Does absolute power corrupt absolutely?

Last week British retailer Marks & Spencer faced attacks from shareholders and members of the financial press, when Chief Executive Sir Stuart Rose was promoted to Executive Chairman.

23% of shareholders abstained or voted against Sir Stuart's re-appointment to the Board because they considered it went against good governance principles to have one person holding both positions, Chief Executive and Chairman.

This is an old debate and I think it's very easy to over-simplify it - right or wrong. The real answer, as always, is much more complex and depends on the substance rather than the form of the appointment.

If we start with what we're trying to achieve - a successful company - we can find case studies that both support and oppose the appointment.

In many large American companies (which Marks & Spencer is not, of course), the roles are combined. This has often been quoted as one of the weaknesses that led to the fall of companies like Enron and Worldcom. I think it's always a risk if one person holds too much power in an organisation, but the American system provides balance by having, usually, one or two other positions in addition to the Chairman and CEO: we usually find a President and Chief Operating Officer and, since Sarbanes-Oxley, the position of Lead Independent Director. So, in practice, this 'standard' American model builds in some real checks and balances on each individual.

What really matters is not so much the Board's structure, but how (and if) Board members fulfil their roles adequately. There's plenty of evidence to show that the difference between effective and ineffective Boards comes down to how Board members act, whether they deal with the tough issues and have the necessary debates, and that this matters far more than details about the Board's structure. If you've got the right behaviours in the boardroom, you can deal with deficiencies in the Board's structure or composition. But not vice versa.

As has been in the case in several of my previous 'posts', it comes down to the substance of the matter, not just the form.

Marks & Spencer will be an interesting case to watch. As an English company, it would not be typical to have the President/COO and the Lead Independent providing balance. However, my guess is that the Deputy Chairman and other Board members will be very conscious of their obligations to perform: perhaps we'll have material for another comment in a couple of years.

I learned about succession from that

They say we learn best from our mistakes ... some people would say that explains why I never stop learning.

I was reminded the other day of one of the biggest boardroom mistakes of my career. If it's any comfort - which it wasn't to me - it was in an area that many boards fail to deal with well, board succession; or in this case choosing a successor for the Board Chair.

I had been Chair of a medium-sized non-profit organisation for about six years and we had agreed it was time for a change, for both the Board and me. First, breaking all my own rules (see my recent post 'How do we fill his boots now he's gone?'), I agreed to lead the succession process. Without realising it at the time, that alone probably restricted our search criteria to people I thought would be good for the role.

After defining the attributes we were after, we developed a list of possible targets. Our preferred choice, from what we knew of the people, was a just-retired highly-successful Chief Executive who we knew had a passion for our sector. Although several of us had met him a few times, none of us could say we really knew him. (Does anybody hear warning bells yet?) I was given the job of phoning him to ask if he'd be interested.

To my mild surprise, he told me this was his first approach to join a Board since his retirement and yes, he was flattered and delighted to be asked. Abbreviating a long story, we felt that we'd 'got our man', so we didn't approach any of the other candidates (I think that's still quite normal, especially with non-profit Boards, because I think there is an understandable reluctance to approach people for voluntary roles, only to say 'sorry' to them later).

Well, he joined, was elected Chair and I left the board. I've never believed in hanging around once you stop being the Chair: it's the governance equivalent of 'Dead Man Walking', when you don't want to be there and you know nobody else wants you around either.

From almost his first meeting, the appointment was a disaster. He started behaving as the 'super-CEO', over-ruling the employed CEO, getting involved in management details and barely including the rest of the Board in most decisions. Get the picture? Much to the Board's credit, they realised very quickly the damage this was causing and he was a very short-term Chair of that Board.

So what did we (or I) learn from all that?

