Corporate Chronicles

Episode 7 of a 13-part weekly series on good governance and ethical conduct.

In this series I will examine issues of corporate governance and matters of public interest. If readers have specific business integrity and governance topics they’d like me to explore, please message me here on LinkedIn, Facebook or email.

Lifting the Veil - Disorder in the Boardroom

Last week I wrote about some spectacular failures in corporate governance, and how reliance on incompetent directors and management as well as self-seeking consultants/advisors contributed to ruin. I also noted the need for shareholders to step in and to be more vocal and proactive in demanding truth, transparency and accountability. This week I will expand on how we can put control back into the hands of shareholders by simply doing governance the right way, how to recognise the classic signs and threats, and finding solutions to address real world Caribbean dilemmas we are facing every day.  

A solemn duty

Beneath the veneer of polished board policies and governance codes, something nasty this way comes. It is not enough to state in the annual report that the Board is ‘committed to maintaining the highest standards of corporate governance across various businesses’. Mere words do not make it so. How can we ensure our investments are being managed properly and protected? 

As shareholders we entrust directors with a sacred duty: to protect our investments and champion the company's long-term success.  This demands unwavering integrity, relentless scrutiny, and consistent ethical leadership by the Board of Directors. They cannot simply rubber-stamp management's decisions; they must hold executives accountable - even if friends or golf buddies, and even when it means making tough and uncomfortable calls. 

An absence of good conduct

When dissent is discouraged, transparency is obscured, and personal egos overshadow duty - and so the foundation for disaster is laid. Absent accountability, companies face the potential for ethical, legal, and financial ruin. Boards need governance structures that truly hold power to account, where directors do not let egos get in the way of duty, where they are prepared to ‘listen’ to the dissenting voices, without feeling “schooled” like little boys. 

Shareholders cannot be passive. They must arm themselves with a list of questions:

🚩 Does the board welcome dissenting voices and seek diverse perspectives?

🚩  Is there robust scrutiny of management proposals and financial operation

🚩  Are decisions made transparently, with clear explanations for actions take

🚩  Does the board truly prioritise long-term value creation for all stakeholders?

Remember:  Compliant boards breed complacency. Empowered shareholders demand accountability.

Simon Goldberg asks where were the directors? He goes on to say: I think it is fair to say that the Post Office’s reputation is, to put it mildly, in tatters. I also believe that this fall from grace is a direct consequence of the detrimental decisions made by the Post Office’s Board for a period of over 20 years. There is also a tragic irony here: so many of their shocking decisions were made with a view to protecting the previous good name of what once was a treasured institutional brand. Where have those ‘high standards of business conduct’ gone?

The Chair, the CEO and the Corporate Secretary

Toe the line!

What are the processes for selecting the board? With a CEO as part of the selection committee, is there room for the CEO to choose the board or have undue influence in who sits on the board? Certainly, the CEO’s presence at the nomination committee compromises board independence and oversight especially for Directors who are indebted to the CEO for their place on the board (and the high fees, in some cases in Fx, that come with the post). CEO- recommended board candidates must be viewed with healthy scepticism. Shareholders should demand thorough vetting and disclosures of potential conflicts of interest.

Directors who are indebted to the CEO may toe the line rather than challenge and this paves the way for a dangerous echo chamber. If you have a weak chairman or corporate secretary or both have been hand-picked by the CEO, will the Chairman or the Corporate Secretary really challenge the CEO? Or will they just toe the line to preserve power, prestige and pocket? Enforced alignment and toxic positivity - where perpetual agreement is demanded, stifles dissent and harms shareholders. This deluded mindset means boards ignore or explain away contrarian narratives to shareholders’ detriment.

Break the CEO’s Circle

🛑 Nomination committees must be truly independent of CEO influence where director candidates are identified on expertise, experience, diversity of thought, a track record of integrity, and proven commitment to shareholder interests.

🛑 A CEO’s Board committee role must be as a non-voting member only; he can participate, recommend or advise but must not vote. He should attend only to present reports or discuss strategy. He must not linger during deliberations

🛑 CEO-recommended board candidates must be viewed with healthy scepticism and shareholders should demand thorough vetting and disclosures.

A Calamity Checklist of Conformity - CEOs, Chairmen and Corporate Secretaries

Psychology professor Irving Janis exposed the perils of a close-knit, homogenous group, a breeding ground for dangerous delusions disguised as team spirit.

The Invincibility Trap: Fueled by blind confidence, they chant, "Our leader, our plan, they cannot fail! Fortune favours the bold!"

The Unanimity Lie: "Consensus is king! Dissenters be damned!" Whispers of doubt are crushed, ensuring no one dares to shatter the comforting illusion.

