Overview of Corporate Governance Day
This publication summarizes the program and results of Corporate Governance Day, an event jointly hosted by Ward Howell and INSEAD International Business School, with support from the state corporation Rostec.
On September 26th, 2014, in the Hotel Baltschug Kempinski, Ward Howell and the INSEAD international business school, along with the support of the state corporation Rostec, organized Corporate Governance Day. Corporate Governance Day was dedicated to discussing the current state of corporate governance in Russia. Owners, Board of Directors chairmen, and CEOs of businesses – those for whom improving the system of corporate governance is a relevant topic – were invited. The first part of the event was dedicated to three basic topics: Effective owners, Effective Boards of Directors, and CEO Succession. After lunch, the participants split up into separate themed sessions – for owners, chairmen, and CEOs – where they were given the opportunity to further the morning’s presentations and their own challenges related to corporate governance.
The event was opened by Olga Dergunova, Deputy Minister for Economic Development, Head of the Federal Agency for State Property Management, who noted the importance of improving corporate governance for the Russian economy. Olga Dergunova briefly spoke about the current state of corporate governance in companies that are fully or partially state-owned. In her opinion, corporate governance operates effectively in public state-owned companies, while non-public companies with full or partial state ownership need to substantially improve their corporate standards. In addition, about 1400 joint-stock companies with the government as a minority shareholder should consider radical revision of their corporate governance models. Olga Dergunova noted the critically important role of an independent Board of Directors, and the state’s desire to build upon their existing experience and knowledge.
Ludo Van der Heyden, INSEAD professor and Director of the Corporate Governance Initiative, presented on effective owners – an important, but little-discussed topic. Professor Van der Heyden discussed many of the problems inherent to business owners, such as a lack of vision, inconsistency, an inability to trust their management, and a focus on inconsequential problems. He also criticized the predominant understanding of corporate governance, which is understood as a model for public companies with disintegrated systems of ownership – all the while ignoring private and family companies, for which corporate governance is no less effective. By using the most successful business owners as an example (Warren Buffett and the Mulliez family, among others), professor Van der Heyden concisely outlined traits of success exhibited by these effective owners, including the ability to focus on what’s important, as well as understanding the difference between an owner’s strategy and investment or business strategy. (For more information, see Ludo Van der Heyden’s article)
George Abdushelishvili, Senior Partner and Head of the Corporate Governance practice at Ward Howell, continued the discussion on corporate governance with a presentation on effective Boards of Directors, and their challenges. He noted several topics which, in his opinion, are not given enough attention: agendas and meeting formats, the Board of Director’s purpose, and the chairman’s leadership. Abdushelishvili noted that while Boards of Directors frequently meet all formal requirements, they are often ineffective because they ignore the importance of group dynamics, shared values among members, and personalities. (For more information, see George Abdushelishvili’s article)
Stanislav Shekshnia, INSEAD professor and Senior Partner at Ward Howell, spoke to the auditorium about the research done by the Talent Equity Institute on CEO succession in leading Russian companies. An analysis of over 250 cases of succession unveiled both global trends (for example, how internal candidates are more effective than external candidates, as well as higher rates of replacements made during periods of economic instability), as well as characteristics specific to the Russian market (the exceptionally short, 3-year tenure of the average CEO; CEOs willing to be demoted instead of leaving the company; and more). You can find more information about the research findings in the 7th edition of the Talent Equity Newsletter.
The second part of the event involved discussing the morning’s presentations in groups. Guests could choose which panel they preferred to attend. Ludo Van der Heyden worked with business owners and representatives of investment funds to solve actual, concrete issues that arose in their businesses. For example, a representative from an investment fund discussed a problem affecting one of his assets, which has an overly charismatic owner-CEO who fails to develop a strong team of managers. With help from the audience, Ludo Van der Heyden suggested that the fund develop KPIs for owners on training successors, complete with strict timeframes, and monitoring progress at each Board meeting. One company owner shared that after being involved in the operations management of the company on and off for the last 20 years, he and his partner (the co-founder of the company) disagreed on what their visions of the company’s future and were unsuccessful in finding a new CEO. After analyzing several possible scenarios with the help of his colleagues in the session, the owner decided to reform the company’s system of corporate governance and strengthen the Board of Director’s role, while incrementally moving out of operations management. (See article by Ludo Van der Heyden "What is an Effective Owner, and How Can I Become One?")
George Abdushelishvili moderated a panel discussion about the effectiveness of Boards of Directors. During the discussion, he directed the audience’s attention towards issues such as the role of the Board of Directors, the function of the chairman, and the Board’s committees. The session participants (which included directors of private, public, and state companies) concluded that the role of the Board of Directors varies, depending on the situation. For example, state companies would prioritize social obligation and, consequently, the interests of society, while the Board at a public company should keep the shareholders’ best interest in mind. In a discussion regarding the ideal strengths a Board of Directors chairman would have, participants articulated that it’s more important for a chairman to have facilitating and moderating skills than expert knowledge or professional experience. Is it possible to become an effective chairman? The audience agreed that it’s certainly possible, but one must have a predisposition towards this kind of role – that is, attention and the ability to listen and hear. These skills are difficult to learn. One session participant noted: “A chairman is the operational director of the Board, and 50% of his time in this role should be spent preparing for Board meetings”. (See article by George Abdushelishvili "What Makes the Work of a Board of Directors Effective?")
For CEOs interested in issues surrounding succession, Stanislav Shekshnia discussed with his audience why the average CEO tenure is 3 years, and how a CEO could extend his tenure. According to one of the participants, the CEO of a large company, three years is the point at which the personal relationship between the company owners and the CEO solidifies – for that reason, the primary task of the CEO during his first three years is to hold the owners’ interest. How does one do this? “Develop more quickly than the company or its owners.” Another participant saw the silver lining in the intense turnover of CEOs on the Russian market: “It’s why I work every year as if it’s my last – I can’t afford to hope that there will be many years in front of me to carry out my plans”.
During the event summary, the moderators and participants shared the main topics discussed during the panel session, noting the practicality of the conversations. Professor Ludo Van der Heyden thanked the audience for the interesting discussions, and expressed his confidence in this particular event format – a combination of theoretical material as well as discussions on current, everyday problems faced by business owners, chairmen, and CEOs. In turn, Stanislav Shekshnia and George Abdushelishvili confirmed that such meetings – organized by Ward Howell, and drawing the best international professionals in corporate governance, coaching, and consulting – will continue on a regular basis, with the goal of increasing the effectiveness of Ward Howell’s clients’ businesses.
This article was published as part of the eighth issue of Talent Equity Newsletter "Effective Corporate Government".
To read all other journal issues, please follow the link to TE Newsletters page.