September 1, 2023 Board leadership and control
“Quis custodiet ipsos custodes”
Writing at the end of the first century, the Roman poet Juvenal posed a question which resonates to this day. The question loosely translates as ‘who watches the watchmen’ and has been used to illustrate multiple governance, power and accountability failings over the years.
In another twist to the story a new interpretation has arisen; one which asks not who watches the watchmen but rather who now controls their destiny. It’s a disturbing turn of events. Company directors are supposed to be the watchmen of the organisation, ensuring the success of the company and setting its direction. But a new report by the Institute of Directors (IoD) has questioned whether that is still the case.
The report, entitled ‘Are boards losing control’ poses the very real danger that a combination of factors has resulted in a potential power vacuum at the top of companies. Moreover, the report postulates that this vacuum is now being filled by regulators, investors and others whose priorities might not be in the best long term interests of the company.
According to the IoD, a succession of adverse factors including the pandemic have resulted in boards moving from a proactive mindset to a more reactive one. Whilst in times of crisis that may not be a bad thing, the more reactive a board is, the less it is looking to able to anticipate and plan for future events. So much so that McKinsey’s ‘State of Organisations in 2023’ report revealed that half of global business leaders believed they were not well prepared to anticipate and react to global shocks. And when boards have a reactive mindset, it can be all too easy to simply accept what is pushed on them from outside.
The solution, says the IoD, starts with a move towards a more proactive mindset. The next step, that of countering external political and other influences, may require not only some training in political awareness but also a determination to take a more active role in the debate; bringing sectorial knowledge and experience into the arena.
Finally, in order to take back control of the direction of their organisations, directors need to be prepared to be more robust in defence of their decisions and corporate governance arrangements. The existing comply or explain framework offers great flexibility and the potential for clarity, provided it is used in the right way. The more a board can provide genuine insight into its decision making process, the greater will be its ability to retain control over the destiny of its organisation.