University governance: some thoughts

In this week's THE there is an article (you may have to register to read it) about the goings on at Plymouth and the broader implications for university governance. One section jumped out at me (the reaction of the cat sleeping on my desk suggests that I may actually have gasped in horror when I read it):

"[The author asks:]  Who holds a university board to account? “The board holds itself to account,” says Montagu. The CUC’s existing guidelines say that boards “should conduct an effectiveness review of their own operation and governance not less than every five years”, he adds."

Montagu is Sir Nick Montagu, chair of the Committee of University Chairs and chair of governors at Queen Mary University of London (much furniture...). Sir Nick had a distinguished career in the civil service and ended up running the Inland Revenue. Since retiring, Wikipedia tells me that he has  "been associated with a number of commercial activities, mainly in the pensions and insurance field" You might expect that this background would equip him with a better understanding of accountability issues, if not of corporate governance.

Most universities don't (yet) have shareholders. They didn't used to have customers either, although student fees have certainly changed the perspective of those paying. Those delivering the services provided may be reluctant to admit this explicitly but the emphasis on National Student Survey scores rather gives the game away. And, when the consumer association Which? reports on students' views of what they are getting, it seems fairly clear that UK universities are now pretty much a service industry, engaged in competition for students in a global marketplace. So who should be holding the governors to account?

Accountability in public and third sector organisations is not clear cut but their approach has been hugely influenced by developments in the corporate sector. Codes have proliferated, providing legitimation but they are established and revised with little consideration for assessing their effectiveness:

"The CUC is developing a new code for governing bodies. Montagu says that while there was a need to update the existing code drawn up in 2004, this is not a response to any cases of governance fractures or to the emerging market. Although following the code is voluntary, the “underlying assumption” is “comply or explain”, he says. The revised code is expected to be published by mid December and will have the “support” of Hefce, although Montagu stresses that it is not the funding council’s code."

The adoption of the voluntary code approach in the corporate sector was an attempt to avoid the imposition of legislation. The article suggests that the university sector would do well to reform its governance for the same reason: it appears that legislation may be introduced in Scotland. But such a reform would need to address the very fundamental issue of accountability.

My own experience of university governance has been instructive.  After I published my research into audit committees, I was asked to join the university audit committee. I agreed very reluctantly.  I was the only woman and the only academic on the committee. As an employee, I felt uncomfortable about my informal co-option. My role was unclear since I was not an elected representative of any group and the committee could have drawn on my expertise without me being a committee member (as indeed a later chair of the committee did, by taking me to lunch occasionally). At the time, I was researching into the relationship between risk management and internal audit but whenever I raised the issue of risk I was told that the university was fully insured, internal audit was outsourced and no discussion was needed. There were occasions when I felt that the committee had exceeded its remit but my concerns were dismissed. The dynamics of the committee were odd and it took me a long time to work out the hidden relationships.  Evaluation? The audit committee reviewed itself in a general discussion over a very good Xmas lunch in the university restaurant. 

It was not a happy experience: I resigned after a couple of years and no one asked why. I believe that things changed significantly under the subsequent chairman.

Not long after this I was invited to speak at a HEFCE event for chairs of governors and audit committees, on the role of the audit committee. After the plenary session, the attendees were put into groups and asked to discuss what audit committees should do in various scenarios - fictional, but I was told based in part on real events. I sat in on several of these and the discussions revealed some really different perspectives. But for me the most interesting part was the question I was repeatedly asked : how can I get my vice chancellor to tell me what's going on on the academic side?

The traditional model of university governance (beautifully glimpsed in F. M. Cornford's Microcosmographia Academica) had academics at centre stage. Different management structures have changed that. But aren't boards of governors accountable to them, too?

"Too Big to Jail"

Lawrence Summers' review in the FT of Brandon Garrett's book "Too Big to Jail" caught my eye this weekend. Summers makes the important observation that the work of legal scholars is often "prescriptive but without a strong empirical foundation". This has been true of much of the literature I've read by US authors, less so of those from the UK, but it is changing. I remember being delighted to find a paper by US legal scholars on board gender diversity which was based on interviews with those involved, very unusual within that stream of literature.

I have yet to read the book but Summers uses the Arthur Andersen/ Enron example to illustrate the inadequacies of punishment of corporate fraud. The impact on those employed by AA and completely unconnected with the Enron relationship was huge and unfair (see here, here and here ) and punishment of the individuals whose dereliction could be proved might have paralleled that suffered by the Enron executives but I am not sure that this is a good example and oddly Summers does not mention that the firm's conviction was later overturned.

Summers suggests that a different structural approach to accountability might improve policy in this area. He uses the dreaded term "nexus of contracts" which, to me, conjures up agency theory and all that is wrong with that approach but, language aside, he may have a good idea. I have been impressed by the paper by Kelli Alces which proposes that boards of directors are no longer fit for purpose. It is surely time for a substantial review of the fundamentals of corporate accountability and our consequential legislative arrangements.

