Industry experience is important and its needed presence on a board is reasonably obvious.

However the problem is when a board is composed of predominantly industry-based directors. There is not enough "outside" experience that can bring lateral and 'out of the box' solutions to the corporation.

Using the argument of enhancing industry experience to enhance performance, one might argue that corporations composed solely of industry-based directors should outperform those corporations with fewer industry-based directors. This is demonstrably incorrect. Performance to circumstance and challenge is context specific.

Surely the directors' role is to not only know the corporation's industry (that's a given) but should also have experience in bringing solutions to the corporation's context. This may or may not require specific industry knowledge. Some of the issues may require knowledge of value-chain, HR, IT, up-stream and down-stream management, financial systems, compliance, governance and so on. These are not necessarily industry specific issues although they may be.

As an analogy, there are two types of strategists: those from within an industry with extensive experience of it; and those strategists who work in all industries and understanding how stuff is done elsewhere and can import a valid solution.

The problem with the first type is they think 'like the industry'. If they were so effective, there would be no problems in those industries in which they are found because they would have solved the problems. A strategist is a tactician who has experienced other approaches to problems and knows what does work, what can work and what doesn't work.

Directors are the same.                                           

There are two dimensions of trust here: trust by owners/investors in management to deliver the outcomes sought by the investors; and trust by owners/investors that management will apply robust strategies/methods that will optimise the cost / risk / benefits algorithm to investors in achieving those outcomes.

Corporate Governance doesn't affect the first and only partially affects the second.

Trust therefore, becomes critical - yet there are scores (thousands?) of examples of breaches in the first dimensions and equally in the second dimension of trust.

In order to improve the situation for investors, one must LOWER THE RELIANCE on trust. To do this one needs to make the first dimension less subjective (management's) and the second dimension more transaparent so that executives are held to account for delivery of the first dimension metrics.

Without knowing what shareholders want in measurable and quantifiable terms, having robust governance is almost pointless....and no listed corporation really knows what its shareholders want.

Intuitively one would expect that small organisations with few shareholders are more “in-touch” with their owners’ objectives than larger organisations. One would further expect that the larger the organisation and the greater the number of shareholders, then the less able the organisation is to keep “in-touch” with all shareholder objectives.

Unfortunately, experience and reality show that companies, irrespective of size, are not immune from the lack of congruence between owner objectives and corporate actions.

The majority of companies are small businesses who have one or a small number of people carrying out the roles of managers, directors and owners simultaneously. One would expect that since one person carries out all three roles then “knowledge” would be “perfect” and congruence would be maximised.

Most small businesses actually have difficulty in ensuring congruence because they are too involved in operational management. It is easier to change the objective than to change the operational, marketing or business realities that threaten incongruence.

Generally boards and management of large corporations maintain that since they have many shareholders with varying objectives and they can’t effectively ask shareholders what they want; the board has the responsibility to define the core deliverables of the organisation. These deliverables are intended to keep shareholders satisfied. For reasons identified earlier, such presumptions by boards are often misplaced because they are subjectively derived. The demonstrable fact is that many (most?) corporations do not know what their owners want in any realistic, practical and measurable way.

In the case of medium size companies where management may be divorced from directorship and/or ownership, it is common to find organisations intent on striving to maximise generic outcomes rather than satisfy specific owner objectives. Certainly, a large part of this lack of congruence is caused by management failing to ask owners what they want; but equally at fault, are owners who have not made the effort of telling management in realistic and measurable terms what it is that they desire from their involvement in the company.

Very few companies, irrespective of size, really know what their owners want. In the case of small business, the owner/manager has rarely defined what it is that is wanted so that it becomes the principal driver of business performance.                  

It is impossible to determine a universal rule for "what goes into" a board report and "how much detail" is provided.

Communications to the board, much like all communications, involve three core elements: the specific understanding of the recipient; the nature of the material; and the context of the sender.

If the board is unfamiliar with the content, then more information is required sufficient to give them the ability and confidence to resolve/adjudicate the issue.

If the material is "unusual" (e.g. an acquisition when the directors have never made one, or a new plant when the directors have never embarked on such a project, or off-shoring when all the previous activity had been on-shore), then it is reasonable to expect greater detail. Similarly, if there is a significant financial or risk dimension , then you should reasonably expect directors to want to fully understand the issues and that may require more information.

If the board has little "confidence" in the author or sponsor of a proposal (e.g. may be recently promoted, recently hired, etc), then the author of the report may need to convice the reader that there is a mastery of the issues. Where the author/sponsor is long-experienced and well known to the board, then such length may not be required.

To suggest a universal right or wrong way to write a board paper, and what to put in it is somewhat naive.

Although shareholders should provide both positive and negative feedback, the reality is that the majority of shareholders are unlikely to make the effort. That does not mean they don't care about outcomes - they do - that's why they put down real money into the company.

The problem, in my humble opinion, is not with shareholder inaction, but with boards and directors. The for-profit corporation exists for the benefit of shareholders while satisfying legal and stakeholder requirements. If that is the case, then why is it that not one single publicly listed board has asked all of its shareholders what they want as a result of their investment?

You are right that shareholders have differing expectations. However, if you establish a company's shareholder metrics, (i.e. bell-shaped curve - value, benefit, growth and risk expectations) then the range of shareholder expectations prior to establishing those metrics will be wider than post-metrics. If you monitor the changing shareholder objectives over time, it will enable a much better match between corporate aspirations and owner aspirations. This is because people will invest in those companies that "share" their objectives, i.e. the company will pursue those outcomes that the majority of its shareholders want, therefore you will invest in those companies that want what you want. Over time, the outliers diminish.

The challenge for both the board and management is to resolve the dilemma of different objectives and perceptions in a way that satisfies the owners. Currently, both board and management establish a policy and a direction for their company without a real knowledge of their shareholders’ objectives.
The Shareholder Metrics process provides them with better information but does not absolve them of their responsibility or accountability.

Where they perform the task well, and satisfy many/most shareholders, then those shareholders will value that stock more highly and are less likely to quit the registry. Conversely, where board and management fail to satisfy shareholders then they will quit the registry, change the board, or change management. Isn't that the ultimate assessment of whether shareholder approve or disapprove of management performance?

These three options are currently available to shareholders (albeit some more easily achieved than others).

Over time however, it is anticipated that it will become easier for the board and management of a shareholder-centric company to solve the above dilemma, as the Investor Profile will ensure that extreme mismatches between differing owner objectives will occur less frequently.

Finally, and for whatever it's worth, I don't believe that shareholders trust directors and managers, even if they concede that both are well meaning and try to do their best. The trust is lost because of director and management subjectivity, bias, assumptions and arrogance.

The "only performance report" that matters is the one that reports to shareholders the extent that the corporation has lawfully and ethically delivered shareholder objectives against the criteria of "value", "benefit", "growth" and "risk".

And the only way a board can know what those objectives are is to ask ALL shareholders.

Not only don't corporations ask ALL shareholders but they use institutional (big investor) objectives as a proxy for all shareholders. Research has demonstrated that this assumption is false.

If you ask directors/managers to developed an internally generated performance report, then you will get a subjective presentation of what suits directors and managers and justifies their positions - and not what shareholders consider important or want.

A cynical view - perhaps - but many directors have demonstrated over an over again that they make decisions in their own interest rather than that of shareholders.