Corporate governance is under siege. But, no matter how damning the argument against best practice, the governance industry has had a rock steady defense.
"Corporate Governance may not be perfect but it's better than no alternative."
Despite mounting evidence that best practice won't deliver predicted value, the governance industry has just celebrated 20 years of the UK Code confident that, in the absence of a meaningful alternative, it will be safe for another 20 years.
But, whilst the industry cheers, Corporations swallow their real poison pills and the rest of us are left to wonder why capitalism is still so sick. Consider Yahoo. According to GMI, a corporate governance rating firm, Yahoo's board raised "no red flags". But, has done little to shake the label of the "worst board in the country".
There is an antidote. And it works equally well for profit and nonprofit corporations.
Consider the following steps and, at the end, ask yourself whether Directorship just might (with a bit of work and imagination) be the better belief system than the alternative:
Step 1: Get Clarity
The Corporation is a separate legal person. It has personal/individual sovereignty and owes nothing to any person that it has not promised.
The Corporation's objective is to survive and grow in its own right. Measure for:
Strength (S)
Strength is a measure of intrinsic value created by trading through the best possible business model.
Resilience (R)
Resilience is a measure of the corporation's ability to make and keep the best possible promises
Endurance (E)
Endurance is a measure of strength and resilience
Directorship holds that the Board's purpose is to realize the Corporation's S.R.E by performing various Tasks.
Step 1 is the threshold that divides Corporate Governance from Directorship. If you believe that corporations are owned by its members or that maximizing anothers interests is paramount then Directorship is not the alternative but a competing belief system. But if you believe in corporations and the power of people coming together to promise as one then Directorship may provide the better path for you.
Step 2: Get Commercial
Whether for profit or not, Corporations rely on trade and their commercialism for S.R.E. Get commercial by:
- calling "Stakeholders" what they really are TRADING PARTNERS
- exchanging the best possible promises with TRADING PARTNERS
- prioritizing TRADING PARTNERS based on their contribution to S.R.E
- ending the practice of making gratuitous and unnecessary promises to analysts and governance advisers
Step 3: Get Beyond the Numbers
Get beyond the numbers by focusing on all assets and not just cash. Accounting profit is pointless if it undermines S.R.E.
Step 4: Get Perspective
No board can trade blind. Boards must work from business models and trading frameworks then financial models.
Financial literacy is pointless if a director cannot read the business model from which it is derived.
Step 5: Get Past Duties
Aim much higher than duty. Duty is just the minimum.
Step 6: Get a Directorship Team
Boards do not direct alone. They rely on a team made up of the CEO, the executive and others to fulfill their purpose. Everyone knows there is a line that divides the Board and Management. What we don't realise is that for some of the time they are on the same side of the line and need a plan to work together.
Step 7: Get on Board with Mechanics
All teams needs need team rules. Rules are the Mechanics that connect the Directorship Team to the Corporation's S.R.E.
Step 8: Get Strategic Mechanics
Choose the Mode of directing and corresponding Tasks that will realize the Corporation's S.R.E based on the the Situation at the time.
Step 9: Get Tactical Mechanics
Match team member Roles, Behaviors and Actions to the Board's choice of Mode and the Tasks at hand.
Step 10: Get Fit
Get fit by:
- Testing for Broken Mechanics
- Learning and practicing the right Mechanics
Step 11: Get Competitive
Get competitive by:
Remember talent and diversity is not a strategy. No amount of talent will save a Board with a bad "me too" plan and a vague objective.
- Forgetting most practiced Corporate Governance. What is the competive advantage in following the crowd?
- Focusing on S.R.E
- Using Mechanics to develop a unique Board Plan
- Building the talent, teamwork and leadership to execute on the Board Plan.
It's your choice.
You can choose to stay with Corporate Governance or take the first steps to Directorship. As James McRitchie of CorpGov.net explains:
"Unlike the natural sciences, where paradigms are used to explain and predict, corporate governance is socially constructed. Paradigms in our discipline are normative models, used to to discipline and guide. The major stumbling block to shifting paradigms is recognizing the element of choice. We aren’t stuck with what we have. We can choose to move to a whole new paradigm, if it offers a better foundation for building the kind of world we want."
To be clear, Directorship is not a theory or a model. It is not intended to be descriptive or predictive of failure. It is a logical and systematic plan that connects the boardroom tocorporate prosperity.
To learn more have a look at /tunjic/the-mechanics-of-boardrrom-performance