AIM Australian Governance Survey

Executive Summary

In early 2007, the Australian Institute of Management (AIM) commissioned a large scale survey of its senior and executive clients and members, including Fellows and Associate Fellows, to better understand the respective roles of management and directors in corporate governance. The study was motivated by the rise in importance of corporate governance in general and the dearth of research specifically surrounding the role of management in effective corporate governance.

Phase one involved more than sixty interviews of senior managers and directors to identify possible issues for further investigation. Phase two involved a significant pilot questionnaire to allow refinement of the issues. Ths pilot was undertaken by the instigators of the research, AIM Qld & NT. Phase three was a major national survey undertaken under the AIM National banner.

Participants in phase three included a broad cross section of (1) organisations, (2) individuals and (3) governance arrangements. While there are a number of quite detailed findings that emerge from the data the key results can be summarised into three different themes:

1. The things boards do to contribute to performance are viewed differently by managers and directors.

Directors and managers think of their roles in terms of topics (or areas of focus) rather than activities (or how they carry out their task). We have isolated five key domains of focus, namely:

• Strategy;
• Risk and compliance;
• Policy;
• Access to resources (or networking and communication); and
• Oversight and development of the management team.

While these domains of focus are recognised by both managers and directors, each have different views on how a board's performance on each domain is related to their perceptions of overall board performance.

Both directors and managers perceive the board's focus on strategy as positively related to perceptions of board management and organisational performance. Managers also tended to view board roles that assist them (e.g. access to resources; oversight and development of the management team) as positively contributing to how they viewed the board's performance (but not organisational nor management performance). In contrast, directors tended to view whole-of-organisation focus areas (most notably policy) as contributing to perceptions of board, organisational and management performance. This whole-of-company versus management-assistance split between director perceptions and management perceptions was replicated in investigations of board effectiveness.

2. Boards that strategise collaboratively with their management teams (rather than merely establishing and monitoring goals) are thought to contribute to board, organisational and management performance.

Given the importance of the board's role in strategy, we were interested in how boards undertook their duty to control and monitor the company. Specifically, we developed robust measures for what we have termed procedural strategising (where boards concentrate on setting goals and monitoring against those goals sporadically) and collaborative strategising (where boards and management work together on strategy). Our results clearly indicate that boards engaged in collaborative strategising are thought to strongly contribute to performance and boards engaged in procedural strategising are thought to be negatively associated with performance. This is an important finding as it has significant implications for how boards and management teams should approach what was perceived by both groups as the most important area of focus for the board.

3. Chief Executives and Managing Directors are more likely than any other governance participant (even Chairmen) to champion or lead the governance agenda in their organisations.

The third major finding of this research was the critical role that managers, or more specifically the CEO or Managing Director plays in governance. CEOs/MDs are most likely to initiate or champion governance change - more likely than the logical and often normatively prescriptive choice of Chairman. Again, this is an important finding as it highlights the need for managers (and regulators) to better understand the respective roles of managers and directors in ensuring a corporation has effective governance.

Implications for Managers

The overarching implication for managers is twofold. First, effective and robust good corporate governance is not something that can be abdicated to directors in general and non-executive or independent directors in particular. Rather, effective governance that addresses compliance and contributes to the performance of an organisation appears to rely instead on the joint effort of managers and directors. Chief Executives and Managing Directors are highly likely to be championing any governance change and further, collaborative efforts surrounding setting the company's strategic direction and ensuring the company is headed forward in that direction require close joint attention.

Second, managers often view how boards contribute to effective governance differently than do directors. In particular, managers value how boards can help them do their jobs (e.g. providing access to resources, oversight of the management team) whereas directors see their role in terms of whole-of-organisation focus. This should cause managers to pause and see if their current governance arrangements take these differences into account or if, in fact, current practices exacerbate this tendency. In particular, managers should work hard to ensure their boards are collaboratively strategising with the management team.

A comprehensive report titled Managers' Silent Obligations: perceptions of the respective roles of management and directors in corporate governance in Australian companies is available as a free PDF download [PDF; 1.2Mb].

© Australian Institute of Management