Opinion: Strategic Pay is releasing one of its series of surveys of director pay and associated issues. I am always careful when reacting to such reports.
Many are less genuine research exercises than they are marketing collateral. This one is no exception. Nothing inherently wrong with that but typically such surveys are structured and presented to enhance the reputation of the promoter rather than generate insight.
So interpret with care. I think that is what is meant by “provides valuable data that can drive change and inform decisions” – that is, “call us”.
As you might expect I have seen many of these surveys over the years. Directors read them with the enthusiasm of a TAB gambler reading The Friday Flash. Both parties are looking for the guide to their next lucky return.
* Jo Brosnahan: Stale boards pushed to think deeper than bottom line
* Surprise survey: Gender pay gap worsening on boards of directors
* Rob Campbell: Health money wasted on empty offices underscores problem
I can hear the proposals being drafted now based on how little directors’ fees have moved despite inflation. Woe is us! We will not be able to recruit suitable directors! (That is, more people like us.)
As a useful rule of thumb, if a potential director is put off by the fee you are lucky to avoid them
There is no substantive evidence that recruiting suitable directors is difficult at present or likely to become so. I certainly get plenty of inquiries myself seeking advice on entering a “governance career”.
It’s hard to understand why people see this gig economy role as a “career” or why someone who’s just been sacked might be a good advisor but it does happen.
Governance roles are very diverse and lumping them together is not helpful. The Strategic Pay survey divides by size, ownership type and industry. The fee differences are pretty much of the type one would expect.
I don’t think fees are all that important. There is no research evidence linking fee levels to value; I have never seen a “directors’ strike”; plenty of attention is given to fee increases, but beyond a gentle grumble from time to time they are seldom all that contentious.
As a useful rule of thumb, if a potential director is put off by the fee you are lucky to avoid them. Directors should be driven by interest and capability and a desire to contribute not reliance on the fee. That will not stop directors ensuring they do OK, and we can rely on their peer group mutual interests along with executive “board pleasing” behaviour to prevent boardroom poverty becoming a pressing social issue.
Similarly you can safely ignore the “increased risk” arguments. Directors manage to shift such risks through paid insurance arrangements and management structures to deliver assurance on their obligations.
This is to be expected and has been effective to a degree where enforced by new laws. It is of course costly to the organisation. Negative incentives work as well as positive ones, often better.
The bigger issues about governance and the board members that provide it are these:
► The costs of governance are rising when considered in their totality. Organisations should be considering whether the size, composition and contribution of their board and the support it requires are really meeting the needs of the organisation. Efficiency and effectiveness reviews should not stop on the way in through the boardroom door.
► It’s not even obvious that all boards have a point. Some are simply there for show. For example in the state sector, where effective governance really lies with ministers and monitoring bodies and their interaction with senior public servants, many boards have really not much more than an advisory function.
► Similarly one sees non-government and start-up and charitable organisations with boards that largely just give a veneer of “corporate legitimacy” derived from an outdated and often repressive expectation of being “business-like” even when that is not their appropriate purpose or practice.
The model that all this derives from is quite limited. The basic idea is there is (in a company) a tension between the owners (shareholders) and the employees. The board appointed by the shareholders exists to watch the employees at more regular intervals and intensity than the shareholders can, and keep them in line with the shareholder interests. There was a sound argument for this in a different information age and for commercial enterprises.
Whether that model should ever have been extended as widely as it has to all sorts of organisations is arguable at least. In my view we have vastly over-corporatised a great deal of our human activity. Not every activity is a business with private ownership interests to protect.
But, more significantly, modern information systems make instant and complete data much more accessible. Monitoring as a function can be effective in a number of ways, and monthly board meetings might even rank pretty low in the list. Similarly direction from owners or stakeholders does not need to be exercised by such an indirect form.
Effective managers always seek advice but it is unlikely this will always be best sought from a standing group such as a board. Nor is that obviously the best means of leadership in a rapidly shifting environment.
Put simply, we should be much more focused on what controls, monitoring, guidance and leadership our organisations really need. And less on the pay and conditions for what we have inherited from the past.