Turning principles into action

Citation

Leavy, B. (2005), "Turning principles into action", Strategy & Leadership, Vol. 33 No. 2. https://doi.org/10.1108/sl.2005.26133bae.002

Turning principles into action

Turning principles into action

Brian LeavyAIB Professor of Strategic Management at Dublin City University Business School and a contributing editor of Strategy & Leadership (brian.leavy@dcu.ie).

Corporate Governance and Chairmanship – A Personal ViewAdrian CadburyOxford University Press, 2002, 242 pp.

Corporate Governance and Chairmanship is a timely book, and one that presents a measured view what is now the most pressing issue in corporate life. In the wake of the Enron, Tyco and Worldcom debacles, confidence in the governance of our major corporations has reached a new low, and the clamour for radical reform in the boardroom is rising by the day. Making the numbers no longer guarantees investor support. Right across the business world companies are scrambling to strengthen governance processes.

Sir Adrian Cadbury is well qualified to be a voice of reason in the midst of the current crisis, and many corporate chairmen and their boards will benefit by having his new book readily to hand. In particular, he provides a timely reappraisal of the fundamentals, which should help reformers to keep their focus on the underlying causes of poor governance rather than just the symptoms. Over the course of a long and distinguished career, he has had extensive boardroom experience. He was chairman of Cadbury Schweppes from 1975-1989, and chairman of PRO NED from 1984-1995. He also served on the boards of the Bank of England (1970-1994) and IBM UK (1975-1994), among others. In addition, he has also been an avid student of the area, having chaired the UK Committee on the Financial Aspects of Corporate Governance, which published its code of best practice in 1992, and he received the International Corporate Governance Network Award in 2001.

His book reflects mainly on the British and European scene, and will be of interest to all business leaders with activities in these regions. However, its insights have much wider relevance and application. Market forces, as he notes, are already at work driving convergence in corporate governance standards internationally, most notably those of large institutional investors seeking higher returns beyond the confines of their domestic stock markets and global corporations seeking capital on the most favorable terms throughout the financial world.

The book covers most of the major issues on the current reform agenda, including the primary responsibility of the board, the chairman/CEO relationship, leadership succession, the size of the board, the mix of executive and outside members, the relative roles of the board and the management, the appointment and removal of directors, the composition and roles of key sub-committees (audit, nomination and remuneration), investor relations, communicating and reporting, accounting for stock options, corporate social responsibility and company values. His reflections on all of these issues are grounded in experience – his book is very much a personal view, but a richly informed one – and his guidelines for practice are those he considers the most sensible and likely to work, rather than abstract generic prescriptions. With regard to the question of state regulation versus voluntary code, he is very much on the side of the latter, and favours the development of agreed principles over the adoption of uniform rules as the primary route to reform. A basic reason for the book’s focus on chairmen is that they are seen to be “the connecting link between governance principles and turning those principles into action.” His primary emphasis on principles is intended to give “precedence to substance over form,” and prevent undue concern for bureaucratic tidiness from stifling innovation or inhibiting sensible adaptation to local conditions. His main argument is for transparency, not merely compliance.

A good example of the book’s overall approach to the major issues covered is the way he presents his view on the vexed question of the chairman/CEO relationship, and whether or not these positions should be combined. First, we are offered an analysis of the attractions and shortcomings of both options. This is followed by an explanation of his own preference for separating the posts “wherever it is feasible to do so” (more feasible in larger companies), because in his experience “the two jobs call for a different mix of abilities and perhaps different temperaments”. He then moves on to examine why custom and practice in the USA and the UK have been different on this issue and ends with a review of current trends and directions. The decision over whether the two top posts should be separate or combined he sees as just a means to an end. The end is an effective and accountable board in which power is not unduly concentrated, and the choice of leadership arrangement is ultimately one for the shareholders. Indeed, he points out that the chairman has no statutory position. He serves at the will of the board, and it, in turn, serves at the will of the shareholders. The question of why the shareholders have generally failed to exercise sufficient influence on their boards to date, and how this might be best addressed, is seen as central to any attempt at lasting reform, particularly if it is to be based on a voluntary regime.

In addition to separating the top jobs, the author’s preference is for boards of ten or so members, large enough to include a diversity of perspectives, yet small enough to function as an effective team. He also favours a good proportion of outside directors (at one third) to ensure that the company’s overall interests will always hold sway over those of its management, where the two might conflict. He argues for combining the position of senior independent director with that of deputy chairman, in order that there will always be someone with the clear authority to let a chairman know when he or she no longer enjoys the confidence of the board and the time has come to move out. He argues the merits of the unitary board over the two-tier type common in continental Europe, and those of collective responsibility over constituency representation at boardroom level. In addition, valuable insights are offered into the dynamics of the board, the conduct of annual general meetings, the representation role of the chairman in the media, CEO and chairman succession, and the role of the chairman as guardian of the company’s values (with the example of “the character of the company” statement drawn up for Cadbury Schweppes included in an appendix). The final section of the book deals with the ongoing debate on corporate social responsibility and examines the primary trends driving the ever-changing corporate governance agenda internationally.

The book is accessible and wide-ranging and should prove to be of practical use to those with experience in the boardroom, as well as offering a valuable primer to rookie directors. It offers a point of view on most of the topics of current interest and debate, yet is never polemical. The analysis throughout is practical, thorough, un-theatrical and leavened with understated good humor of a typically British kind. As Sir Adrian himself puts it, “the final requirement is that chairmen should not take themselves entirely seriously – a certain sense of the absurd is in order.”