Members of the Co-operative Group Ltd recently voted to overhaul the British retailer’s corporate governance structure, hoping it would draw a line under the worst crisis in the 150-year history of the customer-owned company.
Their vote came in the wake of a report by former Treasury Minister Paul Myners that warned Co-op Group needed to urgently change its governance or risk running out of capital. But Myners’ report also attributed Co-op’s financial woes to a board that lacked experience and include, according to the Press Association, an engineer, a plasterer and a retired deputy head teacher.
Northern Ireland Institute of Directors Chairman Paul Terrington says the Co-op is just one example of how boards and their directors can have an impact well beyond their own organisations.
“The Co-op’s difficulties impacted its 8 million members, 80,000 employees, and entire communities,” he comments, “just as Libor rigging, the PPI scandal, and the sale of interest rate hedging products to SMEs impacted savers, investors and businesses across the financial services sector.”
“Boards,” says Terrington, “are the custodians of good governance, but they are also the conscience of the shareholders and communities that put them there. By defining and showcasing best practice, they can influence other companies and organisations, improving their performance and leading to a collective improvement in the wider economy.”
From his perspective, a good board will have a clear remit and the most effective boards also have what he describes as “the composition that’s right for the remit.”
“It’s difficult to spot a sector where there hasn’t been a scandal, crisis or widespread problem linked to culture and cultural failure,” he says. “The Pollard review pointed to a deep rooted and unhealthy ‘competitive culture’ in the BBC and ‘cultural misunderstandings’ contributed to the Deepwater Horizon disaster.”
That’s why he argues that no two boards are the same and the balance of skills and diversity needs to vary and reflect the activity that the business undertakes. “The board’s role in ensuring good governance, managing risk and overseeing strategic policy is quite different to the executives who manage gigantic budgets or delivering a large array of complex services and both parties need to understand that,” Terrington explains.
Nevertheless, he frequently finds that boards tend to stray into the role of the organisation’s executives.
“The board needs to understand the business and the issues facing the executives but it still needs to be willing to push back. If the board doesn’t have the right mix of skills and experience, then it can be difficult to challenge the executive,” he continues.
Boards whose members come from the same background and which don’t reflect a diversity of views also tend to have “a narrow way of thinking about things,” he says, and that means they lack the necessary challenge and insight.
“The responsibility of the board is to bring challenge and objectivity and boards don’t always see that, particularly if the relationship between the board and the executives becomes be too close or is insufficiently challenging. That can prevent the board from being as effective as it could or should be and why boards should be aware of – and wary of – slipping into the cultural attitudes they should be challenging.”
Some of the IoD’s national priorities – e.g. around the boards of FTSE100 and large corporates – are not necessarily live issues here. However, it is still very keen to demonstrate that good corporate governance is something that helps businesses grow. “Well-managed start-up businesses grow faster than they otherwise would,” he comments. “It helps family businesses; it helps social enterprises – very much the undertakings that are the profile of our economy.”
The institute encourages all companies to think about the value of a board, non-executive directors and good corporate governance processes. It has recently spoken with the Commissioner for Public Appointments, John Keanie, and the Head of the Civil Service, Malcolm McKibbin, about how the IoD can encourage more diversity in public appointments and increase the effectiveness of public sector boards.
“I know they’re giving quite a bit of focus there,” Terrington acknowledges, “and we are hoping that we might be able to encourage and draw support around what they’re trying to do.”
The institute is particularly interested in promoting a better gender balance on boards. It works with others to make the case for female representation – intrinsically a good thing which makes for better business. The chartered director programme is the bedrock of its business leadership training and Terrington asserts that those who become chartered directors are “very much at the leading edge of good corporate governance and business leadership.”
Working with the William J Clinton Leadership Institute at Queen’s, the IoD is promoting a philosophy based on how “excellence in business leadership allied with good corporate governance actually drives business success and through that economic growth.” In conclusion, he reiterates: “It’s absolutely our belief that those things lead to better businesses and the aggregate of all of that is that the economy will grow and develop.”