A think tank led by a top British analyst claims that a much-needed overhaul of boards is within our grasp – but do we have the will to reach out and take it?
Remember when the word boardroom conjured up images of paunchy, middle-aged men sitting around a vast oak table, discussing the odd sales figure or strategy point between puffs of Cuba’s finest? How things have moved on. The old boys’ club that was once the company board of directors seems woefully anachronistic now – but have things changed enough?
A think tank launched recently by Board Intelligence would suggest that we actually have a long way to go. In fact, its findings create a picture in which a set of unwritten, stifling rules – existing only in the shared psyche of the business community – is preventing us from instigating a boardroom revolution which could change the face of British business in the most positive ways one could imagine.
First, though, some background: Board Intelligence, like many a razor-sharp business plan, was founded on the basis of an observation that something was both broken and fixable. “We started out as a strategy consultancy,” explains Jennifer Sundberg, the company’s co-founder and managing director. “We were engaged by an organisation which had some big strategic issues. They invited us to observe some of their board meetings, and it was that which gave us this tangential insight.
What we saw was that even a really stellar board, made up of very engaged, very talented people – entrepreneurs, scientists, accountants; a genuine dream team – can struggle to have the conversations that matter. We saw an information barrier, preventing focused, productive discussion.”
Sundberg and her business partner, Pippa Begg, then set about ascertaining whether the problems they’d encountered were specific to this organisation, or something more endemic in the UK business community. “Broadly, we found that what we’d witnessed in this one boardroom wasn’t at all unusual, and that boards were typically receiving information that didn’t align with the priorities of the organisation – things that really mattered,” says Sundberg. “Board directors – non-exec and exec alike – were all frustrated by the information set they were receiving. On the strength of these observations, we decided it was an issue we could do something about, and we pivoted from being a strategy consultancy to become a pure-play specialist in helping boards to get access to relevant, readable information.”
Ripping up the rulebook With that goal in mind, Board Intelligence set up a think tank called ‘The Board Is Dead. Long Live The Board’ to tackle some of the big questions on the subject, inviting major power players from various industries to get involved. “Over the last year,” explains Sundberg, “300 board directors have joined us in small groups of five or six to tackle the question: ‘If you could rip up the rulebook, what would good governance look like?’”
Directors flocked to take part from every corner of the public and private sectors, including representatives from Marks & Spencer, easyJet, the National Trust, Royal Bank of Scotland, Barclays, the National Audit Office, the Bank of England, plus various ministerial boards and hospitals. Schoolchildren were also invited to take part, as well as artists and others with no preconceptions, effectively playing the role of the control in a scientific experiment.
“The idea was to explore the issues openly and honestly,” says Sundberg. “At each meeting, we listened to the frustrations and aspirations of the attendant directors, and the ideas that came up ranged from the incremental to the radical. The notion of scrapping the board altogether arose regularly, but then every time we discussed what would be put in its place, we ended with something that sounded a lot like the description that would be given of a board today – just delivered in a different way.”
Sundberg says there was no shortage of rather less anarchic, recurring themes. A large number of participants wanted to spend more time conducting the business itself, and walking the floor – meeting the customers, the shareholders, the employees and getting to know the people whose interests they are there to represent – rather than being locked in board meetings. Another popular move was to publish a manifesto to support the election and re-election of each board director, setting out the value they think they can add and why they believe in the business. Forming smaller boards was widely popular (“Have you ever had a satisfying conversation in a group larger than six or seven?” as Sundberg puts it), as was breaking up large, complex – and therefore ungovernable – businesses into organisations that can more reasonably be overseen.
Other popular moves included: refactoring the AGM and the annual report in light of technology and social media; extending the remit of remuneration committees so that they deal with company-wide salaries, rather than just executive pay, on the basis that incentives and rewards are one of the few levers a board can pull to drive behaviour and culture; and creating a separate forum for strategy and opportunity development.
Perhaps one of the most eye-catching findings of the think tank related to the ‘contract’ that a business has with society. Some readers will be familiar with American economist Milton Friedman’s statement, made in 1970 in the New York Times: “There is one and only one social responsibility of business – to increase its profits.” Deloitte recently surveyed a group of millennials and asked them if they agreed with Friedman’s famous assertion, and 92 per cent of them said ‘no’.