First, there are very good reasons for checking references. We've seen several public examples of what happens when nobody did. Only a few months after these events, someone I knew quite well asked me quietly, but obviously in frustration, why I hadn't checked with him (yes, I know, there's a small thing about Privacy Law as well). He told me - too late of course - that the person in question was a superb CEO, but terrible to work with as a director, because he could never remove his CEO 'hat'. However big the reputation, we need to check whether it is relevant to the role we're considering: it's a big change in approach from being a CEO to joining a Board as a non-executive member (even as Chair), where effective decision-making comes from building consensus, and where we don't manage the business hands-on.

This example showed me that checking those references is vital, even for a voluntary, non-profit position, because the consequence of not doing so can be disastrous.

Secondly, should I have been involved in the process at all, considering it was my successor we were looking for? In an ideal world, I don't think so. Perhaps I was so keen to move on that I allowed (possibly even encouraged) some short cuts in the process. In retrospect, if I hadn't been involved, the rest of the Board might have been more rigorous in interviewing and checking references, rather than letting me influence the appointment too much. In my defence, none of the other Board members showed a lot of enthusiasm for putting in the time that was needed to find someone and make the appointment.

On the scale of how wrong things can go, this was possibly not too bad. But the lessons were clear, and more importantly they taught me that we've developed some good basic principles of how Boards should do things.

These principles have evolved through other people's mistakes: disregard them and people will be learning from yours!

Good governance? Lessons that come close to home

I thought you might enjoy this from that renowned bastion of good governance, the Russian government. First Deputy Prime Minister Shuvalov was quoted in a recent edition of The Moscow Times.com, extolling the virtues of high corporate governance standards:

"If Russia is to become a major financial center, we need to embrace evolving corporate governance standards," Shuvalov said.

Deputy Prime Minister Zhukov backed this up:

"We want to be seen as a country with a good deal of responsibility in business..."

So I suppose that means it's all OK then. Remember though that this comes at a time when the State seems determined to take control of BP's Russian subsidiary through political, rather than market, channels (throwing in challenges such as heavy back taxes and visa problems for company employees). Perhaps this real-life tussle gives a truer picture of the current state of commercial affairs there.

As a result, I found another comment in the same article, on the role of government-appointed directors to state-owned company boards, rather more plausible:

"Very often, the time they devote to reading documents on the situation in the company amounts to the time they spend in a traffic jam on their way to a board meeting."

Yes, I know, it could never happen here. I hope not. But I'm still dismayed at the number of Board courier packs I see ripped open for the first time on the early-morning flight to the meeting - never mind that the papers are on view up the aisle for anyone to read. The director has at best 30-45 minutes to skim their papers; they can't hope to have a full grasp of the issues they'll be dealing with a few hours later.

If you're going to do this job properly, minimising the risk to yourself and the rest of your board, as well as the company, you need to know what's in those papers: not just the content, but you need enough time to think about the issues they raise.

If you don't, you just might end up in the position of the board of the New York Stock Exchange (other side of the Atlantic this time) a few years ago: thanks to their Board members not reading their papers in advance, they ended up having to pay their departing CEO about $US140 million (oh, and it was a not-for-profit).

Happy reading!

How do we fill his boots now he's gone?

If you live in New Zealand or Australia, and have even a passing interest in rugby, you'll know that Robbie Deans, one of New Zealand's finest coaches (if not the finest - but that debate has filled plenty of other blogs) has said his farewells to the Crusaders, the most successful team in Super Rugby history.

Just in case you've been on a clandestine trip to Mars, suffered radio failure and missed the news while you were away, the ultra-successful coach of the Canterbury-based Crusaders, after missing out on his dream job of coaching the All Blacks up to the 2011 Rugby World Cup (even more blogs), has been lured - 'snapped up' might describe it better - across The Ditch to coach the Wallabies for the next four seasons.

Actually, this week's post has nothing to do with rugby. What caught my eye was a comment last week from Hamish Riach, the Crusaders' CEO, that Deans would have no say in choosing his successor. And the controversy that this has caused.

