New Corporate Governance in the Post-Crisis World, Private Sector Opinion #16

by Prof. Dr. Martin Hilb for Private Sector Opinion, Global Corporate Governance Forum, 2009

Foreword

Ever since the adoption of the Sarbanes-Oxley act in 2002, the roles and responsibilitiesof boards of directors have been prone to debate, with a focus on theimportance of director’s independence. Beyond the independence requirement,well functioning boards must also exhibit other qualities. However, there is simplyno “one size fits all” or magical recipe as far as “good” corporate governanceis concerned. This is in essence the thought provoking message of Professor Hilb’sessay, which of course resonates even more at the heart of the world’s worst financialcrisis since the deep depression.

The new corporate governance concept Martin Hilb is articulating goes back to theroots of good corporate governance, which is the ability to act as a visionary andeffective decision body, exerting both strategic leadership and control. It’s also aninvitation to think twice about the applicability of “best practices” in different legalcontexts and business models. Arguably, despite some common features, the appropriatecorporate governance of a family business company will differ from that of alarge listed company. In addition, both the financial crisis and previous cases of largecorporate failures have raised critical questions about the role of board directors inrisk management. Are boards sufficiently equipped with the necessary knowledge,skills and expertise to provide the appropriate strategic vision and control function?The answer is certainly more complex and nuanced than it seems. Overly generalistboards may not grasp certain technicalities (with dreadful consequences), yetoverly technical boards may completely miss the big picture.

At the end of the day, the “right” board composition is matter of delicate balance,and involves group dynamics. According to Professor Hilb, what makesboards able to reach superior decisions as a group of qualified individuals andbring long-term value to the company is not the sum of their individual intelligence,but how they can complement each other so as to deliver a superior outcome.Accordingly, what should matter most is the proper combination of technical skillsand of decision-making skills, namely the alchemy between complementary skillsand characters. This combination should also include a clear team spirit, long-termvision, as well as an adequate incentive structure. (continue reading… )