20 September 2007

CEOs not directors driving the governance agenda

CEOs – not chairpersons or directors – are the strongest initiators or champions of governance change in their organisations, according to a survey conducted by the Australian Institute of Management (AIM) that shatters widely-held perceptions that only boards are the key custodians of good governance.

The AIM Australian Governance Survey, carried out by AIM Qld & NT in conjunction with the Queensland University of Technology and the University of Queensland, found that 83 per cent of directors and managers surveyed reported CEOs to be highly or very highly involved in initiating or championing governance change, trailed by Chairs in second place at 69 per cent.

The role of non-executive directors in advancing the governance agenda also came in below expectations with only 39 per cent of respondents stating they were highly or very highly involved, despite accepted wisdom that the independence of non-executive directors is an important safeguard against management excess.

"Recent corporate scandals have pushed directors into the spotlight as key agents for good governance. But the unfortunate consequence is that the role of managers has been sidelined," said Mr Keith Hilless, National President, Australian Institute of Management.

"This survey provides a much-needed reality check on how organisations are really governed. The findings help restore the balance by recognising that directors and managers are both key players. We expect these findings to kick-start a frank discussion on the kind of 'whole of organisation' solutions needed to achieve effective governance," said Mr Hilless.

The AIM Australian Governance Survey also highlighted that directors and managers do not see eye-to-eye on the characteristics of an effective, high-performing board – a finding that could lead to friction in the board-management relationship.

While directors and managers surveyed both agreed that the 'strategy' role was an important indicator of board effectiveness, there was little agreement on other factors.

Managers appeared to value the contribution of the board to management's own performance through establishing boundaries within which management is to operate, and engaging with and advising the CEO and senior managers. By contrast, directors saw protecting broader organisational interests through stakeholder and risk management as more important indicators of effectiveness.

"When directors and managers are not on the same page as the board's priority activities, you have the ingredients for a dysfunctional working relationship. There is clearly a need for more dialogue to establish a common understanding around what makes an effective board so that the expectations of managers and directors can both be met or, at least, addressed," said Mr Hilless.

In a further finding that again underscored the importance of closer working ties between the board and management, the AIM Australian Governance Survey also indicated that the board's approach to strategy development had a strong impact on others' perceptions of board effectiveness.

The Survey found that 'collaborative strategising' – which emphasises face-to-face interaction between the board and management on strategy, a focus on overall organisational health and an informal, ongoing approach to strategy development, strongly influenced positive perceptions of board effectiveness and performance. On the other hand, 'procedural strategising', based on formalistic processes and less 'hands-on' engagement from the board, did not.

"The lesson here is that the 'how' of board involvement in strategy is critical to perceptions of effectiveness. Having a hierarchical view where management teams submit ideas which the board then reviews from 'on high' is not seen to add value," said Mr Hilless.

"Both managers and boards need to maximize opportunities to collaborate better in a stronger 'team-based' environment. This could involve big changes like using committees more frequently to improve interaction and promote joint decision-making, to simple things like removing formalities around how management shares information with the board," added Mr Hilless.

About the AIM Australian Governance Survey

The AIM Australian Governance Survey was undertaken by AIM in collaboration with researchers from the Queensland University of Technology and the University of Queensland to examine what managers see as their role in effective governance and to compare this management perspective with that of directors. The survey was issued to managers and directors of Australian organisations and elicited 379 responses.

About AIM

AIM is Australia's largest professional body for managers, and is recognised as the voice of management in this country. More than 25,000 managers at all levels and more than 6,000 organisations belong to the AIM Network
The Institute is best known as Australia's largest private provider of management training and consultancy services. AIM also has an outstanding reputation as the premier source of applied management information through our national network of bookshop and library facilities.

For further information please contact: Vivienne Hardy at CallidusPR on (02) 9283 4111 or 0411 208 951 or Su Lin Ho at CallidusPR on (02) 9283 4111 or 0421 616 617.