Norges Bank Investment Management (NBIM) know what they're talking about when it comes to corporate governance.  With US $650 billion to invest it's their business to know:

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

To this pension fund, and investors everywhere, governance describes the many ways in which they manage their investments.

And what better way to manage their investments than by having their "men" on the inside.

Under the cover of agency theory, the boardroom has been transformed into an extension of the investor's business model.  In fact, the two are becoming one.  Board structure, composition and process are now designed to align the interests of directors with those of shareholders.  Directors are becoming investment managers fully integrated into the goals of investors.

I get this.  Governance is a good idea for investors.  What I don't understand is who's left to do the directing.  And if no one is doing the directing, perhaps governance isn't such a good idea after all.

Directing predates corporate governance by a 100 or more years.  Directing is what directors did before the rise of "best practice" and what directors continue to do in the shadows of the boardroom.

Directing is what directors do to create value in and for their corporations.

If the board is just one way investors assure their investment, it's the only way corporation's assure their strength, resilience and endurance.  The board is still at the forgotten core of the corporation's business model.

Directors are the ones that commit the corporation to its future.  They agree strategy and strategize, approve major acquisitions and divestments, select, supervise and reward the CEO, declare dividends and bear the risk of broken promises to the state and to these members.  These are just some of the tasks of directing.

The paradox is that they've all become governance mechanisms too.

To some extent each task of directing has been reprogrammed to become a lever in the investor's bag of tricks.  Under the spell of shareholder primacy the traditional tasks of directing have been re-purposed.  Once upon a time CEO's got paid just like other employees.  The rate was different but the methodology was similar.  But ever since the late 70's, when CEO pay first started to be aligned with shareholder value,  it's risen over 100 times faster than their employees.

The challenge is that reprogramming directing into governing ignores the reason for the task in the first place.

As mentioned, directing predates governance by years.  The tasks of directing came about because corporations needed them to be done to achieve their objective of strength, endurance and resilience.  Nothing has changed in business to alter this commercial reality.  What has changed is that directors have become investment managers and what they do is being turned into an investment tool.

The challenge of directing and governing can be seen in the oversight of management.

Corporate Governance holds that the goal of oversight is to monitor management.  Due to a widespread belief in agency theory, the board has become the principal mechanism by which investors manage their risk of management misbehavior.  In "monitoring mode" delegates become the target of intense, active and vigorous surveillance and the language reflects this.  It's not uncommon to hear directors describe their role in terms of  "cross examining" and even "interrogating" management.     

Directing approaches oversight from an entirely different direction. 

Directors cannot delegate management to managers and then monitor in the interests of investors. Instead directors must continue to guide and supervise management in order to achieve the corporation's objective.  The goal of oversight from the perspective of directing is to provide the CEO with the necessary support, encouragement and direction to ensure the required work gets done.  In many respects it's the opposite of the governance version of oversight.  I doubt any director consciously sets out to undermine their delegations, but there is enough evidence to support the view that this is the unintended side effect of turning boards into monitors.

What this shows is that corporate governance and directing are two different tasks masters and they're pulling the boardroom in different directions.  Great for your competitors, but a problem for you.

My solution is that if you get the directing right the governing will follow.  Investors don't need directors governing to manage their investments.  They need directors directing for strength, resilience and endurance.

I admit this is probably going to take a decade or more.  After all, this generation of directors have been raised to govern.  For some, surveillance is all they know and, if you believe the leading lights of the governance industry, all they will ever know.

But I argue directing can prevail.  It will take a leap of faith.  But faith in reason and the human spirit are more the drivers of corporate prosperity, than the fear and paranoia that drives corporate governance.

 *an updated version.