Bringing good governance benefits to Irish business
UCD’s Michael Smurfit Graduate School of Business helps to train board members
Prof Niamh Brennan: “People realised then [the banking crisis] that corporate governance is important and bad things can happen if you don’t get it right.”
When Prof Niamh Brennan set up the UCD Centre for Corporate Governance back in 2002 there were more than a few people who questioned its value. “The raison d’etre for the centre and the courses we were providing wasn’t exactly obvious until 2008 and the banking crisis,” she recalls. “People realised then that corporate governance is important and bad things can happen if you don’t get it right. Also, research has shown that well-governed companies are more likely to survive in the long run.”
It is important to understand the difference between governance and management, however. She quotes a collaborator of hers, John Redmond of the ESB: “He says that managers operate at rush-hour pace while board meetings run according to the rules of the road. Managers have an awful lot of information contained implicitly in their heads. The value of board meetings is that they require managers to move this information from the implicit to the explicit in the form of papers for the board. Boards are boards of directors, they set the direction and strategy for the organisation and managers implement that.”
And this is where the importance of training for board members comes in. “Board members are governors of a company and they operate at a high level,” Brennan explains. “They delegate the day-to-day running of the company to managers and they rely on them to do a good job. Non-executive directors take quite a risk when they put their names and reputations on the line for an organisation so they need to be sure that management is doing its job properly.”
And an increasing number of businesses are seeing the value of non-executive directors and good corporate governance. “We are seeing more family businesses bringing non-executive directors on board”, she says. “This reflects an appreciation that good governance is beneficial to business. Bringing in outsiders can force the owners of a business to be more disciplined when it comes to preparing for board meetings . . .”
This value can often translate into hard cash. “Every business has to borrow money from the bank from time to time and if a private company is thinking of going public or looking for investment from other sources, the lenders and investors will want to know if the business is governed properly before they put their money into it.”
Possibly even more importantly, a good board with external members can bring in much-needed experience and expertisein areas such as finance, marketing, innovation, and exports.
“Board meetings will require cash flow budgets and a big risk for any start-up or early stage company is running out of cash,” says Brennan. “This is just one example of how a good board can help an early-stage company. Companies of all sizes and at all stages of development can benefit from the good corporate governance which a board can bring.”
Things are not always perfect: “I have come across some State boards where the legislation is quite flawed from a governance point of view. In fact, it would appear that the drafters of the legislation did not understand governance, and sometimes there is confusion between the role of the board and executive functions. It is critically important that non-executive directors in the public and private sectors understand that they are governors and not managers.” She points to situations where boards can become dysfunctional, where members get sucked into doing the job of management. “If you are the chief executive of a company and the chairman of the board thinks it is their job to do yours then you have a problem. That won’t lead to a good outcome. Similarly, if you have a dominant chief executive they can emasculate the board and that can lead to serious problems such as some of those which were seen in the financial sector.”
The composition of boards can also lead to strains or conflicts of interest. Brennan is chair of the board of the National College of Art and Design, which includes two student members, two staff members and a third staff observer. “The challenge there is making people understand that they are not there in a representative capacity but to govern the college.”
But when things are going wrong at board level what can an individual board member do about it? She does not recommend board members isolate themselves by becoming lone contrarian voices at meetings.
“This is not as effective as bringing the group along with you,” she advises. “You have to persuade individuals within the group that what is happening is suboptimal and has to change. That can be difficult, but being a persuasive voice is usually more effective than being a lone voice. You need to convince your colleagues that there is a better way and this can often be done best outside of the board meetings. A good sophisticated chairman will usually ensure most things are ironed out in this way before they get to the board meeting.”
Board members must receive proper training. “What prompted me to set up the UCD Centre for Corporate Governance was an invitation to join. I was a young 34-year-old chartered accountant. I accepted the invitation but I found it quite a steep learning curve and I realised there were quite a few non-executive directors in the same position as me.”
The centre runs the director development programme which consists of courses for company directors covering corporate governance, from the role of the individual director through to business strategy and company boards. The centre also offers courses tailor-made for individual companies. The centre’s research facility promotes research in corporate governance and has published papers and reports.
The diploma in corporate governance is a one-year, part-time accredited programme leading to a UCD qualification in corporate governance. “The programme is run over two 12-week semesters from 4.30pm to 7.30pm every Monday and Tuesday,” says Brennan. “The course covers every main plank of corporate governance including legal requirements, business planning, behavioural issues, selecting board members, strategy, audit, remuneration, risk and so on. The next intake on the diploma programme is in September and we are taking applications at the moment.” smurfitschool.ie/ourcourses/executivedevelopment/governance/diplomaincorporategovernance/