Trends in Corporate Governance

How have you seen the dynamics between the board and executives change in the last decade or so?

I think boards are getting more conscious of the fact that their obligation is to help set the strategy, agree on objectives with the executive, serve as a sounding board but not to execute, and that the executive's responsibility is to deliver. Clearly, when the executive doesn't deliver or is dissatisfied, then its responsibility is also to make the changes necessary. So, at the end of the day, the board has to decide if the CEO or CFO or any other senior executive isn't performing and to take action on that.

But boards are increasingly focused on strategy and risk management. But the definition of risk management is also broadening dramatically. For example, one of the big themes at the moment is culture. So, you'll find boards are more interested in what data is coming out of company surveys and what other indications there are of the company culture. They are making sure that the company has an appropriate policy on harassment of any kind in the workplace, because those are increasingly big risks. I think the balance of a good board is between agreeing on the strategy, understanding how performance plays out relative to that strategy and adjusting as necessary, evaluating the executive, and then managing risk. In a public company, that's particularly important - making sure that risks that can be managed are managed and the shareholders agree what risk level is being taken in the company or what risk level is appropriate from the view of the company.

Just thinking of some of the recent examples like WeWork or even Tesla, for example, where you have a CEO that has substantial power in the business. Does the CEO design and build the board or how does the board kind of regulate the business in the face of a very powerful CEO?

It's very tough in these situations where the CEO is a founder and has one way or another created huge value. I think Tesla and WeWork are good examples. Uber is another case study. I think the message from all of those is that it's just hard if someone owns the bulk of a company, and in these cases has probably put together the board. Checking their powers is difficult, but I think we're also seeing that you have to do it.

My guess is that after WeWork, SoftBank, etc., that you will see investors pushing much harder to make sure that they have control of the board notwithstanding a very powerful CEO. Because the risk is just too high if you don't have that. In the case of WeWork, it’s just extraordinary what happened. With Adam Neumann enriching himself ultimately at the expense of balance sheet of the company, and that contributed enormously to the failure of the IPO.

Let's say that we're looking at a typical public company and the board of that business. What are some of the structures that you'd put in place or would like to see in place?

I think it's much easier in a public company. By the way, there's a very important difference between the US board and executive organization and that in the UK. In the UK, it is generally the case that the CFO is a board member. In the United States, it is rarely the case that the CFO is a board member. But on the other hand, in the US, the CFO has stronger and more explicit responsibilities to regulators. That's how I think the power of the function is maintained in the US.