The Top Ten Take-Aways from the Yale Corporate Governance Forum

June 21, 2011 at 9:32 pm

On June 16th and 17th Yale University’s Millstein Center for Corporate Governance and Performance hosted its 6th annual Corporate Governance Forum. The theme of this year’s conference was “Governance Fit for the Long Term” and depending on one’s frame of reference this can be taken in any number of ways.

Nevertheless the conference was chock full of dynamic and varied panels and speakers from around the globe. And for the governance consumed it was an opportunity to learn of many new ideas in the field, listen to constructive debates and not surprisingly see that many questions remain and answers are oftentimes elusive!

Of the numerous ideas and hypotheses presented during this event here is what I believe to be the most interesting, provocative or simply important:

1. Corporate leaders and board of directors must focus on the long-term. With the pressure of quarterly earnings announcements, the tendency of course is for public companies to look good on a quarterly basis. This can hinder the long-term strategic focus that is essential to both the growth and survival of the company. One suggestion is for companies to talk to their largest shareholders, those that are investors over the long term. These are, by definition, supporters of the company so communicating the long term strategic vision for the company can go a long way to alleviating the alarm that may result from the occasional dip in stock price.

2. Stock price as a reflection of management performance is inadequate. Investor behavior is as important to stock price as manager behavior. In fact, there are many variables that influence the price of a stock. So the point is that simply looking at a declining stock price and concluding that management is failing is short-sighted.

3. While there are many benefits of the current move towards declassified boards we must be mindful of the fact that this may actually increase the short-termism of the company.

4. Corporate governance is implemented and interpreted very differently around the globe. We have seen many developments and progression in the field of governance both here in the US and abroad. But the divergence of thought and practices is still extreme. For example, in Germany in addition to the two-tiered board structure diversity simply refers to gender and private investors still have little to say per German law. Furthermore, there is in fact no word for corporate governance in German. In the United Arab Emirates it was reported that some Directors sit on as many as 47 boards. They may also employ advisors who are assigned to monitor and report on several of their boards for them.

5. The upsurge in social media has had universal impact. What is the implication for boards and directors? It seems that in this area there are still more questions than answers. Public companies typically have communications policies that predate the current social media environment. Additionally, directors may not have the time nor inclination to explore the world of social media. Nonetheless it is becoming fundamental and we are still only in the infancy stage of this manifestation. Perhaps companies should consider bringing some social media expertise into the boardroom?

6. “Collective intelligence” is defined as “a phenomena in sociology where a shared or group intelligence emerges from the collaboration and competition of many individuals.” This is not a new concept and may have in fact been coined when Aristotle said: the whole is greater than the sum of its parts.” Whenever it originated the concept represents the best of what we would like to see from a board of directors. Board evaluation and coaching would be well-advised to take this intangible into account.

7. Two of the most important criteria for board directors to possess are great (not just good) judgment and the ability to work on a team. These subjective or soft skills need to be assessed as much as the ability to, for example, chair an audit committee.

8. Many failures in the boardroom can be linked to failures in social processes. Some of these are: the emergence of “group think”, obedience to authority and diffusion of responsibility. Each one requires a full discussion on its own.

9. Board evaluations as they are currently executed are oftentimes done on themselves. The results of course will be significantly impacted depending on the nature of the board and the culture it functions under. As in any evaluation it would be preferably executed by an outside, objective party.

10. There is no “one size fits all” as it pertains to the separation of the CEO and Chair roles. It depends on the company, its culture, the operating environment and certainly the personalities of the players involved.

As can be seen from this brief overview, the topics and discussions at the Yale Governance Forum were diverse and oftentimes quite novel and even controversial. The net net is that there is definitely a need to continue to innovate and evolve in the world of corporate governance. An openness to new ideas, methodologies and processes ought to be standard operating procedure in our boardrooms!

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Entry filed under: Corporate Governance, Recruiting.

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