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?

Audit and corporate governance

Reading this report by KPMG on the new audit committee and auditors' reports made me want to cheer. It looks as if the approach to reporting that the Cadbury Committee envisaged - that reports should be the prompt for a conversation between companies and investors - has been taken on board, certainly by some auditors.

But then I turned to this "consultation document" from ACCA which has been languishing in my reading pile for some time. I thought that thinking about the questions posed might be intellectually stimulating but it is a very disappointing document. I am easily distracted: the initial claim that "The word governance comes from the ancient Greek verb kyberan meaning to pilot or steer" sent me to the OED which indicates that the word comes from Old French. Whether the Old French took it from the Greek is an unanswered question and the ACCA report cites no source for the claim.

And indeed much of the report is based around anecdote and press comment with very little reference to peer reviewed academic research. This is not necessarily a problem for a discussion paper that has a clear objective, such as the series of papers on corporate governance issues published by ICAEW, which are models of concise expression (no, I had no hand in them..) But the ACCA report seems to be trying to do too many things at once, including bolstering its assertions with reference to illustrations drawn from sources such as its own previous publications and media reports.

Its scope is confusingly wide and it is unclear exactly what respondents to the consultation are expected to comment on. It starts with seven hypotheses and each chapter concludes with many questions, some of which are highlighted as more important although the reason for this is unclear and it is not easy to relate the questions to the hypotheses (too many years spent marking Masters dissertation research proposals makes me sensitive to this!)

The bulk of the report focuses on value issues, perhaps not surprising given the title. Governance is defined variously as being "about how to make good decisions" and "to create value sustainably" (is that different from creating sustainable value, I wonder?) The South African King Code is cited, defining good governance as "essentially about effective leadership" but this focus is dismissed without explanation. And in places governance and risk management seem to be treated as synonymous.

There are lots of rather good diagrams and hidden away in the text there are some important points identified. The opacity of accountability in the investment intermediary chain is noted and the effectiveness of NEDs is questioned in passing. But the "three legged" model of performing, informing and holding to account is not very different from the model of performance and conformance introduced by Bob Tricker back in the 1980s (see for example this paper) And although the CoCo model of internal control is reproduced, nowhere does the report mention the role of audit.

Perhaps it's because I started thinking about corporate governance from the perspective of audit committees when I first started research but I remain convinced that audit, both internal and external, is central to corporate governance. It is enshrined in company law as the linchpin, through corporate reporting, of communication between investors and companies. And yet many discussions of corporate governance ignore it and it gets only brief mentions in corporate governance textbooks. You could argue that one of the raisons d'être of the accountancy profession is corporate governance.