The Happiness Cult: Forced smiles and cheerful compliance are the price of admission. To question is to risk exile from the inner circle.

Beautifully bound board books

Board evaluations are clearly not changing boardroom behaviour - sharing pretty graphs from pretty people is pretty useless. What we need are mandatory, rigorous external, independent evaluations focused on the usual suspects - effectiveness, strategic oversight, areas for improvement, but going beyond mere process and tick-the-box compliance.

⭕ We demand independent evaluations that don't perpetuate the status quo. ⭕ We won't accept vague promises: set clear targets and share results openly ⭕ If boards and directors are not performing, then off the board they shall go!⭕ Once trust is broken, it's time for a clean sweep and replacement.

The Gatekeepers of Governance

Eternal boards with long-serving directors breed stagnation and entrenched interests. On the flip side, green boards with little or no experience chosen solely for the optics may not bring crucial wisdom, experience or expertise. It’s a farce when CEOs cobble together their personal cheer squad—Chairman and Corporate Secretary included, forming a triumvirate where accountability dies. 

Who calls out the boss, or does the boss scold the chief? Where does the Corporate Secretary fit into this charade? When the top echelon forms a mutual admiration society, disaster is imminent. What happens when all three may be compromised? Who will take action? When boards morph into old boys’ clubs filled with cronies and compliant ‘yes folk’ dependent on their status to the very people who selected them, the potential for conflicts of interest and compromised oversight is a governance nightmare. 

What happens if for example, a Complacent Chair and 'Compliant' Corporate Secretary are off in a vortex, exploring mystical portals with a Chanting CEO instead of on duty conducting checks and balances? Who is there to check the power? Where a Board employs (deliberately) a weak or compliant corporate secretary then it is not surprising when under the CEO's guidance, and with the Chairman’s acquiescence, there are governance failures.

Shareholder Step In! Cut the Puppet Strings

🟥 Cap director terms - bring fresh blood to challenge not just nod along

🟥 Let shareholders nominate directors. Nix CEO's club on hiring board buddies

🟥 Empower independent body to vet members. No CEO input, no conflict

🟥 Rotate roles within board. Prevent power monopolies by mixing up positions

🟥 Mandate external governance audits - unbiased eyes hold board accountable

🟥 Make every board decision and rationale public. Shine lights on dark corners

🟥 Use AGM as a platform to publicly question selection process for the C-suite

🟥 Demand info on CEO, Chair, Corporate Secretary performance, independence

🟥 Get info on secretary's governance oversight mechanisms, evaluation process

It's high time the boardroom became a place of challenge and change, not a comfortable business-class lounge for the back-slapping, back-patting, complacent and complicit crew.

Shareholder Rights – Time for change 

At an AGM, can shareholders truly object to a bad director with en-bloc voting? NO! This tactic lets the CEO’s lackeys skate by. How can I as a shareholder re-elect Dumbledore but oust bumbling Bob and dodgy Dobby? The sneaky set-up of en-bloc voting is designed to protect the incompetent and silence dissent.

Are shareholders just a rubber stamp for decisions the CEO and Chairman cooked up in secret? Are we merely ratifying their handpicked choices? What rights do we have to question their shady nomination process and the ‘nominations’ which in fact are really ‘done deals’? What rights do shareholders have to demand a better-qualified, more independent Chair?

Time to revolt

❗ Individual votes not bundled deals so we can vote on each director separately

❗ Vote "NO" and reject directors who serve the CEO and not shareholders

❗ Apply Pressure with proxy advisors and shareholders to amplify our voices

❗ Fight for the right to scrutinise potential directors and to nominate them

Cent wise and dollar foolish 

Boards based in Trinidad & Tobago jetting off for lavish meetings and "strategy" sessions in Miami or London? That's an insult to shareholders! When the majority of your board lives overseas, shareholders foot the bill for fees, flights, hotels, and who knows what else, all paid in precious foreign exchange.  This isn't just bad optics – it's abusive, unethical and an affront to most shareholders who can’t even get USD$300 from their bank on a good day. 

Time to reign in the emperors

When CEOs sit on the very compensation committees that approve their pay, isn't that a conflict of interest? How can these committees be considered independent?  Shareholders are left in the dark about the consequences of excessive pay. CEOs setting their own salaries is a blatant conflict of interest.

The UK Post Office debacle continues. MPs are demanding the Post Office’s CEO hand over an 80-page “speak up document” regarding his conduct, that prompted a probe. In that case, the former Chairman had urged ministers to double the CEO’s pay – from £415,000 to £830,000 – to prevent him quitting. However, including bonus, that CEO had already earned more than £830,000 last year.