The comments on Summers' review largely focus on whether he should be given a platform in the FT at all, given his controversial past. More importantly, in my view, it should be recognised that he writes from a  US perspective. He acknowledges this, somewhat tangentially, in the penultimate paragraph but we should always remember that the US legislative and regulatory structure is predicated on very different historical and economic assumptions to that of the UK, and policy making in approaches to corporate crime should reflect this.

Jelly beans and qualitative research

I do like Tim Harford's work and I especially like this.

Much research into corporate governance has been heavily influenced by finance researchers, juggling the many variables that might link corporate governance characteristics to corporate performance, without finding any convincing relationships.

But, since most corporate governance policy steadfastly ignores independent research findings, maybe this doesn't matter.

Encouragement for qualitative research approaches could make a difference. It's very challenging to do. Access to those involved in corporate governance can be difficult to secure and collecting data through interviewing is fraught with pitfalls. Funding applications may be judged by people with little experience of qualitative methods. Condensing a plethora of rich insights into a standard sized journal article is not easy. But this type of approach can usefully highlight the huge variety of practice and experience hidden behind the boardroom door and perhaps cause policy makers to think a little more deeply about the potential consequences of regulation.

The jelly bean researchers could have asked why people eat jelly beans in the first place...

No more codes, please!

ICAEW have published the fifth of their discussion papers on corporate governance, calling for the establishment of an overarching "framework code", to embrace the group-specific codes that have sprung up in recent years. The paper raises several questions.

1. What is the proposed "framework code" for?

It is not clear exactly what problem the "framework code" is designed to address and the idea adds further confusion by blurring the boundaries of corporate governance to include "everyone involved in corporate governance". The Takeover Code which is cited in the paper works well because it is directed at managing a very specific area of activity where the potential problems are clearly understood. The well-established Panel structure permits comprehensive representation of clearly defined groups of stakeholders.

2. Where would such a "framework code" sit?

The paper suggests that it would encompass a very wide range of stakeholders. Basic principles need to sit within a structure of agreed ownership: the FRC currently "owns" the UK Corporate Governance Code but it would be difficult to justify the same organisation taking responsibility for a "parent" code which would sit above this.

3. What does "framework" mean?

The OECD Principles are also cited in the paper: how would a "framework code" differ from these? The use of the word "framework" resonates worryingly with the conceptual framework for financial reporting, a never-ending project which can hardly be described as a success. (See here, here, here and here for some thoughts on this.)

Proposals for change can only be successful if they are based on a careful assessment of the current situation and a good understanding of how this has developed, to ensure that such proposals address real problems and recognise the potential consequences of change.  Although the Cadbury Code focused very specifically on the financial aspects of corporate governance and on the role of the board of directors, it was very much of its time and the world has moved on. The consequences of its implementation have not been properly assessed, either from the perspective of regulatory impact or from that of corporate boards themselves.  From a regulatory perspective, the UK Corporate Governance Code is now unwieldy because every review has added further detail about implementation, rather than reconsidering the assumptions which underpin the principles. Within companies, the emphasis on independence and the role of NEDs has led de facto to a two tier board system which has yet to be acknowledged from a regulatory perspective. Does the unitary board which brings together NEDs and executive directors still exist in any major plc? How does a main board peopled by NEDs interact with an executive board or executive committee?

There is an urgent need to reassess the current corporate landscape and the assumptions on which the underlying principles of UK corporate governance arrangements have been built. Our legislative framework evolved under very different economic and social conditions. Is this legislation still fit for purpose? The proliferation of codes suggests that it is not.

As well as a fundamental overhaul of legislation at national level, there is scope for change at organisational level. Some interesting ideas have been offered by academics. A US legal scholar has argued that the board of directors could be scrapped in favour of quite different corporate governance arrangements which better reflect the interests of those involved. The analysis put forward by Colin Mayer in his excellent book "Firm Commitment" makes a good starting point for some radical thinking.

The ICAEW papers on corporate governance may be effective if they prompt a wider debate but that debate needs to be grounded in a clear identification of the scope and boundaries of the problems faced, a rigorous assessment of the capacity of current legislative and regulatory arrangements to deal with those problems and a careful consideration of the potential for unintended consequences.

Thinking, but not very originally

On Tuesday evening I went to the Hardman lecture at ICAEW. I wangled an invitation to this prestigious event because I wanted to hear Jolyon Maugham (see my post on 30 September). I was not disappointed: he speaks as well as he writes and his talk was full of excellent metaphors (I do enjoy a good metaphor, as well as having a professional interest in them: see also here) Having followed his blog, I understood much of what he said, even the initialisms. And it was those that set me thinking.

