Corporate governance is really important, and good governance is even more important. But let's not put too much faith in "governance".


Governance can be likened to quality accreditation: even with the most robust internal quality processes, one can still build a concrete life vest.

So it is with governance. Despite strong governance practices and clear and transparent accountabilities, a corporation can still deliver outcomes that do not align with shareholders objectives.

Directors and managers must understand that governance is a MINIMUM requirement (i.e. an enabler), and not the end-game.

Those who insist on bashing the banks are ignorant of the real purpose of the economic enterprise. The for-profit corporation has a single objective: satisfy its shareholders within legal and regulatory constraints. The definition of “satisfaction” is always across four dimensions: what does the shareholder consider to be “value”; how is the “benefit” to be delivered; what within the corporation is intended to “grow”; and what does the shareholder consider to be “risk” and how much of it is acceptable?

Therefore, the role of boards and executives is the optimisation of these four variables, and not the maximisation of any single one of them.

In order to do this, corporations must manage their various stakeholders in a manner that will enable optimisation. Although it is socially insensitive to say it, no listed corporation exists for its customers, staff, suppliers, the community or any other of a myriad of entities and interests. That’s the reality – they are all “enablers”. However, corporations must manage those stakeholders in a way that they will deliver the required benefit to the organisation and generally that means “keeping them happy”. Therefore long-term dissatisfaction by, for example, customers, is inevitably unsustainable and bad business.

Therefore, the accusation against banks that they have “screwed” customers fails to acknowledge that banks will extract benefits from customers (and others) for as long as they can, or until customers stop supporting them, or until a regulatory/legislative environment constrains them.

Stop blaming the banks – they are only doing what we all should understand they are motivated and designed to do – create benefit for their shareholders – and this year they have done that exceptionally well.

The reason that customers are not easily able to change their “supplier” is because of the costs and difficulty of changing. Moves are afoot to lubricate and cheapen the process of change which will immediately change the “value proposition” offered to bank customers. If society wants banks to act in a certain way, then that’s OK, but government must legislate for it so that all banks are treated equally and so that shareholders of any particular bank are not disadvantaged by the subjective judgements of directors and managers.

A board should, in principle, have sufficient diversity of skills and experience to be able to assess the robustness of operational decisions and recommendations made by the CEO and the executive management team. When such experience and skills are lacking (e.g. one-off or unusual situations and challenges), then it is reasonable to draw on the skills and experience of external parties and advisors.


The challenge of course is for a board to self-assess and judge whether "they are skilled and experienced enough and when their own judgement is inadequate." The best way to judge the capability of the board, apart from a range of diagnostic tools related to board effectiveness, is to have a fairly robust review process that assesses the impacts and outcomes of previously undertaken decisions, coupled with a process that "implements the learnings from such assessments" ...and each board is different.

In my humble opinion, the only way for a board to assess the effectiveness of CEO (and executive managment team) performance is against their ability to deliver shareholder objectives (as interpreted by the board). If a corporation is unaware of those shareholder objectives, then it is impossible to make that assessment in any meaningful manner. One therefore resorts to assessment against peers and that is fraught with danger as different organisations chase different outcomes - thus making comparison difficult (invalid?)

To add another nuance to this challenge, I have recently come across a corporation where, regardless of the CEO's skills and capabilities, he has a very powerful Chairman who, for all intents and purposes, "runs" the business. How does one in that context meaningfully assess that CEO's performance?