The Interview: Bookbag Talks To Gerry Brown, Andrew Kakabadse and Filipe Morais about The Independent Director in Society

The Interview: Bookbag Talks To Gerry Brown, Andrew Kakabadse and Filipe Morais about The Independent Director in Society

Summary: Sue was an enthusiastic reader of The Independent Director in Society: Our current crisis of governance and what to do and she had several points she wanted to discuss with Gerry Brown when he popped into Bookbag Towers.

Date: February 2021

Interviewer: Sue Magee

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Sue was an enthusiastic reader of The Independent Director in Society: Our current crisis of governance and what to do and she had several points she wanted to discuss with Gerry Brown when he popped into Bookbag Towers.

• Bookbag: When you close your eyes and imagine your readers, who do you see?

Andrew Kakabadse: I see smart, sincere, well-intended individuals delicately balancing their independence whilst also engaging with the other members of the board. This balance between independence and engagement is one of the most difficult challenges any board director faces. To be too independent and lose the board, means not being heard. To be too engaged and lose independence means being too inhibited to offer relevant opinions. So, when I close my eyes I see good people facing a critical dilemma and often with no guidance on how to navigate through the situation.

Filipe Morais: I imagine the readers to be professional and volunteer board members, non-executives and executives that face tremendous challenges in their organisations and want to improve their and their board’s effectiveness in handling them.

Gerry Brown: Aspiring non-executive directors and those who want to develop their portfolio

• BB: In The Independent Director in Society you quote the Financial Times list of required attributes for an independent director: supportive, intelligent, interesting, well-rounded and funny, entrepreneurial, objective yet passionate, independent, curious, challenging and fit. Which are your strong points and which would you say are your weakest?

AK: The critical quality required of an independent director is to maintain their independence but be heard and respected. The strong point of the book is the analysis of independence and its criticality. The weak point of the book is the analysis of independence and its criticality. All the other qualities vary according to context, challenge and person. But the fundamental quality is independence.

FM: The fundamental idea of the book is that, even if Independent Directors have all those qualities listed by the Financial Times, it is no guarantee that they will be effective on the board. They require independent thinking that is applied in the particular formative context of the board. A great Chair can enable a context where independence is welcome, but the Independent Director has the ultimate responsibility for making his/her independence count.

GB: Strengths: being supportive, well rounded, entrepreneurial, objective, independent, challenging. Weakness: being funny, curious and interesting

• BB: How would you solve the diversity/experience paradox? You say youth should be no barrier, but youth is unlikely to have much in the way of business experience.

AK: The critical diversity needed is that of diversity of thinking (perspective). Pertinent diversity of perspective is that which directly contributes to the pursuit of strategy. In effect, what different varied views and experiences are needed to make strategy succeed? In this sense, youth may be the diversity that is needed when for example the challenge is better understand consumer buying behaviour (ie clothes), consumer habits (ie forms of recreation) or consumer needs (ie youth development). However, youth just as gender on its own, does not add to the diversity needed on boards. In high performing companies, boards have linked diversity to the successful pursuit of strategy on behalf of critical stakeholders.

FM: If I take myself as an example I am 41 and non-British. You would have a hard time finding someone like me in most boards. Finding directors below 40 is nearly impossible. It doesn’t need to be a paradox. So long as the director can bring a well-articulated different perspective that adds value by identifying risks, emerging trends and strategy relevant thinking – why should age matter? Race, gender and age – are not the criteria – it’s all about contribution and performance.

GB: Youth brings specific strengths. For example in digital as well as first handcustomer understanding of the younger market.

• BB: You stress the importance of encouraging people to listen to what is actually said, rather than formulating a reply to what you think is being said. How would you go about teaching people to listen?

AK: The ‘think’ part of listening relates to developing an insightful appreciation of context. In order to better understand why people say the things they do, or pursue particular actions, it is imperative that they are viewed in context. What they say and do may make considerable sense if the dynamics of their context and the pressures and challenges they face are fully appreciated. Listening in a more abstract way is tantamount to just hearing. Hearing has little to do with using information. It is active listening that requires the full understanding of the dynamics and complexities involved in any situation concerning resources, strategy and operations. So how to teach people to listen ? – by preparing them to ask the relevant questions that will give them the insights they need to fully appreciate the complexities facing the creation of strategy, the pursuit of competitive advantage, the execution of strategy and how all this varies context by context.

