I am honoured to have been invited to contribute a chapter on Corporate Governance Best Practices for a book on Corporate Governance being published by Wiley in 2010.
I started researching corporate governance practices when I was invited to present a paper to the Doctoral Consortium of McMaster University's 2006 McMaster World Congress on Corporate Governance. My paper, "Trust Enabled Corporate Governance", attempted to connect the issue of shareholder trust to corporate governance practices. I subsequently wrote an article, entitled "Corporate Governance Best Practices: One size does not fit all", disclosing my research findings that discrete governance styles appear to be associated with distinct business performance metrics. One of them was the Trusted Board Style, which I found to be correlated with higher business (stock) valuations. A logical derivative of this insight was the possibility that corporations with superior revenue growth may be more trusted by their customers. Those companies, by the way, tended to have a Management Controlled Board Style. I also found that the most profitable companies had a Sovereign Board Style. What might this suggest about relationship between profitability and the trust of other stakeholders? Moreover what is the legitimate role of boards of directors in helping corporations achieve their strategic objectives, and by extension, enabling trust in their business relationships?
A few months ago, I posed this question to a panel of corporate governance gurus in Toronto. They were advocating for improved board competency in risk management. At the same time, one of them observed that business leaders are no longer considering the impact of their decisions on their reputation, instead only on their survival. I found this to be an apparent contradiction, since, to me, survival considerations are an acute example of risk management. If reputation, a method of developing trust, was being subsumed by survival considerations, then this would be an example of excessive risk management. In my mind, the solution is not more risk management, but more Trust Enablement. So what can a board of directors do to enable trust? After all, the current economic recession is the direct result of a loss of trust and confidence by all stakeholders. Their answer floored me. One panelist suggested it was the role of the World Bank to restore trust by restoring credit liquidity to banks, not that of boards of directors. The other, an academic, said he had no opinion, and later admitted privately that he had never thought about it.
This blog and the resulting book chapter will help us to begin thinking about the role of the board of directors, so that we can define valid criteria for corporate governance best practices. I look forward to engaging you in a provocative discussion on these contentious issues.