May 29, 2014

    Boards hijacked by corporate governance

    TODAY, boards of directors often carry the blame for company failures, particularly when these are related to major corporate lapses or accounting fraud. Yet, interestingly, when companies succeed, the glamour usually goes to the management and not their boards.

    The situation is so skewed that it is like the only role of boards is oversight.

    Boards are seldom associated, at least in the public eye, with driving the triumphs of the company in the marketplace. It is as if the board is accountable for the "downside" and the management for the "upside".

    While setting strategy is often cited in textbooks as the board's first role, those down the list (such as risk control and compliance) are now taking centre stage in many boardrooms.

    The "job" (if this is the right word to use) of the director has just become too onerous, too tedious. For those with the requisite risk acumen, it is ironic that they will now do their sums again and conclude that the burden is just not worth the contributions they can make, even if these are purely service or altruistic in nature.

    In fact, the present path of corporate governance may result in the drying up of supply of good board directors to meet the escalating demand for quantity and quality.

    Has our current corporate governance barked up the wrong tree? Has the solution become the problem?

    The board should indeed stay focused on driving the business of the company. In its collective form, it cannot be seen as just a check-and-balance mechanism.

    Some countries, notably Germany and China, practise a dual-board system to allow a certain "division of labour" between the supervisory and the executive.

    In an article of the Boardroom Matters series last month in The Business Times (April 11), the chairman of the Singapore Institute of Directors (SID), Willie Cheng, made the observation that this two-tier structure had been implemented in a non-profit organisation, Singapore Manufacturing Federation.

    However, he doubted that it would take off in Singapore among for-profit or even non-profit entities, due to the cumbersome decision-making process.

    I agree that we can retain our one-tier system. Perhaps we should move to a system where the board is strongly augmented by dedicated mechanisms that also include direct involvement of the relevant professionals.

    Actually, it is no coincidence that the Singapore Corporate Awards are convened by two professional bodies - SID and the Institute of Singapore Chartered Accountants - in partnership with a national media organisation, The Business Times.

    It appears that corporate governance professionals, particularly accountants, have a distinctive role to play in collaborating with corporate leaders, especially directors.

    In strengthening the usual board committees for nomination, remuneration, auditing or risk, we can have a "compliance committee" or unit that works closely with the board itself.

    This entity can deal with details relating to the entire spectrum of issues that often take the bulk of the board's attention. Indeed, in many instances now, the audit committee has been loaded with this function, and much distraction is added to the already full plate of the audit mandate.

    Beyond the current dichotomy of one-tier and two-tier, we can have a "one-plus" corporate governance system. The board will remain the mother ship, but will be adequately served by a dedicated purpose-focused launch vessel: the compliance entity.

    We can call it by another name, if "compliance" is not favoured. But the intent and spirit are the same.

    It is not about putting the cart before the horse - it is that the horse has simply disappeared.

    The board should be able to spend quality time together dealing with what it is best suited for.

    By all means govern - but don't forget business and strategy.

    The writer is deputy head and associate professor of strategy and policy at NUS Business School. At the school's Centre for Governance, Institutions and Organisations, he leads corporate governance ranking projects conducted with various strategic partners. This article was written for the school's Think Business portal ( and was featured in The Business Times.