The Governance Gap

I trudged to the polls to cast my Canadian vote yesterday, although I fell asleep  long before the last vote was counted, wearied at the way our politicians had squandered my fear.

Hold on, you might exclaim. No politician in their right mind would choose to face an electorate dazed and confused by financial devastation. But in tough times it’s easier to serve up a dose of strong medicine; the “short term pain for long term gain” kind. In fact, voters might have been hungry for a leadership that dared to challenge them and, in its absence, stayed home.

A fundamental shift in values and behaviour inevitably comes with a high cost to some – remember the rise of the rust belt, or the decline of the American car? But very scary times make that degree of consequence palatable;  consumers willing to save now and spend later; corporations running, not walking, towards the post-oil economy; institutions begging regulators to set a higher bar.

And that state of mind leads me to a series of questions I want to pose at my next board meetings:

• Our next half dozen quarters are going to hurt regardless, so why not dig deep and shape our business fundamentals for better survival in the post-recession world?  
• Is there tough medicine we need to prescribe for long-term health?
• Who will our losers be and how do we mitigate, or at least manage, their pain?

What’s going on in your board room? Is there a willingness to risk increasing the short-term downturn in return for coming out the other side with a stronger business model?

Ouch, I moan, as a fresh, clear dawn awakens me to a world swinging wildly out of my control. Not a place where I, as CEO or Board member, would choose to be, or, maybe I would.

On a personal level, I am lurking at the market’s edges, ready to invest. Perhaps it’s just because I’ve started three businesses, including a winery, that I’m nuts for risk. Maybe it’s because that strategy did so well for me in the last three recessions, starting in ’87.

On a board level, one of my entrepreneurial CEOs , has just circulated a greatly reduced set of growth projections, despite the business being loaded with cash.

But I want the board to tackle this question:

• How do we leverage any opportunities for us in this time of global economic contraction?

What’s going on in your board room? Are you examining the potential or are you hunkering? How are you managing the governance gaps in risk tolerance? Maybe in your case it’s your CEO who wants to tilt at windmills, while board members prefer to play safe.

Share your stories.

And so it should, I think, as I shudder over the downward revisions in the 2009 growth projections provided to our board by our CEO, as the credit crunch further decimates business life.

And causes me to muse over the governance gap that results in compensation packages so skewed, CEO’s are lavishly rewarded even as shareholders suffer devasting losses. What are the pointed questions my Board needs to be asking the CEO?

• How vulnerable are we to the compensation nightmare of paying out a lot for negative performance?
• Are we rewarding the behaviour, and people, we really want – notice I didn’t say results!
• Have we clustered rewards around out-performance  - and have we set the benchmarks high enough?

Closing the governance gap means using compensation as a strategic tool. Is that what happens in your board meetings? What can boards do to ensure CEO’s better match executive compensation to shareholder returns?

What’s the back chat in your board room?

It is the vast difference in perspectives between and entrepreneurial President or founder and the Board.

The entrepreneur passionately believes in the vision and unequivocally knows they are the best person to bring it to life. The Board’s job is to ask tough questions, keep a focus on long term strategy and delve into every possibility - including the one that the President is wrong. 

When the differences are embraced, the corporation, and its shareholders, win.

What you will get from this blog

A better understanding of the gap and how to bridge it so the corporation enjoys the best of both worlds: the free-wheeling approach of the founder, and the in-depth analysis of the Board.

Who should read this blog

The entrepreneur who wants  to increase the contribution of the Board, board members of private, family and small cap corporations, and any investor who craves the financial rewards that come from betting on an exciting entrepreneur, while hoping the Board is exerting at least some measure of control.

What you will read

Stories inspired by current business headlines that illustrate the real conundrums that face a company that is still in the entrepreneurial stages of its growth, while having to live within the constraints that come with prviate equity or small-cap public funding.

Why am I the right author for this blog?

Because I am both the creative entrepreneur and the disciplined, certified corporate director (ICD.D). Because I passionately believe that start-ups that are coached through this difficult stage of growth are the real engines of our economy, creating wealth for their investors. Because it’s fun!