Now, let's look at a regional case study of a publicly listed company, where a senior officer employee in one publicly listed company received a staggering, truly obscene, eye watering, stomach churning, multimillion dollar bonus of grotesque excess in 2023 AND in 2022 - on top of salary. This absurd payout, larger than many companies' entire payroll, occurred weeks after laying off employees, including single mothers on a stated 'commercial' restructuring. In their lifetime, collectively, they could never earn those sums which are larger than most people could comprehend, even if they worked multiple lifetimes.

How does that align with stated corporate values of concern and compassion?

Why would executive pay structures and incentives be kept secret from shareholders? Is it that shareholders would be apalled by the monumental pay? If these payouts are justifiable, the company should proudly publish them alongside Board compensation, not bury them in another stock exchange.

In such a case, does the Board actually comprehend the compensation schemes they approve? Or are they just nodding and plodding along? Do these metrics reward long-term value creation, or do they incentivise short-term gains at the expense of the workforce? At the expense of the shareholders? CEO and executive pay in publicly listed entities must be linked to long-term goals aligned with sustainable shareholder value creation; this will help avoid easily manipulated short-term metrics.

Demand answers (and receipts!)

Shareholders deserve transparency over how their investments are managed, including detailed reports on all board-related expenses, not just published salaries but also the business class travel, 5-star accommodation, the fancy dinners and allowances for non-resident directors, with detailed foreign exchange expenditure. This transparency ensures spending aligns with industry norms and encourages fiscal prudence, safeguarding shareholder value against wasteful expenditures and egregious excess.

If these details are made public as they should be, there will be transparency which helps prevent boards and its executives from living like royalty at shareholders’ expense. This level of scrutiny will force boards to finally prioritise shareholder value over their own comfort and convenience. Trust but verify. Boards must be more mindful of expenses and adopt prudent spending policies.

Protect the Bottom Line and Shareholder Rights

💰Mandate Expense Disclosure: It's not optional – it's our $$$ they're spending!

💰 Local Expertise: Limit the number of overseas directors. WE'VE GOT TALENT!

💰 Demand a compensation committee that has only independent directors.

💰 "Say on Pay” votes - seek shareholder feedback on executive compensation.

💰 Shareholders to veto excessive spending proposals to prevent waste.

💰 Clawback - companies should be able to reclaim bonuses for misconduct.

This isn't just about the numbers; it's about ethical leadership and protecting those who truly create value within the company.

Three key principles directors can employ (and shareholders should insist upon) 

Are you hearing me?

Mary Campbell OBE put it best: LISTEN! Particularly to the people you don't know who are seeing something you're not seeing and who may well be seeing something that you should be seeing. Listen to your people who are telling you there is a problem.

Who did you speak with?

Nick Gould asks the question, did any board member speak to someone who raised issues? Did any director seek out those who raised concerns and have an open conversation with them, with someone willing to speak truth to power?  Boards need to be talking not just to the directors and the CEO and those who naturally surround them but others. 

Everything’s not ok and that’s ok

Richard Moorhead said listen to evidence not opinion and challenge the desire to only hear that everything is ok. Seek out the dissenters, the devils’ advocates and recognise the importance of diversity of thought.

Murder your darlings

As Rolf Dobelli says in The Art of Thinking Clearly, Arthur Quiller-Couch, the literary critic, offered this valuable advice, murder your darlings, to writers. But this advice is not just for writers.

It is for every director who suffers from the deafening silence of ‘yes sir’, ego and complacency. 

It is for every shareholder who demands that their boards be transparent and accountable. 

“If you ever find yourself in a tight, unanimous group, you must speak your mind, even if your team does not like it. Question tacit assumptions, even if you risk expulsion from the warm nest. And, if you lead a group, appoint someone as devil’s advocate. She will not be the most popular member of the team, but she might be the most important.” Rolf Dobelli. 

Next post: The ‘CULT’ in culture … stay tuned! 

#boardego

#boarddisclosures

#boardtransparency

#boardaccountability

References and reading

1. Dark Shadows: Order in the Boardroom
2. Where were the directors? Simon Goldberg
3. Boardroom Echoes & Egos: The dangers of groupthink
4. Big Bacchanal for Big Bonuses
5. MPs demand Post Office boss hand over report into his conduct
6. The Art of Thinking Clearly, Rolf Dobelli
7. The Art of Thinking Clearly YouTube summary
8. RED FLAGS OF POOR LEADERSHIP, THOM DENNIS 3 FEBRUARY, 2024
9. The Post Office Horizon Scandal – lessons for directors, Institute of Directors, 8 January 2024
10. The Post Office Horizon Scandal - Where were the Directors? Institute of Directors Dr. Roger Barker Richard Moorhead Nick Gould Mary Campbell OBE