Initialisms act as shibboleths in terms of identifying groups and deterring outsiders. On this occasion, I was definitely an outsider. It is unusual these days for me to be in a large gathering of people where I only know one or two. I once horrified a rather shy acquaintance by saying that my idea of heaven was a roomful of people I'd never met before - all those wonderfully interesting possibilities! I get less excited about the prospect these days as my hearing is not as good as it used to be and conversations are more difficult, especially in this splendid room where many ICAEW receptions take place and where the acoustics make it necessary to stand very close to ones interlocutors.

But I was intrigued by the tribe I had fallen among and talked to a lot of people. For all of them, tax figured largely in their lives, but in different ways. There were tax practitioners of various sorts - accountants, consultants, barristers - and there were civil servants and policy makers. And there were a few academics. In conversation with my neighbour at dinner we noted a lack of diversity of both race and gender, although I thought that there were more women present than at similar events I have attended.

And on the bus home I realised that I had observed another form of homogeneity, beyond the pale faces and suits and ties: almost everyone I had spoken to had studied at Oxford or Cambridge. I hadn't asked any specific questions about their educational background but I had asked how they had ended up in their tax related jobs, and their accounts of their careers had begun with graduation.

So the movers and shakers in the tax world are an elite group and a rather good example of an epistemic community, a notion I have been thinking about for some time in the context of internal auditors and risk management. I made a mental note to return to that thought and went back to the book I was reading.

Today I turned to Jolyon's blog - another very interesting piece, about the influence of the Big Four on tax policy - and there in the comments I found that Martin Hearson had beaten me to it, and articulated the epistemic community idea far better than I could have done. This is not the first occasion that I have had a thought and found that someone at LSE had beaten me to it but it's usually been Mike Power who I've been trailing after :)

The book I was reading was "The Circle" by Dave Eggers, a dystopian vision in which a company with similarities to Google is effectively taking over the world. The characters were rather wooden and the plot unsurprising but the scenario described was quite compelling and it was a good read for the bus journey from Oxford to London and back again. (But the pedant in me was roused on reaching the penultimate page, when the word "prone" was used to describe the position of someone in a coma in a hospital bed. I rather think such a person would be lying on their back...)

Eggers doesn't mention any tax issues but in the world he envisages, -where everyone is constantly under surveillance by everyone else, knowledge has to be shared and privacy is a crime - there could be no tax avoidance. A lot of people would be out of work..

Tesco redux

In yesterday's FT, Hugh Willmott offered his view of the Tesco situation.  He comments on the apparent dereliction of the NEDs but his analysis misses two points that I have written about before.

Firstly, the Tesco board structure.  The company has a board made up of NEDs, the group CEO and the CFO. It also has an executive committee, which comprises all the senior executive directors plus the CEO and the CFO. The diagram showing the committee structure does not show the executive committee so we must infer that the Board and the Executive committee function together in some way but it is not at all clear how this happens. The 2014 report tells us:

"The Board itself has evolved substantially over the past two years
from its historical structure of broadly balanced Executive and
Non-executive representation to its current shape of the Chief
Executive and Chief Financial Officer being the only Executive
members of the Board. It is important to view these changes in the
context of management development generally and in particular
the development of a strong Executive Committee under Philip
Clarke, the individual members of which generally attend Board
discussions of matters reflecting their responsibilities. This allows
the Board to operate as a smaller group, supporting real, robust
and penetrating debate while ensuring continued contact with a
range of senior business executives."

Let's think about this in the historical context. Among the concerns that prompted Cadbury was the negative influence of dominant chief executives and many of the measures that have followed have been designed to deal with this apparent problem. (I say apparent because there may be some circumstances in which a dominant CEO may be just what is needed but let's ignore that.) But in Tesco's structure the link between the two committees rests in the hands of the CEO and the CFO who sit on both (the company secretary does, too, perhaps we shouldn't forget him.) Doesn't this potentially hand power back to the CEO?

Tesco is not alone in adopting this "evolved" board structure. When the Cadbury Committee sought to strengthen the role of NEDs, particularly through establishing audit committees, critics argued that this undermined the principle of the unitary board. But the trend to smaller boards with an emphasis on the role of independent NEDs seems to have led to a de facto two tier structure. I've never understood why this shouldn't work just as well but it's worth noting that the countries where this is the norm have different legislative and regulatory arrangements to the UK.

Secondly, Professor Willmott's criticism of Tesco's NEDs is rather unfair. With the best will in the world and even with relevant industrial and commercial experience, a bunch of part time directors is unlikely to be able to offer the rigorous oversight and constructive challenge which is now demanded of them. I'm surprised that anyone wants to take on the role these days.

Prescribing board composition to raise the level of board independence has had unintended consequences and there is little evidence that it has been effective in any regard.  I very much doubt whether similar prescriptions to increase diversity will work, either. As the Tesco report also says:

"Board structure is not set in stone. At any point in time it must
reflect the requirements and state of development of the business
in order to be effective. The Tesco Board will continue to evolve to
best match the needs of the business."

