and a new release scheduled for the first half of 2015.



For more on the model and to see how it's evolving read the Mechanics of Boardroom Performance.

 Re-edited December 27 2014.


What is Leadership in the Boardroom?

When leading divorced from managing back in the mid 1970's there was a choice.  Redefine managing to include these new qualities or create a new field of management science - leadership.

Today we face a similar problem and again it centers on the concept of leadership.   The difference is that the debate has moved from leading in the C suite to leading from the boardroom.

Ram Charan, Dennis Carey and Michael Useem argue that the role of the board is changing.   Boards must evolve beyond their now traditional role as overseers.   "Governing boards should take more active leadership of the enterprise, not just monitor it's management" they write in their latest book Boards That Lead.

A similar message is now coming from Mckinsey & Company.  Long the champions of boards concentrating on maximizing shareholder value, their focus is shifting.   Though they don't use leadership in their latest insight ,  the broad theme is that boards need to spend less time monitoring management and more time looking forward.

Indeed, these authors support what I have been saying for a decade.   Boards must direct for the strength of their organizations first and govern for the weaknesses of their people second.  Though we may disagree on the why and how,  we all agree that leadership should be on the agenda of today's public company board.

But before spending the next ten years getting into the detail and arguing over whose approach delivers the greatest value,  its opportune to stop and ask what should we call leadership in the boardroom?

Corporate Governance ?

Ram Charan and his fellow authors argue that now is the time to redefine the concept of corporate governance:

"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"   They continue "rarely do traditional definitions of corporate governance make much reference to company leadership".   They conclude "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"

I think redefining corporate governance to include leadership is a mistake:

  • First, corporate governance has been described as a "10 pound concept trying to fit in a five pound bag" ( or words to that effect) and that was before the emergent reality of board leadership.  Trying to add another 10 pounds in the form of the intellectual baggage of board leadership, will just compound the problem.
  • Second, there is no universally accepted definition of corporate governance to redefine to include board leadership.     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.
  • Finally, if there is a popular definition of corporate governance, it centers on oversight, monitoring, process and control.    Governing, shares more in common with managing than leading.   Governing and managing are essentially about doing things right (and unfortunately ticking the right boxes).    Leadership is, as Peter Drucker reminded us, about doing right things.  Describing the board's managerial and leadership functions as corporate governance just creates more confusion and begs the question of how to distinguish the two.


An alternative would be to expand the concept of leadership to encompass both executive leadership and board leadership.

This too would be a mistake:

  • Combining board leadership and executive leadership in the one concept would confuse where the line in the sand between the two is drawn. 
  • Second, board leadership is different to executive leadership.   Both lead but in different ways.  Rather than lose sight of the nuances of the two approaches by grouping them together in the one concept, it would be useful to create a new word to describe and clearly distinguish leadership in the boardroom from leadership in the C-suite.


To overcome these and other problems,  I argue that directorship is leadership in the boardroom.   

My solution to the problem of what to call leadership in the boardroom has been to combine the noun "director" with the suffix "ship" to come up with another meaning for an old word "Directorship".

Ship is a commonly used suffix to form nouns of state or condition.  Whilst historically used to denote the office or position of a director,  I can't see a reason why it shouldn't be used in the same way as "leadership".   Leadership is used both to describe a position and a skill.    Likewise, it seemed logical to me that directorship be used to denote the skill of a director in creating value for their organization.   

Indeed, you'll find a number of examples where the word "directorship" is used alongside corporate governance to distinguish between the two.

Corporate Governance, Leadership and Directorship Are All Different

(c) Tunjic 2014

(c) Tunjic 2014

Describing traditional board practices as corporate governance and the emergent leadership practices as directorship provides a brand new framework with which to understand the boardroom.

We are just coming to realize that governing to protect value through oversight and directing to create value are fundamentally different functions in much the same way as managing and leading are.   Indeed all four are vital to organizational success. 