Surely, goes the argument, Robbie's been so successful that he should have a hand in picking his successor? Well, I agree with Hamish. However great a coach, or a CEO, or a Board Chair has been, you never, ever, want a clone to replace them. The people who will be held accountable for the success of the new appointment need the freedom to make their own choice. Certainly, let them consult the person who's leaving (more often I've seen the departing leader offer their opinion anyway), and let's have, preferably, a couple of people being groomed to take over when the time comes. That's just prudent succession planning.

But, come selection time, all bets and promises are off the table, and the Board's Appointments Committee must have a free hand. Usually the biggest mistake it can make is to try to find someone in the same mould as their predecessor ('...to carry on the legacy...'). This fails for two reasons: the new person will almost inevitably fall short of expectations (and unfair comparisons), and, secondly, the departure of a key person gives the Board an opportunity to look at what type of person we need for the next few years - rather than slavishly continuing what has worked over the last five or eight.

So, Robbie, I don't know what you think of this - if you've had time to think about it at all in your new job. But my instinct is that the Crusaders have already shown what makes them successful, in making yet another good call: brave management decisions are all part of the mix. I won't be in the least surprised to see the Crusaders continue their winning way, whomever they appoint to fill Robbie's boots.

And, living in Wellington as I do, it hurts me to admit it.

Why me? What do I need to know?

A friend of mine phoned a couple of weeks ago to tell me he'd been invited to join the Board of quite a large company. He was keen on the opportunity - and the company - and told me he was meeting the Chairman the next day. What were some of the questions he should ask to help him decide whether to accept?

Some of you will already have noticed one positive feature in this: it's natural that we should be delighted by an invitation like this. As an experienced company director once said to me: 'It's never a bad day when you're invited to join a Board.' After all, it's a compliment to one's (perceived) skills and experience. But, as he went on, 'I thank them for the invitation, I enjoy the moment and I'll start my due diligence tomorrow.'

In this case, I think my friend's best move was to resist the temptation to accept the offer immediately, or, as I see so often, to put up no more than a token display of modesty or questioning.

It's easy to fall into this trap in the glow of the moment, but you need to stop and consider what you'll be getting into. Companies legislation is usually quite 'binary' about responsibilities of directors - you either are or aren't a director - so you need to understand that, legally, you carry the full weight of directors' responsibilities from the day you sign on (there's no allowance for 'training wheels').

What, then, are some of the things you need to find out before you accept?

Let me add that this is not a comprehensive list - nor 'expert advice' - and that you need to apply your own 'care, diligence and skill' (the typical legal description of the duty of directors) in assessing what information you need - and how much is enough for you to make your decision. I'm also not talking here about the basic information you should obtain, such as what you can find from trawling the website or strategic/business plans, or your assessment of the organisation's financial position (please remember that cash is what pays the bills, so pay particular attention to where the cash is coming from and how reliable those sources are).

One thing you might do is to ask to read the Board's Minute book. A review over the last couple of years should give you a good sense of how the organisation works, its strategy (whether it has one and how well it's working), financial performance, major challenges, quality, clarity and consistency of decision-making, and many other things that will help your understanding of the organisation. And if the Chairman is reluctant to let you see the Minute book, ask yourself why - and whether this is an organisation and team you really want to be a part of.

As with everything here, what matters to you in all this is how the future looks, not just past performance.

1. Why me?

I think this is one of the most useful questions of all and the answer can tell you a lot. If it's along the lines of, 'Well, we've asked seventeen other people; they've all said no, and we can't think of anyone else ...' (it won't be quite this obvious, but make sure you read between the lines), you might want to look elsewhere. But if the answer is, 'We've got these issues ahead of us and we think that your background in [insert details here] will give us that perspective we need at the Board table,' then you may just have stumbled right onto the main things you'll be expecting to deal with, if you accept.

2. How well can I work with these people?

How many people join a Board without even meeting the people they'll be spending their time with? You don't need to be best friends with them, or even agree with them all the time (if fact if you do, then perhaps you're not the best person to bring a fresh perspective), but, to be effective, you must be able to work constructively with them. You must share a common vision for where the organisation is heading and be comfortable with how it does things (its values and culture). So, at the very least, meet the other Board members, the Chief Executive and top management team: you need to know them and they you.