Let's move away from prescription and return to the intention of the Cadbury Committee which was to enable the important conversation between boards and investors within the flexibility of the comply or explain framework. And let's also remember that boards, however independent and diverse, will still make mistakes. Not every "scandal" has its roots in corporate governance: some are just bad business decisions.

If women are the answer, what is the problem?

Dr Barnali Choudhury has kindly sent me a copy of her paper "New Rationales for Women on Boards", recently published in the Oxford Journal of Legal Studies. The paper is one of a very small number questioning the "business case" for women on boards and suggests not only an extended rationale but also possible ways forward to increase the number of women appointed. Dr Choudhury usefully draws on strategic management literature to consider the contribution of women to board decision-making effectiveness, demonstrating that this depends on task performance and cohesiveness.

With regard to the latter, she acknowledges the potential problem of groupthink but I think this deserves much deeper analysis. The level of constructive challenge that is most useful for a board is likely to change with changing circumstances both internally and external to the company and the contribution of board diversity to constructive challenge is far from clear. Further, discussions of board effectiveness rarely address the criteria for assessing effectiveness in the context of board objectives.

Dr Choudhury proposes legislation along the lines of the US football Rooney Rule, which would ensure that women were interviewed for every board position. She addresses the issue of enforcement with the proposal of an annual "audit" for companies with few women on the board, with financial sanctions. This could prompt a new strand in the board consultancy business, but it would, in my view, be better than quotas, as women appointed in this way would have the opportunity to compete equally without the fear that they have been favoured because of their gender, reflected in the "golden skirts" phenomenon. However, she also highlights the supply issue in business leadership, particularly the existing "job success model":

"Positions of leadership in business tend to be achieved through a model in which unfailing availability and total geographical mobility at all times is required in addition to a linear
career path with no breaks."

This is an interesting paper and a thoughtful and important contribution to the debate about board gender diversity, the type of approach I called for in my blog post a year ago. But I am still not convinced about the fundamental nature of the issue. Is there really a problem with corporate board composition that can be solved by appointing more women?

In setting out the "equality rationale", Dr Choudhury asserts that

"... even if a correlation cannot be found between women on boards and shareholder maximization, an equality rationale still justifies measures to promote women on boards. In this light, an equality rationale can be seen as emphasizing women’s rights—as opposed to business reform—as the focus of the government’s measures. In short, increased female representation on boards is valued in its own right."

While agreeing that the factors in our social and institutional environment which inhibit female participation in leadership of all types need to be addressed, I'm still not convinced that getting more women onto corporate boards is a good way of doing this. There is much discussion of the "pipeline", through which female senior managers can achieve board level posts, but I have yet to see much evidence of a trickle down effect resulting in better opportunities for women after such appointments are made. Governmental action would be more usefully directed towards measures to offer all women (and other diverse groups) opportunities for achievement within our social system, rather than focusing on the relatively small group who aspire to board appointments.

There is little evidence that prescribing board composition has positive effects.  The process by which directors are appointed to boards depends on shareholders and nomination committees: let them get on with it as they see fit.

Tax and Twitter

I have some issues with tax. I'm happy to pay it, up to a point. The biggest cheque I have ever written was to settle the inheritance tax bill after my mother died and I really resented having to do it. The capital amassed by my father (and preserved by Mum) was formed mostly from his taxed earned income and it was being taxed again, which didn't seem fair.

When I sat my final chartered accountancy exams, if you failed one paper you had to retake the whole lot.  I always struggled with tax. It made no sense to me at all, there was no underpinning logic to the calculations. I failed the tax paper (in spite of expert revision tuition from an aristocratic future ICAEW president), got married, moved out of London and could not get a job with the biggest accountancy firm in the area, not because I hadn't passed my finals but because... they would only employ women in one department: tax. I went to work in the NHS, finally realised that all numbers are socially constructed fiction, resat my finals when heavily pregnant, got the precious letters after my name, dashed Husband's hopes that I'd do his business books for free and ended up, quite by chance, as an academic.

Obviously, I have never taught tax. I have kept well away from the topic (even when I discovered that tax guru Robert Maas was Bob who lived opposite when I was little, whose sister was my best friend). But a couple of years ago at the annual BAFA conference I went along to a session in the tax stream to support a colleague who was presenting and found something sufficiently interesting to stop me checking email on my phone. It seems that there is qualitative research in tax: who'd have thought it?

