1. Corporate Governance – Principles, Policies and Practices 3e
Chapter 13
Board Leadership - the reality of the boardroom

2. Board Leadership - the reality of the boardroom
- In which we consider:
- how people, power and politics affect practice
the chairman’s leadership role
sources of governance power
games directors play
- board styles and the culture of the board
- the ethical dimension: corporate values and business ethics
- corporate codes of ethics and their enforcement
- implementing corporate governance below board level.

3. Board Leadership - the reality of the boardroom
People, power and politics affect practice
Some authorities assume that:
Directors behave rationally
Board level discussions are analytical
Decisions are reached after a careful consideration of alternatives
Experience of governing bodies, suggests that directors’ behaviour is:
Influenced by inter-personal relationships
Affected by perceptions of position and prestige
Involves the processes of power
Can be inter-personally political.

4. Board Leadership - the reality of the boardroom
In fact, corporate governance is more about human behaviour than structures and strictures, rules, and regulations.
Corporate governance involves the use of
power. It is a political process.

5. The chairman’s leadership role
The significance of the chairman
Chairman of the Board
- not chairman of the company
Subject to the constitution, chairman is chosen by directors from among the board members.

6. The chairman’s leadership role
few statutory demands or expectations
role varies from the powerful chairman who:
acts as a leader of the company
influences its strategic direction
interacts strongly with the chief executive
provides wide ranging leadership of the board
to the weak chairman who just runs board meetings.

7. The chairman’s leadership role
The chairman’s role in good corporate governance is crucial.
Chairmen are primarily responsible for
the working of the board
its balance of membership subject to board and shareholders’ approval
ensuring that all relevant issues are on the agenda,
ensuring that all directors, executive and non-executive alike, are properly informed and
enabled and encouraged to play their full part in all board activities.

8. The chairman’s leadership role
Chairmen should be able to stand sufficiently well back from the day-to-day running of the business to ensure that their boards are in full control of the company’s affairs and alert to their obligations to shareholders.” (Cadbury Report)

9. The chairman’s leadership role
Leadership of the board
Management of meetings
Strategic leadership
Linking the board with management
Arbitration between board members and others
Being the public face of the company.

10. The chairman’s leadership role
“The need for leaders who know how to make a difference in the world has never been greater than it is today… qualities that are fundamental to good leadership (include) judgment that leads to sound decision-making, an entrepreneurial point of view, the ability to listen and communicate effectively, a deep sense of one's values and ethics, and the courage to act, based on those values and ethics. The need extends beyond business to the social, government, and non-profit sectors as well....” Dean Jay Light Harvard Business School

11. Sources of corporate governance power
The formal power of the board is delegated from the shareholders, reinforced by the company’s constitution and company law.
However, a board can be influenced in a number of other ways:
by a majority or dominant shareholder putting pressure on the board
from the threat of a potential take-over
by the prospect of litigation
through the influence of the auditors
from the effects of legislation and regulation
from media pressure and other external exhortation
by a dominant or charismatic leader
and, obviously, through changing business circumstances.

12. Source of directors’ power
Individual directors derive power from:
Personality
- the charismatic or a dominant individual
Knowledge
- access to information, skills or experiences not available to the other directors
Sanction power
Political power
Power derived from position
Networking power
Power derived from contacts and acquaintances of use to the company and useful in board decisions.
Power derived from a position of influence in the external society
Ownership power
Representative power
Power delegated from an external power source

14. Board style and culture
Board Style is a function of:
Board leadership
The chairman’s role, abilities, and performance
Board size
Board composition
- Balance of executive and outside directors
Board membership
Board culture
History, tradition, experience
Cultural context
Need to balance concern for relationships with concern for achieving board success (task).

15. Board style and culture
The way the board behaves
Inter-personal relations between directors
Expectations of directors about board meetings
Perceptions of directors about their roles
Interactions during meetings
Traditions, beliefs, corporate culture.

16. Board style and culture
Criteria that influence board culture
Board traditions
Corporate vision
Attitudes to innovation
The exercise of control by the board
Decision taking by the board
Leadership of the board
Commitment of directors
Adaptability by directors
Collaboration between directors
Conflict between directors
Relationships between directors
Communication between directors
The significance of status
The importance of conformity
The extent of trust

17. Board style and culture
Country
club
Professional board style
Rubber stamp board
Representative board style
High
Concern
for the board
relationships
Low
  Low Concern for the board tasks High

18. The reality of the boardroom
Implementing corporate governance
Successful corporate governance depends on:
the regulations and law of the country concerned
(the local culture)
the company’s traditions, board leadership, and style (the corporate culture)
the leadership ability and competence of the chairman of the board

19. Ethics and corporate governance
Business decisions depend on cooperation, transparency, and honesty
Ultimately business decisions are based on trust
employers need to be able to trust their employees
customers to trust their suppliers
societies to trust the companies that operate in their midst
The issue concerns morality, the values and beliefs that individuals, companies, and communities have about good and bad, right and wrong; in other words, about acceptable behaviour.

