The Independent Director in Society: Our current crisis of governance and what to do about it

282 Pages·2020·4.239 MB·English

by  Gerry Brown, Andrew Kakabadse, Filipe Morais

The
Independent
Director
in Society
Our
Current Crisis
of Governance
and
what to do
about it
Gerry Brown
Andrew Kakabadse
Filipe Morais
The Independent Director in Society
Gerry Brown • Andrew
Kakabadse • Filipe Morais
The Independent
Director in Society
Our current crisis of governance
and what to do about it
Gerry Brown Andrew Kakabadse
GBrown Associates Ltd Henley Business School
READING, UK Henley on Thames, UK
Filipe Morais
Henley Business School
University of Reading
Reading, Berkshire, UK
ISBN 978-3-030-51302-3 ISBN 978-3-030-51303-0 (eBook)
https://doi.org/10.1007/978-3-030-51303-0
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To my wife Clemencia, sons, daughters and family for their unfailing interest
and support for this very demanding and absorbing adventure.
Gerry
Preface
Just as this book went to press, the coronavirus pandemic erupted in China
and spread rapidly throughout the world. Millions are infected, and tens of
thousands have already died of Covid-19, the illness caused by the virus. In
their initial response, most nations have gone into lockdown to stop the
spread of the virus. The world economy has ground to a halt. Few, if any,
institutions have been unaffected by the crisis, which has become the greatest
challenge to governance in living memory.
The pandemic, and our responses to it, throw into sharp relief the failings
and weaknesses of leadership and governance, in every sector and at every
level, in the UK and around the world. Richard Horton, editor of The Lancet,
has called the crisis ‘the greatest global science policy failure in a generation’,
and the philanthropist and former Microsoft chairman Bill Gates tweeted
that ‘few governments will get an A-grade’ for their response to the challenge.
These failures of leadership and governance have played out on many levels.
One of these was the failure to prepare adequately for the coming crisis. It has
been argued that this crisis is a ‘black swan’ event, unforeseeable and unimagi-
nable, but this simply is not so. Nassim Nicholas Taleb, the person who first
popularised the phrase ‘black swan’, is one of many who have pointed out that
the prospect of a major global pandemic has been predicted, and its health
and economic impacts modelled, many times in the past.
Another failure was the hesitant and often ineffective responses to the crisis
once it began, with particularly dire consequences for health care workers on
the front line. Britain is not the only country suffering shortages of testing kits
and personal protective equipment (PPE). President Macron of France has
been forced to apologise for shortages and delays in his own country. Without
vii
viii Preface
the necessary protection, health care workers are falling ill and dying in ever-
increasing numbers.
These failures of preparation and response also highlight the failings of
boards. Our original research, conducted before the crisis began, had already
raised many important issues, and Covid-19 has thrown these into sharper
relief. Are boards able to respond adequately and quickly to crisis? Are they
able to make informed decisions and respond promptly? Does the size and
composition of boards—particularly their lack of diversity—hinder their
decision-making ability? Are independent directors sufficiently engaged, and
do they take their responsibilities seriously? Judging by the apparent power-
lessness of many institutions in the face of the exploding medical, social and
financial crisis, the answer is often ‘no’.
But the real challenge for governance is only just beginning. At some point
the virus will be brought under control, enabling the rebuilding of our dam-
aged societies and shattered economies to begin. But are our institutions
robust enough to achieve this? Are they fit for purpose? As our book points
out, the answers depend to a very large extent on how well those institutions
are organised and governed, and in particular, how well boards are engaged
with their organisations and with their stakeholders.
The purpose of the board is ‘engaged stewardship’, ensuring the organisa-
tion is run to the maximal benefit of all stakeholders. The key word here is
‘engaged’. This requires a deep understanding of the needs of stakeholders and
the service the institution provides for them. As our research shows, boards
add value when they are truly engaged. Most board members are well aligned
with each other and their management—that is, they share common values,
aims and beliefs and are committed to making positive change—but they are
not sufficiently engaged with other internal stakeholders nor have enough
understanding of the circumstances and environment within which their
organisations operate. When this happens, boards are unable to make the best
possible decisions and the value they add to organisations is diminished. The
current crisis has shone a bleak light on this problem and forces us to confront
weaknesses in governance across a wide swathe of society.
The health care sector, as already highlighted, is on the front line, and this
includes not just hospitals and the National Health Service (NHS) but also
Public Health England (which has revealed the awkward split in responsibili-
ties between them). It includes also hospices and care homes, where both
private and public sectors had already been under strain for some time, in part
due to poor supervision and governance. While magnificent efforts have been
made to find enough beds, the shortages of equipment such as PPE, ICU beds
and ventilators—plus the risk to their own health—have put NHS and care
Preface ix
home workers under terrible and sometimes lethal stress. What long-term
damage will have been done to the health care sector once the crisis is over?
What damage will have been done to the nation’s health more generally by the
cancellation of non-urgent operations along with GP and hospital appoint-
ments in the meantime? And further, what changes will have to be made to
health policy? Over the past fifteen years, government-led initiatives in health
care, combined with the impacts of austerity, have moved away from an