Back in April this year I blogged about cutting down on my reading and on Twitter. Well, it's partly worked. I cancelled the alerts and I no longer feel compelled to follow every link. But I haven't been able to break the Twitter habit completely, partly because I've found some even more fascinating people there. Following tweets from a few of my favourite accountants (@Truen Fairview, @nairobiny, @Bombarde16) led me to the fearsome critiques of @fcablog, many of which are directed at @richardmurphy. Now I've been reading Richard Murphy's blog on and off for a while, to find out why he seems to be the go-to commentator on all sorts of things. He is cut from similar cloth to my inestimable pal Prem Sikka: if such people didn't exist, we'd probably need to invent them. But the arguments that they provoke can be a bit wearing, often because of the tone. And I'm an academic: I want properly constructed and supported argument, couched if possible in elegant prose without jargon. Or numbers, because I'm never happy with numbers.

And in among the fretful sniping I found the charming @JolyonMaugham and his blog. Beautifully written. I am astonished to find myself reading for pleasure the words of a tax barrister. I can actually understand some of it. Or I think I can: I once attended a lecture by Stephen Hawking and came out believing I had understood everything he said because he made it seem to simple and obvious. Of course I didn't but the feeling persisted for several hours until I tried to explain it to someone else. (That's the real test of what you know. I was horrified to discover I knew so little about accounting when I started teaching it. If I'd been forced to teach tax I might have understood it eventually but I had enough trouble dealing with double entry: in my first ever class a first year student posed the great unsolved mystery of life: just why is debit on the left?)

Anyway, I now know what an APN is and all sorts of other things which will never feature in questions on Pointless or Only Connect but may lodge in the bit of my brain that stores stuff in case I should ever be a contestant. Today Jolyon has bravely offered a platform for others on his blog. To be honest, I'd rather read what he writes because he writes so well. And he is now wrestling with the problem of comments and whether and how they should be edited. A very time consuming and somewhat depressing, task, I imagine (I don't have that problem here, the passing traffic remains silent, as do my three faithful readers).

But why should I bother reading about tax at this point in my life? Well, at some point someone will no doubt make a connection between corporate governance and taxation and I might feel a need to pontificate.  <Checks Google Scholar> Yes, they already have and it looks quite interesting...

Every little helps...

The Tesco tale is so interesting that I almost wish I were still teaching - such a gift of a case study, we haven't had a meaty UK scandal for a long time. But what exactly is scandalous about it?

One important aspect is the highlighting of the very strange relationship that supermarkets have with their suppliers. When the perils of the demand for cheap food are discussed in the media, the focus is often on dishonesty by suppliers - the horsemeat scandal, for example, or poor animal rearing conditions. The trading practices of supermarkets are rarely discussed. I remember my shock years ago when interviewing an internal auditor who told me that milk suppliers operated without the protection of contracts and supermarkets could switch at a day's notice. Some of the media reports suggest that the revenue Tesco had booked did not materialise because the suppliers were refusing to accept the demands placed on them. In a previous post I was dismissive of the idea of supply chain governance but there are clearly ethical issues to be explored here and opening these up to media scrutiny is not a bad thing.

In terms of accounting practice, what, if anything, has gone wrong? Revenue recognition is, despite accounting standards, a very subjective area. Early reports have noted that Tesco's auditors commented on the potential difficulties in this area but suggest that the audit committee responded that there was no problem and adequate controls were in place. The audit committee members have impressive backgrounds but none of them appear to have retail experience. How far have they and the rest of the board relied on advice from members of the executive committee? With all the recent changes among senior management, it would not be surprising if that advice was at the very least confused. Does this support my view of the unintended consequences of the purely NED board? And what about the role of internal audit?

If, as has been reported, the issue was revealed by a whistleblower, I wonder how the Tesco system works. This could be seen as a positive feature in that the company listens to whistleblowers but what protection will be in place for that brave individual?

Watching all this unfold will make for riveting reading but we should not forget the consequences for individuals. Actions taken to retrieve the company's situation may mean job losses in stores and distribution, as well as in suppliers' businesses.

Corporate governance and management - a blurred boundary?

A Twitter conversation reminded me that I have never got round to writing a coherent summary of the invited presentation (podcast here) that I gave at last year's MARG conference at LSE. I think I mentioned in passing that preparing it was a bit of a struggle because I found it difficult to make a clear connection between management accounting and corporate governance, the topic of the conference.

What I *really* wanted to say was that management accountants seem these days to be in search of a raison d'être and it looked as if they were now clutching at the notion of corporate governance. This was the conclusion I had come to when reading the CIMA/IFAC invention of enterprise governance, which classifies corporate governance as conformance and "business governance", whatever that is, as performance. (The model is derived without acknowledgement from the model developed by Bob Tricker, twenty years earlier: I probably should have made that point more strongly but Bob is in my slides.) But that might have been a bit rude, given the audience, so I watered it down a bit and discussed the relationship between governance and management, rather than management accounting.