No surprises there perhaps, but Board Intelligence’s think tank asked its 300 board directors and members of the establishment – a group mostly aged between 50 and 70, and made up of slightly more men than women – the same question. Ninety-three per cent also disagreed with Friedman. “These are not the bad guys,” says Sundberg. “We have plenty of good people – great people – on our boardroom tables. Yes, we need more women – the lack of women on boards is, quite frankly, simply weird – and we should strive to find better and better people from ever broader backgrounds. But the people currently on boards are not the pantomime villains they’re often portrayed to be.”
There was, arguably, a bigger surprise in store once the think tank’s findings were digested and evaluated: “Basically, very few of the aspirations we heard expressed are prohibited by the existing UK Corporate Governance Code or any other form of regulation,” says Sundberg. “Which begs the question: why the lack of progress? If today’s powerbrokers want radical change, and the Corporate Governance Code isn’t standing in their way, then what is?”
Reflecting on that question, Sundberg draws an interesting and, at first glance, surprising historical comparison. “A hundred years ago this summer, events were unfolding in eastern Europe that would lead to the outbreak of the First World War,” she says. “Almost every European country has been accused at some point of being chiefly responsible. But a new book by the Cambridge historian Chris Clark offers a different and convincing theory: what he believes is that none of the nations involved really meant to wage war – they sleepwalked into it.”
So how does that relate to the think tank’s findings? “Over the past 20 or 30 years, we think something similar happened in business,” Sundberg continues. “We’re all familiar with the narrative that a group of evil architects at the top of British business shaped a short-termist, greedy corporate culture in their own interest. But perhaps the bigger truth is that our business leaders have been much like the leaders of 1914 – sleepwalking to a place they didn’t consciously set out to be in.”
As for a cure for what might be deemed a destructive ailment, Board Intelligence will explore this question with another think tank next year. “We invite readers who want to take part to get in touch with us,” says Sundberg. “It’s an opportunity to try to get under the skin of this issue with fellow board members who together have the power to effect change.”
The view from the IoD
Director general Simon Walker on the changing face of the modern boardroom
Debate over the Friedman Doctrine, which asserts that a company’s sole responsibility is to increase its profits, was a core aspect of Board Intelligence’s think tank: 93 per cent of participants disagreed with it as a business principle. But was the economist and statistician really advocating an amoral approach?
Simon Walker, director general of the IoD, suggests otherwise. “The point Milton Friedman was really making was that the profit of a business doesn’t belong to its managers – but its shareholders. He was pointing out that corporate bosses who dole out with largesse social projects they think are a good idea in principle, whether sporting events or artistic endeavours, are actually giving away other people’s money. I don’t think he was ever saying a business can’t spend money outside its core purpose, if it regarded what it was doing as advancing the business.”
For Walker, one thing seriously lacking in many a modern boardroom is a willingness to challenge. “People with a questioning mentality and a willingness to stand up to overly powerful, over-confident chief executives are increasingly key,” he says. It’s especially the case, says Walker, if the chief execs in question have been successful up to that point. “When people are knocking RBS, they tend to forget that Fred Goodwin was hailed as a business hero until the very last point in that saga.”
Walker believes that even the odd upstart on the board may be a healthy thing. “Just as disruptive technology is changing the way we all live, so disruptive thinking – politely but firmly expressed – ought to be changing the way we take for granted established corporate practice in the UK overall. For example, in 2006, the board of Sainsbury’s rejected, as was their right, an approach which valued the company at £6 a share. The Sainsbury’s share price now is around 236p, so the interests of their shareholders may not have been well served by a board turning down what was quite a generous offer for a company which was being well run at the time, without having perhaps looked at the alternate strategy that the bidding firm wanted to take. Or perhaps accepting the bid. So there are responsibilities that cut both ways.”
And what of one of the biggest hot potatoes in the debate: the presence of more women on boards? While Walker wouldn’t advocate state-imposed quotas, as imposed by the Norwegian government in 2003, he does believe the growing parity is important. “To bring in people with more experiences of different aspects of life is a good idea,” he says,
“And inevitably, a good number of those people are going to be women. Gender diversity is getting better, which is a good thing. But are diversity of ideas and age diversity improving? Is type-of-person diversity improving? Those are the questions I’d put out there.”