In light of growing international interest and scrutiny of corporate practices we set out to explore how three major aspects of governance – the role of culture, board composition and strategic planning – are affecting businesses around the world.
Corporate governance: The tone from the top draws on draws on 1,865 telephone interviews with business leaders in 36 countries through our International Business Report (IBR), and 86 in-depth interviews with board directors in eight countries to answer five critical questions in corporate governance today.
1. Whose responsibility is culture?
The definition of business culture varies between countries but nine in ten business leaders believe culture is important to a robust governance framework and board members generally agree that it is the board which needs to build and foster this culture. Regulators are also becoming more vocal on the role of culture and expectations for boards. One in five business leaders said that their boards do not spend enough time focusing on culture.
2. How can boards foster a culture of good governance?
A good governance culture directs how a company behaves, shaping the signature behaviours which bring corporate codes of conduct to life. Three is no standard empirical method of measuring culture, but two-thirds of business leaders around the world believe the amount of time their boards spend looking at the broader issue is ‘about right’ although some board members indicated that boards focus on culture only in response to compliance issues. Board members also cited integrity and transparency as the principles that should underpin every action a business takes, which might be harder when the company is facing tough challenges.
3. What does ‘diversity’ really mean and how can it be encouraged?
There are many different forms of diversity but two thirds of business leaders surveyed believe their boards are effective in encouraging it (with those in listed businesses more satisfied than their privately held counterparts) but just a sixth of directors globally are women. Board members agree that there is a lack of diversity on boards which makes ‘groupthink’ a bigger danger. They want to look beyond gender to also seek diversity of culture, background, knowledge and thought.
4. What skills do boards need now and in the future?
Succession planning on boards – to ensure consistency but also to better adapt to new developments in the business environment – has risen up the corporate agenda. Business leaders want their board members to have current industry knowledge, whereas board members themselves indicated more interest in their peers bringing new ideas to the table and having the time available to contribute effectively. A particular concern is technology and whether boards have sufficient current knowledge of the digital space to appropriately advise their management teams.
5. Is there a conflict of interest between short-term profits and long-term growth?
Different industries operate to different planning horizons – for example, mining and utilities need to take a much longer-term view than technology companies – and electoral cycles can also play a significant role. Almost three-quarters of the businesses globally operate under a planning cycle of three years or less. Most board directors believe this is an appropriate planning horizon although some would like to see CEO compensation linked to longer-term performance to avoid operational decisions being driven solely by quarterly reporting.