And I probably talked a bit too much about the history of NEDs but the book was not long completed and I was in the middle of interviewing NEDs so they were at the forefront of my mind. But I do think that the restructure of corporate boards has had two consequences which have not so far been discussed by academics, regulators or practitioners.

Firstly, as boards have become smaller and predominantly non-executive, most executives have been squeezed out on to an executive board. The structure that has evolved is effectively two tier which is interesting, because objectors to the creation of audit committees at the time of the Cadbury Committee report argued that they would undermine the unitary board structure, which they viewed as a Very Bad Thing. (Difficult to know why this was seen as so important for UK companies, other than the fact that two tier boards were common in continental Europe...)  And the main link between the main board and the executive board is... the CEO. Now, wasn't the whole thrust of corporate governance focused originally on constraining the power of the CEO? Hm.

Secondly, these disenfranchised executives seem to be claiming links to corporate governance by coupling their functional areas with governance, in meaningless combinations - marketing governance, sales governance, IT governance, HR governance, even financial governance. On examination, all of these misuse the word governance: they are concerned with management.

Does this blurring of meaning matter? I still haven't made up my mind. What do you think?

Stopping reading, starting analysing...

My plan to cut back on my reading has been quite successful but logging in to Google Scholar yesterday I found that it had a couple of suggestions for me to look at. Big mistake. I found myself reading an article which made me sigh.

The authors have developed a typology for analysing the quality of "comply or explain" reporting. All well and good: everyone these days wants to develop a typology. It's rather like years ago when we all wanted our own two-by-two matrix: I remember being very excited when I managed this when studying internal auditors' views of risk management. But...there is already a very good paper on the same topic which develops a taxonomy.

What is the difference between a taxonomy and a typology in the context of social science? I have always understood a taxonomy to reflect hierarchical arrangements whereas a typology just groups things together on the basis of characteristics rather than relationships.

Anyway, the authors do recognise the other paper and make some attempt to explain why their approach is different but if I'd been reviewing the paper I would have asked for a more detailed explanation.

But the source of my irritation is more fundamental. The authors note that there is a very limited literature on comply or explain, thus justifying their contribution. But does this matter? The intention of the Cadbury Committee in recommending comply or explain in the Code of Best Practice was to initiate conversations between investors and companies. Nowhere in the paper is the view of investors mentioned: the whole focus is on regulation and enforcement. Regulators have to justify their existence: that they call for improved disclosure quality is inevitable. But investors seeking information about corporate governance don't rely solely on published reports: they have other information sources. If they are unhappy about the quality of disclosures, let them pursue this directly with companies, exercising voice or exit.

Rather than sitting at their desks, churning out sterile analyses of explanations of non-compliance, academics could make a greater contribution by finding out what investors think and what difference such explanations make in practice. Much more of a challenge to get suitable data, of course, but surely much more valuable in assessing the practical effects of the comply or explain requirement.

That was a brief diversion and my reading is now focused on storytelling which is considerably more interesting. I have returned to interview data collected a decade ago, using a new perspective which I think may generate a third paper from the data. I have been planning to do this for some time but have been waiting for a Mac version of MAXQDA, software that I have used in the past. Finally this has appeared and I have downloaded a free demo version. I wonder if I can get all the coding done before the 30 days run out!

Being the awkward voice

I'm following tweets from the IIA conference: they have had some very interesting speakers and I'm sorry to have missed it all but @Truenfair is doing a brilliant job of tweeting the essence of what's being said.

There seems to be a common theme around the need for senior management to be challenged and thus for IA to pick up this role. This resonates with the long-promoted idea that NEDs should offer constructive challenge. All well and good but before the notions of groupthink and the Abilene paradox were so widely promoted we all seemed to believe that consensus was a pretty good thing and worth striving for. I'm starting to feel a bit sorry for all the executives suffering this bombardment of constructive challenge.

Those of us who are natural challengers (yes, that's me) are not always sufficiently skilled in the practice of challenge to use this predisposition in a way that benefits our employers and organisations. It is all too easy to cross the line between constructive opposition and destructive mischief-making. If, after regular challenge, you are marked down as the stroppy one, people will begin to assume that you challenge everything without good reason and your potentially valuable contributions may be ignored. Shaking off the label is very difficult: I learned to change my behaviour in meetings and, possibly more importantly, to pay attention to my facial expressions and body language.

What I most wanted throughout my career was to be properly managed. (The word management is greatly scorned in higher education, unless of course you work in a business school where it is taught, often by people who have never done it.) Over the years I worked for two deans who did manage me and I will always be grateful for the way that they helped me to progress but I've worked for many other people who just found me a great nuisance. I needed a manager who would see how useful my critical approach could be and would help me choose the topics and the arenas in which they could be most helpful.  I gradually developed sufficient understanding of the political environment of the university to be able to do this for myself but by then I think it was a lost cause as many people thought they could guess what I was going to say before I even spoke. Frustration with this led to the increasing temptation to be difficult just for the sake of it - a good signal that I was ready to retire.