  The manager sees the trees.  The leader sees the forest.  The director, practicing corporate governance, looks for the threats hiding behind the trees.   But, the director does something different again.  

Boards need to look further out than anyone else in the company,” commented the chairman of a leading energy company to Mckinsey&Company.   They're right.  A director, practicing directorship, must look beyond the forest for the opportunities that lie ahead.  

For more more on governing and directing.


Be the Bend in the River

The Australian desert is hypnotic from the air.  Dusty hues broken only by the occasional ruffle of a mountain range Wand the long thin lines of ancient waterways.

Why do rivers snake like they do across this vast land?

This was the question I put to a hundred or so miners a few years ago.  I was in Kalgoorlie but I wasn't there to talk about gold.  I was there to explain how ethics work.

Hands went up with various explanations to my question.  "It's the force of the stream" said one.  Another suggested it was the sediment in the flow.  Then from the back of the auditorium I heard "it's the banks".  Whether a river moved left or right or kept dead ahead depended on what was in its way.

"What does this have to do with ethics" they, and no doubt you are wondering.

Most of you will be familiar with the idea of following the path of least resistance.  The physical or metaphorical path that gives something or someone direction and describes why an object or entity takes a given path.

Rivers follow the path of least resistance.  But if you think about it, it's more accurate to say that rivers follow the path of greatest resistance.

There are two sides to the path.  Inside the path is what yields - the least resistance.  But on the outside is what gives the path its direction - the greatest resistance.  The greatest resistance creates the way and gives the river direction.

When energy meets the greatest resistance the path turns and something or someone follows.  This simple proposition provides an alternative line of inquiry into why some organization run into trouble and others run into opportunity.

Traditional management views direction as something that is forged through a combination of strategy, will power, talent and resources.  What drives direction is the application of energy in a strategic direction.  To me, that can be likeexpecting a flood to change the direction of a river? Nature's lesson is that like the river in flood, once all the energy of the latest change management program dissipates, the organization returns to it's natural direction.

My message was simple: what resists is directing and few notice.

If you want to understand where a corporation is headed pay attention to what resists and what doesn't when opportunity presents.

Ethics resist.  Culture resists.  Values resist.  Organizational habits wrapped up in stories resist.  They all share the characteristics of a river bank.  Good or bad these intangible behaviors are repeated so often and for so long that they become invested with a solid quality.  And like the river, they direct the flows of energy and opportunity within organizations in a way that goes largely unnoticed.

This wasn't news to the mining industry.  Stories of accidents at the mine repeated over generations were constantly directing employees out of dangers way.  But what was new was an appreciation of how policies, ethics and culture worked.  The organizations safety habits subtlety and imperceptibly helped steer the organization clear of risk.

Why did AIG have a massive exposure to the sub prime risk and other insures did not?  Why did Lehman and Bear Stearns collapse and other commercial banks survived?  In part, the answer lies in resistance.  Their culture, ethics and habits were directing them into the path of the global financial crisis years before the implosion of the financial system.  Their culture directed them into harms way.

But others resisted and even became stronger.  They were made of tougher stuff.  Many were exposed to the same pressures but ended up going in a different and better direction.  This was not just good fortune.  It was their healthy culture, ethics and habits at work.  They were directed out of harm’s way by saying no to false opportunity.

Understanding how companies get direction requires a different level of thinking.

  • At one level direction is a function of what is intended - strategy, planning, risk management, execution.  These head skills are vital but only part of the equation.
  • The next part is intent - ethics, values, culture and habits.  These behavioral skills create the paths of resistance and what I'll call "natural direction".
  • Finally there is outrageous fortune.  The world rushes at an organization faster that it does at the world and like a landslide can change the course of a river, so can outrageous fortune change the direction of a company.

My rule of thumb is that direction approximates what is intended (forged direction) multiplied by intent (natural direction) divided by outrageous fortune.   Seeing direction this way elevates culture and values to the stature of strategy.  Both contribute to direction.  But do so in different ways.

The lesson is that if boards want a change in direction they must first be the bend in the river.