20. Corporate culture, corporate values, and ethical issues
Many boards believe that the corporate culture, corporate values, and ethical issues are properly the responsibility of the board as a whole
some create and enforce statements of corporate values and codes of conduct
Some delegate responsibility for developing ethics policies and codes to their audit committee
Other boards create a corporate governance, ethics or compliance committee of the board
Whilst for some boards corporate culture, corporate values, and ethical issues are not considered in the board room.

21. Corporate codes of ethics
A successful ethics policy reflects a company’s core values, stems from its corporate mission, and is consistent with its corporate strategies. Board and top management involvement and commitment are vital for successful, ethics policies are unlikely to succeed.

22. Ethics policies
A successful ethics policy reflects a company’s core values, stems from its corporate mission, and is consistent with its corporate strategies Board and top management involvement and commitment are essential to successful ethics policies

23. Ethics policies Companies develop ethics policies to:
set standards for employee behavior and require employee compliance with those norms seeking to enforce discipline
to encourage commitment to good relations with all stakeholders.

24. Ethics policies A sound ethics policy will:
be orientated towards corporate values, rather than organizational discipline
seek genuine commitment rather than being a cosmetic exercise
recognize the cultural context
avoid credibility gaps between ethical codes and actual behaviour
link with corporate governance policies and practices
have associated ethics management systems, including information and control systems, regular audit, policy review procedures, and social accounting systems
demonstrate accountability with regular reports.

25. Corporate codes of ethics
A corporate ethics policy is usually supported by a corporate code of ethics or code of conduct
An explicit statement setting out the ethical standards expected of everyone in that organization.
Ethical codes can be found at various organizational levels:
corporate codes that relate to a single corporate entity
professional codes that apply to the members of a profession
industry codes that are developed for use in a specific industry
group codes that are used within a given set of members, eg in a marketing standards programme.

26. Corporate codes of ethics
Codes of ethics can be used to:
define and create the value system in an organization
define and set standards of expected behaviour
improve individuals ethical awareness and judgment
promote high standards of practice
set benchmarks for self- evaluation and monitoring by peers and others
inform external stakeholders of the values of the organization.

27. Whistle blowing Informing on situations thought wrong Dangers
victimization
labelled ‘troublemaker’
loss of career prospects or dismissal
claims for slander, defamation wrongful allegation, invasion of privacy
Encouragement
Company policy to encourage and protect whistle blowers
Law
UK, the Public Interest Disclosures at Work Act (1998)
Sarbanes Oxley Act US listed companies to provide systems for reporting unethical behaviour.

28. Implementing corporate governance below board level
Links between the board and management depend on the underlying corporate governance model
In the US rule-based approach
the combined chairman/CEO wields power
COO and CFO on board reinforces that power
board predominantly of outside directors advises CEO, approves CEO strategies and oversees performance.

29. Implementing corporate governance below board level
Links between the board and management depend on the underlying corporate governance model
In the UK/Commonwealth principles-based approach (comply or explain)
considerable freedom for boards to delegate or retain control between:
delegating power to top management, similar to US model
or retaining power with the board deciding strategies, and polices and requiring top management to follow those plans.

30. Implementing corporate governance below board level
Links between the board and management depend on the underlying corporate governance model
In the Continental European model, the two-tier board structure requires:
the management board to carry out the performance-orientated management role
the supervisory board. to carry out the conformance responsibility.

31. Implementing corporate governance below board level
Links between the board and management depend on the underlying corporate governance model In the Asian family-centric model the head of the family is typically the head of management as well as leading the board.

32. Implementing corporate governance below board level
The implementation of corporate governance below board level goes to the heart of corporate governance: it is about the reality of power. Who wields what power over the corporate entity and in what way? The ultimate challenge is to achieve compliance with competence.

33. Board Leadership - the reality of the boardroom
We have considered: - how people, power and politics affect practice - the chairman’s leadership role - sources of governance power - games directors play - board styles and the culture of the board - the ethical dimension: corporate values and business ethics - corporate codes of ethics and their enforcement - implementing corporate governance below board level.