I have sat on many interview panels. Sometimes I have seen good candidates rejected because they did not fully meet the criteria for appointment but where the hidden agenda was the sense that they would be difficult to manage, posing a risk to the group. But surely managing those people to bring out the best in them, for the organisation and for their own personal development, is just what management is about? (Managing the challenger: suddenly I see a consultancy opportunity opening up.. Or maybe an airport book..)

There are some points in organisational progress where challenge is really important - and where this disruptive innovation I keep hearing about can be really valuable. There are other points where people just need some calm space, possibly to reflect and regroup, and where challenge, however constructive, may not be positive. If challengers - NEDs, IAs, any sort - are constantly on the case and see this as their main role they may engender a standard response which negates the value of the challenge at the time when it is most needed.

Company secretaries deserve better

I have long been interested in the role of the company secretary. When I first started teaching at Oxford Polytechnic we offered courses leading to ICSA examinations and I taught the accounting course for several years. At that time, the accounting paper was very challenging: the questions were often more difficult than those of the accounting bodies' examinations. Our students had a good success rate and were clearly committed to pursuing the qualification and developing their company secretary role. I often wondered how they fared but had no opportunity to follow them up.

My interest was rekindled in my early research on audit committees, from a corporate governance compliance perspective. It became clear to me that the company secretary had an important procedural role but in those days it was not unusual to find that the finance director was also the company secretary, which gave him (or her: I did meet one woman holding the role, who told me that she had experienced more prejudice from being a member of CIMA rather than an FCA than she did on a gender basis) considerable power. My first encounter with the term "general counsel" also intrigued me as it appeared to subsume the company secretary role.

A position seen as combinable with other senior roles suggested that the company secretary community could be struggling to define itself professionally and this idea resonated with my subsequent study of internal auditors, another group viewed as chiefly responsible for compliance issues but in reality with a very much broader role (you can read more about this here ). So I chatted up some company secretaries and started attending ICSA conferences to find out more, in the hope of developing a future research project looking at how the role is interpreted in organisational settings and by company secretaries themselves, with broader potential insights into how corporate governance is enacted by practitioners and the way in which professional bodies and qualifications develop over time.

I'm still hoping to pursue this. There is very little academic research in this specific area so I am always keen to read anything that might be relevant. So I was eager to read the report commissioned by ICSA from Professor Andrew Kakabadse (see here: free but you need to supply some details before you can download it).

As a review of how company secretaries perceive themselves, which may have been the intention of the commission, it's a nice story and I can imagine that many ICSA members will be nodding away as they read it. Anecdotes are always good to read, especially if they confirm your own experience.  But from a team of academics, this is disappointing stuff. The method used to conduct the study is briefly mentioned but no detail about data collection or analysis is provided that might give the interested reader a sense of the authority of the study.

I don't think anyone would argue with any of the 12 key findings: intuitively one would sense that most of them capture what is already known about the role. The first finding is interesting:

"The role of the company secretary is much more than just administrative. At its best, it delivers strategic leadership, acting as a vital bridge between the executive management and the board and facilitating the delivery of organisational objectives."

This to me reads like the manifesto of a group seeking to capture board influence. In my presentation at last year's Management Accounting Research Group conference at LSE I talked about the blurred boundary between governance and management and noted that the development of smaller, independent boards had led to two issues of potential concern.

Firstly, operational areas were using the word governance inappropriately (sales governance, IT governance, supply chain governance, marketing governance etc) possibly in an attempt to re-establish influence in the corporate governance area now that they were relegated to executive board status: hence the blurring of boundaries.

Secondly, the CEO was now effectively the link between the board and the executives: given that the entire panoply of corporate governance regulation was devised to curb the power of the CEO, doesn't this position seem paradoxical?

If company secretaries are now claiming to be that bridge, this could potentially be an important defence against such a charge, but it is difficult to see how this plays out in practice. A properly structured qualitative research study could provide the insights needed. But this report seems to be little more than a collection of quotes from a loose group of interested parties. Company secretaries deserve better.

Glencore

The Professor is on holiday but she can't help reading the headlines. So Glencore has finally appointed a female non-executive director to the board. This seems to be a matter for rejoicing in some quarters. Vince Cable says it's a historic day for the FTSE, a fatuous remark. But it's all oddly reminiscent of Sir Ken Morrison's hold out against appointing any non-executives to the Morrison's board, all those years ago. He finally gave in to investor pressure. Did Morrison's perform better as a result? Difficult to say, isn't it?

Surely the time has come for every board to be free to appoint the best team to govern the company at any point in time? If every company explained the reasons for appointing every director, investors would have more detailed information and there would be no need for defensive positions as to why dubious proxies for diversity and independence have not apparently been met.