3. What are the big trends, opportunities and threats facing this business, and what are the Board's big priorities for the next year or so?

You don't just want the answers: you need to know how well the current Board has thought about these things. If you're not happy with the answers, this may not deter you from joining, but at least you know what one of your early priorities will be.

4. How good are relationships with key stakeholders?

It may be pointless to join a Board which has fallen out with its major shareholder or key customers, because chances are that you'll be dealing with some pressing issues, not of your making, in the near future - unless, of course, it's the key shareholder who wants to appoint you to help address the problems.

5. Is the organisation aware of any significant legal action (actual or pending)?

Similar in a way to the previous point: this is not so much about any personal liability - since you may (note - may) be protected against actions that preceded your arrival (please make sure you understand what your actual position is). But, if the issues are significant, they will almost certainly be a serious distraction for the Board, and get in the way of progress in your core business.

6. What's the time commitment?

Don't underestimate this. My rule of thumb is 'three for one': in other works, if we have a four-hour board meeting each month, I'll mentally 'budget' twelve hours a month (say about a day and a half) for the role - four for the meeting itself, four for preparation (reading the papers and doing what else you need to keep up with the issues - wider reading, networking and so on), and the other four for all the other things that you get involved in, such as informal discussions with the Chairman, representing the Board at customer functions, visiting company facilities ...

To do this job properly requires you to put in time and effort. And if you don't, then not only will you be letting down the organisation and your fellow Board members, but you're potentially exposing yourself to greater risk because you won't have as good an understanding of what's going on as you should have.

7. Do I really want to do this?

This is a vitally important question - which you need to ask yourself rather than anyone else. I've found that you need more than director's fees (don't even think about 'status' - that's largely a myth!) to keep you motivated as a Board member: you need a 'burn' that you really want to play a part. Unlike an executive role, where you're in the business every day, as a Board member you may only be involved a few days a month.

I believe you need a sense of excitement and a desire to make a difference in order to keep you engaged. I've found from experience that, if that's missing (perhaps it's a sector that doesn't really excite you), then you may go through the motions, and you may even play a full part at Board meetings. But you probably won't do much more than the minimum and, quite soon, you'll start to regard that courier delivery of next month's Board papers as another chore, rather than opening a window on the next exciting episode.

As you may guess, I've written this from experience of mistakes I've both seen and made. I hope it helps with your 'due diligence'.

If, after all this, you go ahead and join that Board, as I hope my friend will, then good luck with the job ahead ... I trust you will enjoy making a difference as part of your organisation's top decision-making body.

What's really in a name? A. Rose ...

I've taken a digression from our normal topics this week to look at a different type of governance: have you noticed how often our elected leaders have surnames beginning with letters in the first half of the alphabet - Bush, Blair, Clinton, Clark?

I thought I would take a deeper look at whether there was anything to this.

I looked at who has been elected to lead four different, but related, countries, the US, Britain, Australia and New Zealand. I've excluded those who reached the top through succession or internal 'coup' (Gerald Ford, Jenny Shipley, Gordon Brown - so far), unless they went on to win an election in their own right (Harry Truman, Lyndon Johnson, Paul Keating).

To give myself a reasonable sample size, I have looked at leaders who first came to power since 1939, which seems as much a watershed date as any, arguably representing the start of the era we're now in. My final 'control' check was to see where the middle of the alphabet really falls: the halfway-point in my telephone book is towards the end of 'L', so I have taken all those whose name begins with 'M' or later as being in the second half.

What I found quite surprised me. You have almost exactly twice the chance of being elected leader of your country if your name falls in the first half of the alphabet.

There are of course some notable exceptions to this - Thatcher, Reagan, Muldoon and Rudd - but perhaps another theme from Shakespeare takes over here:

"There is a tide in the affairs of men, Which, taken at the flood, leads on to fortune."

