"Managers Must Manage". 

Peter Drucker

What must directors do?

To most, the answer is obvious - Directors must govern:

"Governance is a discipline different from management. Understanding that concept is the first step toward improving board practices....governance focuses on active, vigorous oversight of the company and its management"

John Stout

Why not direct? 

If managers must manage surely directors must also direct?  We assume governing is the same as directing.  But is that right?

Must directors govern and direct?  Or, are they one and the same?

These are not absurd semantics. 

Absurd is discussing the virtues of say on pay, comply or explain and a 100 more governance details but, when challenged on the big questions, can only reply that the answer is self evident.

To answer the question of what directors must do it makes sense to follow Drucker's lead and start with their tasks.

"A (director's) job should be based on a task to be performed in order to attain the company's objectives.  It should always be a real job - one that makes a visible and clearly measurable contribution to the success of the enterprise". 

He even lists, on behalf of the corporation, the tasks of directing that contribute to the success of the enterprise:

• approving what the business is and what it should be
• approving the objectives of the company and its measures
• reviewing profit planning and the like
• final decision making ( the "Supreme Court")
• watching over the spirit of the organization
• utilizing peoples strengths and neutralizing their weaknesses
• developing and rewarding tomorrow managers
• ensuring management tools and methods strengthen the organization
• directing it towards its objective.

Though this list is over half a century old it still captures what corporations need from their directors.  Indeed, a variation appears in all the governance charters I've seen.  Good directing like good managing starts by connecting tasks with the objective of the corporation - They are just different tasks.

To rephrase Drucker, the directors job is determined by the needs of the corporation - "What (directorship) jobs are needed and what each of them is should always be determined by the activities that have to be performed, the contributions that have to be made to attain the companies objectives.  A (directors) job exists because the task facing the company demands its existence - and for no other reason.  It has its own necessity; it must therefore have its own authority and its own responsibility".

In other words, directors must do what the corporation needs them to do - To me this is the essence of progressive directing and directorship.

That means the board performing each of Drucker's tasks (and more) in a way that leads to the greatest strength, resilience and endurance of the Corporation.  It also means designing a board plan that describes how the board, working collaboratively with management, intends to execute each of their tasks.  More importantly, that plan looks nothing like so called "best practice". 

But there is something missing from Drucker's list.

Today, Anglo/American directors are expected to maximize shareholder value.  If popular opinion was the measure, this has become the directors number one task (and for some commentators the boards only job).

By virtue of a belief in the trinity of ownership (shareholders own corporations), agency (directors are shareholder's agents) and agency costs (directors must protect shareholders from management) directors are now expected/assumed to govern on behalf of shareholders.

But maximizing shareholder value doesn't belong with the other tasks.  Those jobs are based on the corporation's needs.  This job is based on the needs of the shareholder.

To those who believe in the trinity, the directors job is to solve the shareholder's problem caused by the separation of ownership and control - Directors must govern and best practice is prescribed as the plan for good governance:  

• directors should vigorously challenge management
• directors financial interests should be aligned with shareholders
• directors should comply or explain why not
• directors should be generalists
• directors should increasingly take direction from shareholders on how to direct

Make no mistake, the tools and processes of governing are not designed to contribute to the objective of the corporation as envisaged in the Practice of Management.  They are designed with the shareholder in mind.  The needs of the corporation are at best an after thought.

To quote Professors Shleifer and Vishny governance is concerned with "The ways in which suppliers of finance assure themselves of getting a return on their investment". 

So, what must a director do?

To which task master should the board listen?  To the shareholder who speaks loudest or the voiceless corporation.

Must a direct direct or govern or both?  And, if both, how do we connect the plan for good governance with the tasks of good directing?  Does good governance lead to bad directing?  What does a plan for good directing look like?  Is good directing better for shareholders than good governing?  Is anyone measuring, and if not, how will we ever know?

To be clear, by drawing the distinction between directing and governing I'm not suggesting in any way that there is anything irreconcilable about the objectives of the corporation and those of its shareholders.  That would be silly.  No, what I am suggesting is that shareholder value is an outcome of good directing.  It is not a task or means but a consequence and ends of directing.  A consequence and end that will be compromised for as long as directors are expected to follow the plan for governing when performing the tasks of directing.