Good luck to Ms Merrin anyway. And to all the other company directors appointed this week, whatever their gender.

Academic referencing for the digital age

I wholeheartedly agree with this argument. In my view, referencing is all about placing your contribution within the relevant academic conversation. I hate articles that provide a list of citations at the end of each sentence, with no page numbers or anything to assist me in understanding why the sentence I've just read is supported by this list of seminal works on the topic. I very much welcome the idea that it should be possible to click on a relevant quote and find that link directly. But I fear that this may encourage the use of secondary citation because the original may not be digitally available.

Here's an example of what may be lost by reliance on secondary citation. My previous post described our search for the 1989 White Paper "Working for Patients". The effort we made to locate the original proved to be very worthwhile. The sentence quoted by Peck was incomplete. He wrote:

"All the non executive directors were to be 'chosen for the contribution they personally can make to the effective management of the hospital'..."

In the context of Peck's article, this is not problematic, although he italicised the word management and did not go on to discuss explicitly the reason for this emphasis.

But the full sentence is:

"All the non-executive directors will be chosen for the contribution they personally can make to the effective management of the hospital and not for any interest group which they might represent."

This contrast between the NED role of representation, traditional in the NHS up to that time, and the new emphasis on management is very salient for our study. And reading the entire White Paper has raised several other questions which we might never have thought of pursuing.

Over the years I have read many articles, student dissertations and funding applications where it has seemed unlikely that the authors have read the original works cited. This has been especially noticeable on the rare occasions when my own work has been cited in a context that is so completely irrelevant that I have gone back to read my original paper to see if I really did say what is claimed! In a future where the effort of referencing is reduced to providing a link, going back to an original which may only be available in hard copy, possibly via the lengthy and costly process of inter library loan, may seem even more of a chore: it will be so much quicker to link to the more recent digital source. We might want to reflect on the implications of this for future scholarship.

Why I appreciate librarians

Yesterday I tweeted that the ICAEW library is fantastic. Here's why.

I have made a start on writing up the paper summarising the project on NEDs in the public sector which Thom and I have been working on for some time. Pulling together the literature review I came across a paper from 1995* that quotes from the 1989 White Paper "Working for Patients". This White Paper set out the original ideas for NHS reform so was an important document. Peck wrote that the White Paper stated that NEDs should be “chosen for the contribution they can personally make to the effective management of the hospital". 

This is rather different from the conception of the NED role in the private sector and I wanted to read the White Paper to set the statement in context and to identify any other indications of how the NED role in the NHS was perceived at that time.

How do you find a copy of a White Paper? First you Google: many, many references to the White Paper, hardly surprising as it led to such important legislation, but no indication of where the original might be found.  You'd think you might find it at gov.uk: no, that site only carries publications after May 2010, but it provides a handy link to the National Archives. But try searching for "working with patients" there: no results. 

At this point, Thom took over and spent a lot of time emailing people who might be able to lay their hands on a copy. You might expect to find it in the House of Commons library but apparently not. Thom even began to wonder if the document had been suppressed... 

As a last resort we decided that it might be worth emailing the authors of the papers that cited the White Paper to see if they could help. I was about to turn back to Google Scholar to see if I knew any of them and list those whose email addresses were readily available when it occurred to me that there were still other libraries to try. 

Nipping down to the Bodleian, which was certain to have a copy, would take all day, or even longer, depending on where the document was stored. And my readers ticket had certainly expired as I have rarely used it. I could order a copy via the inter library loan system at Brookes but that would take ages and involve getting authorisation from the head of department. But the ICAEW library might be able to help...

Within an hour I had received a reply from a very helpful librarian at ICAEW. Not only would a lending copy of the White Paper be posted to me immediately but two other publications which might be relevant had been located which I could also borrow.

That's what I call service.

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*Peck, E (1995) The Performance of an NHS Trust Board: Actors' Accounts, Minutes and Observation. British Journal of Management Vol 6., Issue 2, pp. 135-156

A thought about executive remuneration...

Another review of Piketty, by Lawrence Summers:

This paragraph interested me, especially the last sentence:

"There is plenty to criticize in existing corporate-governance arrangements and their lack of resistance to executive self-dealing. There are certainly abuses. I think, however, that those like Piketty who dismiss the idea that productivity has anything to do with compensation should be given a little pause by the choices made in firms where a single hard-nosed owner is in control. The executives who make the most money are not for most part the ones running public companies who can pack their boards with friends. Rather, they are the executives chosen by private equity firms to run the companies they control. This is not in any way to ethically justify inordinate compensation—only to raise a question about the economic forces that generate it."

I haven't seen that point raised in the debate about executive remuneration, much of which seems to focus on ways to deal with the problem rather than an analysis of why the problem has arisen in the first place.  With many corporate governance issues, looking first at the history might provide an informed grounding for policy development. But I would say that, wouldn't I?