emphasis on curative care and hospitals towards preventative care in the com-
munity. The assumption has been that epidemics are things of the past and
that the greatest challenge now is lifestyle-related health problems. Clearly
that assumption is false, and, as the editor of The Lancet suggests, a dramatic
rethink of health policy is needed. Boards of NHS Trusts, Public Health
England and other health care institutions collectively have a mountain
to climb.
But the same is true everywhere. Governments and central banks have torn
up the rules on borrowing in order to prop up the economy, but how exactly
will the massive debts they are incurring be paid for? Decisions about long-
term borrowing and increased taxation will need to be made, and these deci-
sions will have far-reaching consequences for us all. Businesses too face a crisis
even more drastic than the global financial crashes of 2008 and 1987. Stock
markets have plunged, drastically reducing the market value of many compa-
nies with a corresponding impact on pension funds. Oil prices have fallen
through the floor. Some sectors have prospered: technology firms, especially
online retailers, are doing well. But automobile manufacturing has ground to
a halt, high streets are deserted with all but essential shops closed, and airlines
and the travel industry are staring into an abyss with seemingly little sign of a
bridge to the other side. Unemployment is already at record levels not seen in
many countries since the 1930s, and is forecast to rise still further. How well
businesses and industries recover from the crisis will often depend on the
leadership their boards give them. But are boards fit for purpose and ready for
these tasks?
Universities are struggling too. The switch from classroom to online teach-
ing has been a major challenge, which some have begun to master and others
have not. What will the long-term impact be on pedagogy and the delivery of
higher education, when the lived student experience remains a vital part (and
selling point) of the educational equation? Another looming problem is a
severe reduction in the numbers of overseas students, particularly those from
East Asia coming to Europe and America, so long as travel restrictions remain
in place. As a result, universities will take a significant financial hit. As we
point out in this book, university boards were already struggling to meet the
x Preface
challenges they faced. The crisis could force them to cut staff and depart-
ments, and even push some of them over the edge in to bankruptcy, unless
their boards are brave and resilient enough, and their balance sheets are robust
enough, to navigate through the dangerous times ahead.
Sport, both professional and amateur, has virtually ceased. The 2020
Olympics have, after much dithering, finally been postponed. When some
professional sports do resume, they will have to do so behind closed doors.
For many sports and institutions, the loss of revenue from audiences and
sponsorship represents an existential crisis. Semi-professional and amateur
sports clubs along with other local facilities like leisure centres will be depen-
dent on whatever financial lifeline governments can throw them through local
councils or organisations like Sport England.
Also caught in the middle are charities. Many, like food banks, domestic
abuse charities, hospices and providers of care for the elderly and homeless
people—and, it is beginning to emerge, animal rescue charities—are seeing a
huge upsurge in demand for their services. At the same time their funding is
being squeezed; fundraising and volunteer work is hampered by social dis-
tancing, high street charity shops are forced to close, and donors are pledging
money instead to a relatively narrow range of charities associated with institu-
tions like the NHS. Most charities also rely on volunteers, who are often
retired people and therefore more at risk to the virus. When the crisis is over,
many charities will need to look hard at their governance, operations and
funding models and think about how to make themselves more crisis-resilient
and future-proof. That will not be easy. Our research for this book already
asks some searching questions about whether charity boards are up to the task.
This crisis is testing us all, not just our institutions, but as our way of life as
nations and societies—as people—in ways that most of us have never been
tested before. One of the many questions that needs to be asked now is ‘do we
have the courage, the skill and the will to respond and rebuild when the crisis
has passed?’ And even, ideally, to make it a better place than it was before?
The answer, we think, is yes. We have already seen magnificent and also
humbling efforts. A million people in the UK alone have volunteered contrib-
ute to and support the front-line services in whatever capacity is needed. But
having willing volunteers on the ground is not enough. In the long run, we
need this same spirit of selflessness, that same energy and dedication, to enter
the boardrooms of our institutions. We need to rethink and recast board cul-
ture, so that board members are truly independent in thought and action so
they can play a full part in governance. Independent directors are the stewards
of the organisation. They owe a duty not just to the institution itself but also
Preface xi
to all its stakeholders, including customers, clients and service users, employ-
ees, shareholders and communities, and ultimately society itself.
The time for reform is now. We call on everyone who has the motivation,
experience and ability, from all ages and from all backgrounds, to come for-
ward and volunteer for service as independent directors. Your commitment,
skills, talent and vision are needed now as never before. Being an independent
director sometimes requires sacrifice; we have to put the needs of others ahead
of our own concerns but—as the crisis is showing—personal sacrifice can
often result in a much greater good and, we would argue, personal reward and
satisfaction in the long run as well. How our institutions are governed affects
us all, and everyone has a part to play. The time to begin rebuilding is now.
What happens after will be the real challenge.
Reading, UK Gerry Brown
Henley on Thames, UK Andrew Kakabadse
Filipe Morais
April 2020