In other words, perhaps the forces leading to some of these results were so powerful (stale government, desire for change) that, to quote the Australian cliche, a "drover's dog" (or Moggie?) could have done it.

Another point to ponder is that those with the most ignominious endings carried 'second-half' names (thinking, briefly, of Nixon and Whitlam). New Zealand has had more than its share of leaders who got to the top via a leadership change between elections (Marshall, Rowling, Palmer, Moore and Shipley). All have 'second-half' surnames and all reinforce my findings by either failing to win, or (Palmer) not lasting until, the next election.

Is this all just a statistical blip? Or does it have something to do with our childhood conditioning, during those years of waiting our turn in the school playground ("Get to the back of the line, Zebedee")?

Either way, it puts an interesting slant on the current US presidential campaign - since we're likely to see both candidates sporting 'second-half' surnames. Perhaps we shouldn't write Hillary off just yet ... or watch her again in 2012!

(Yes, I've looked at my own chances - 'W' - and I have decided not to throw in the day job!)

So although he/she might smell as sweet, "A. Rose" might have a better chance of leading their country by taking a different type of flora for a surname ... um, er, Bush?

FICKS your Board

An excellent article in last month's Harvard Business Review, 'Leading from the Boardroom,' highlights a paradox that many Boards face.

Directors know - or ought to know - that the real task of a Board is 'to build tomorrow's company out of today's'. The authors of the article, Jay Lorsch and Robert Clark, note that as the pressure on compliance grows, a Board's natural response is to spend more time on avoiding mistakes and minimising risks, rather than focusing on long-range planning. As a result, they expose their companies to potentially even bigger risks.

Think of the Board of a manufacturer of music CDs: what's the value of making sure we comply with every regulation and check every figure against last month's results, if we miss the fact that Steve Jobs of Apple has reinvented our industry - and that nobody wants to buy CDs when they can download their Amy Winehouse favourites onto their iPod? Oops, suddenly we don't have a business. That's the type of issue that Boards ought to be thinking about!

In my advisory work, I've developed a way for Boards to segment their work: I call it 'FICKS', obviously a catchy name (well, I think so) but also a helpful acronym for the five key functions of a Board:

• F - Future Focus - making sure we have the right Chief Executive (for the next few years as opposed to the last few), and working with management on strategy development and execution (let's spend about 30% of our time here - even though it's scary because it involves making decisions about an uncertain future);

• I - Issues Identification - understanding our environment, spotting the trends, communicating with our stakeholders so they understand what we're doing (another 30%);

• C - Compliance - it's still important to make sure we keep to the law, regulations and best practices, and monitor the risks the business faces, but not at the expense of looking ahead (perhaps 15% of our time);

• K - KPI ('Key Performance Indicator') Monitoring - sorry to tell you this, but you don't usually need to spend half of every Board meeting asking the same questions about the numbers and budgets that you asked last month (15% again);

• S - Succession and Skills - making sure we've got the right people at the Board table and in top management to deal with what we'll be facing over the next few years (the remaining 10%).

We can break this into three broader categories - the first two (F & I) are about creating value (cumulatively 60%), the next two (C & K) involve preserving value (30%), and the last (S) deals with the ability to keep adding value in the future.

In summary, the latter categories (C, K & S) are a means to the end - the end being to look ahead and build the organisation of tomorrow. That's where, as directors, we build the legacy that makes our job worthwhile.

Of course it's never this simple or so clearly segmented in real life - any decent strategy proposal will have elements of all five! And the proportions will vary from meeting to meeting. But I've found that 'FICKS' is a useful reality check on how a Board really spends its time, and whether it is dealing with the right things - as opposed to dealing well (perhaps) but with the wrong things.

You may get a surprise when you think about how your Board spends its time. But I'm sure the exercise will be worth it.

(Oh, and if you do find this is of any use to you, some attribution of my trademark, 'FICKS', would be appreciated, thank you!)