Board diversity and board size

Some new recommendations from the Cranfield experts in this area include the idea that companies should increase the size of their boards to at least 11 and appoint women to those seats.

No-one seems to have noticed the effect of the gradual reduction in recent years of the average size of corporate boards. Grant Thornton's 2013 corporate governance report states that:

"The composition of the average FTSE 350 board remains largely static, comprising one chairman,

three executive directors and 5.6 non-executive directors."

In 2011 they noted: 

"The average FTSE 350 board now has 5.3 NEDs, excluding chairmen, and three executive directors. This continues the trend of an increasing non-executive presence around the boardroom table: as recently as 2006, the FTSE 350 had more executives (4.6) than non-executives (4.4)."

The accepted wisdom is that a higher proportion of NEDs improves boards (research evidence on this remains far from conclusive). The reduction of the number of executive directors has led to the establishment of executive boards.

Tesco, for example, has a Board with 2 executives, the CEO and the CFO, and 10 NEDs including the chair. The Executive Committee includes the CEO and CFO with a further 14 executive directors and the company secretary.

Tesco's 2013 report has a diagram and an explanation of the role of the board and its committees which to me clearly emphasises that the CEO is the link between the board and the executive committee.

Two points arise:

1. Doesn't this structure look a bit like a two-tier board? At the time of the Cadbury Code, critics saw the establishment of the audit committee as a drastic backdoor move, undermining the concept of the unitary board and making UK plc boards look suspiciously like the continental European two-tier model. I have never understood why this should be seen as a Bad Thing.

2. Isn't the CEO in this structure ceded considerably more power if he is the main link between the NEDs and the execs? It's not clear from the Tesco report if they ever all get together but surely NEDs need to have some interaction with the full range of executives to learn about what goes on in the organisation?

The driving force behind the establishment of the UK corporate governance architecture was the apparent need to curb executive power. Could this have gone too far?

If the Cranfield recommendation is that boards should increase to 11 members specifically by appointing women from the executive ranks in their companies, that might make sense. But increasing board size with more NEDs seems much less practical to me.

A conference day out

Today I went to the annual corporate governance conference of the Institute of Chartered Secretaries and Administrators, ICSA. Attending practitioner conferences is always interesting: apart from meeting new people who may make useful research subjects, and possibly hearing some good speakers, you also get an insight into how practitioner organisations see themselves and how the people who run them define their role. They need to assert their specialist knowledge to carve out a commercial space for themselves. The people in charge stand out and it’s fascinating to see how they behave: their personal standing rests on how valuable practitioners believe the organisation to be.

Another issue for some practitioner organisations is their relationship to a broader profession. For example, there is no requirement for anyone working as an internal auditor to be a member of the Chartered Institute of Internal Auditors – they may well be qualified auditors through membership of a professional accountancy body but equally they may not. For company secretaries, ICSA probably has a similar relationship with the legal profession. These organisations represent a specialism, encapsulated within a specific and well-established corporate role that may well fall within a broader profession, but can they lay claim to their own professional status? What does chartered status signify for their members?

I’ve attended the ICSA conference twice before. The first time I was keen to hear a couple of the speakers and the second time (last year) I was invited to take part in a panel discussion on the impact of the Cadbury Committee. This year I again wanted to hear some of the speakers. These conferences are expensive. A long time ago my daughter worked for an events company and got me complimentary entry to several, which enabled me to make very helpful research contacts. Since then, I’ve always asked for a discount, pleading the poverty of an academic and it usually works. This time the quid pro quo for a free place was the request to write an article for the conference magazine (I’ve quoted it in full in my blog post of 30th January. I was interested to see that it was printed in full, no editing, but, as well as my name at the end, they had added the name of one of the speakers, an HR consultant, billed to speak about gender diversity: it made it look as if the article was jointly authored. I wonder how she felt about that. She may not have agreed with my views.)

The first speaker was Michael Woodford. He is an accomplished and entertaining speaker and his material held everyone rapt. The story he told was riveting. And beautifully timed – he began by saying that his talk normally takes much longer and he would have to condense it  and there was some banter towards the end with the chair but he ended on a perfect cliffhanger. So of course in the coffee break we queued up to buy the book which he signed with much pleasant chat: he is a consummate salesman and it was  a great pleasure to watch him at work. And the book is very well written – and due to be made into a film. (I asked who would play him and he said that Colin Firth had expressed interest.)

In his telling of his story (my academic scepticism clicked in early on as I wondered what the Japanese telling of this story might be) he gave a vivid glimpse of the Japanese corporate culture which is very unlike that of the West. I would have liked to learn more about the practical corporate governance issues he had encountered in running the European arm of a Japanese company, with perhaps a deeper comparative analysis to demonstrate the difficulty of transferring corporate governance mechanisms between countries. But he’s on an international speaking circuit and I guess, with a tale like his, there is little perceived need for tailoring to the specific audience.

The speaker following him was David Pitt-Watson who is an excellent speaker and had indeed tailored his talk about shareholder activism to the audience but it seemed a little pale after what had gone before.

I didn’t stay till the end of the day. I collected some very useful freebies from the exhibitors’ stands and trundled home, reading tweets to find out what I was missing. I think Twitter encourages speakers to slot in clever sound bites: I wonder if this is a positive effect? But I was pleased to see a tweet drawing attention to my article.

Reviewing, assessing, evaluating...

Over the last few years I estimate that I have spent roughly 3-4 days per month reviewing documentation for external bodies. This estimate excludes all the internal reviewing tasks that accompany any admin responsibilities but it includes:

• reviewing bids for funding bodies, mostly for ESRC and ICAEW
• reviewing papers, for journals and conferences
• reviewing book proposals, for publishers
• assessing promotion applications, for other universities in the UK and abroad
• reviewing course validation documents, for other universities and for professional bodies
• reading and examining PhD theses, for other universities in the UK and abroad

All part of the job. Some of these tasks are quite rewarding (some even attract small payments!). I have read some fascinating work from which I have learned a great deal and which has sometimes prompted me to think differently about my own research. I've seen occasional funding bids which have been so well put together, and cover such interesting topics, that I've almost been tempted to contact the researchers to ask if I could work with them!

But I've also had to read a great many poorly written documents, where I have struggled to follow an argument or even understand the content. Two types cause me the greatest trouble.

It is very depressing to read poorly constructed funding bids where the applicants have clearly not read the funding body's instructions about presentation or, more fundamentally, about the type of projects which the body will support. Some of these come from well-established scholars who should surely know better. Sometimes the research question is of great importance and a study should certainly be pursued - but the people who have applied to undertake it don't appear to be competent to do so.

And promotion applications can be particularly frustrating. Occasionally, candidates oversell themselves and take credit for activities that have clearly been initiated and implemented by others, but much more frequently people undersell themselves.

I think we can all improve the way in which we write. This is the book that I recommend to students.  Although it's designed for postgraduates, it can be usefully read by anyone seeking to improve their writing, and their reading, because the two activities are so closely interlinked. I've been lucky enough to benefit from attending two workshops run by the authors and as a result I think I read more efficiently, write more effectively and - I hope - review more helpfully.


Get it here.