FM: Listening is a difficult skill. Many directors are experienced and successful individuals and that is great, but often times this means that they bring deep-rooted mental models, world-views and “success formulas” that make real active listening difficult to take place. Directors need to develop reflexivity and question themselves first before they can effectively question others. Self-doubt is not encouraged in boardrooms and leadership in general. So directors can genuinely listen to others they must be able to examine their self and discover what prevents them from listening rather than just hearing.

GB: Record a board meeting and analyse what is being said and who makes the most effective contributions.

• BB: I was surprised by how few boards in this sector had an external evaluation. Do you think this should be mandatory if public funds are involved?

AK: Overall, external evaluations of boards are not as commonplace as many think and this applies to the private sector, third sector and governmental organizations. One reason is that providers offer standard board evaluation processes and questionnaires without necessarily digging deep into the reality of how each board works and their impact on the organisation, its management and key stakeholders. I have witnessed effective board evaluations being conducted by the chairman of the board and equally by external evaluators. It is not who conducts the evaluation but more the necessity to dig deep which surfaces the reality of how issues are addressed (or not) and what true development each board needs. In this sense mandatory external evaluations are likely to have a more detrimental impact. What is needed is a campaign championed by bodies such as the Institute of Directors, the Confederation of British Industry, the Financial Times as well as certain universities, promoting effective board evaluation and in doing so outline what effective means.

FM: I am currently working on a piece of research about board evaluation practice in small and mid-sized quoted companies (AIM-listed) that should be out in a few weeks and the reality there isn’t much different from the public or third sector. The argument for SMEs, charities and other bodies is the same: it is expensive to do an external board review, and external individuals lack the contextual knowledge of the business and the board to do it well. There are a couple of points here. First, boards and their chairs are required to lead by example – but are often reluctant to meaningfully scrutinise their own performance – either through internal means or via an external consultant. How can boards demand from their managers and employees exceptional performance and behaviours if they deem themselves above performance scrutiny and development? So, the question isn’t whether it needs doing, it is how it can be done effectively. It comes back to your question on developing active listening. Many directors don’t truly listen, and less so when feedback isn’t great. Therefore, to me an external evaluation from time to time by an experienced, independent individual is important. If the Chair is truly independent he or she should have no problem in conducting an internal evaluation, including subjecting herself to it.

The Sports Governance Code issued Sport England already contemplates a three tier system of governance compliance according to the level of public funding awarded. However, board evaluations are not a sine quo non condition for obtaining or maintaining the levels of funding.

GB: Yes

• BB: Initially, I wasn't convinced by the idea that independent directors should be paid but I agree that it would help to increase diversity on boards. What would you do about the less financially-stable organisations, such as charities, who might find this an intolerable burden?

AK: It is becoming increasingly clear that the role of the Independent director requires professional skills and particular qualities in order to oversee the organisation. These skills and qualities include the diligence to deal with detail, the resilience to work through uncomfortable issues and the independence of mind in order to seek out the truth. Such skills and qualities required by any other role would command a considerable fee or substantial level of remuneration. I do recognise that it is in smaller third sector organisations and governmental entities that board director remuneration may be problematic. However, the current challenge we face is to recognise that remuneration is likely to attract better quality directors. Once this point is fully digested, then how to provide appropriate remuneration in financially vulnerable organisations is the next step. True, director remuneration may be an intolerable burden for certain entities, but the important point is that remuneration reflects the greater professionalisation of board directors. Striving for greater professionalisation is the need that musts be met. Once achieved what levels of remuneration are required on which boards becomes a matter of detail.

FM: There is no doubt that the issue of paying directors is not straight forward. The greater criticism is that it will stifle director independence. I personally believe there is much to be gained in paying directors. It serves the diversity agenda and it enables attracting higher calibre candidates. With more diverse boards and more capable individuals governance improves, and this means better managed organisations. Moreover, paying directors will end a certain mind-set of “voluntarism” which is used often by some directors as an excuse for escaping accountability and scrutiny when things get tough.

The question of how to fund director pay for smaller charities, for instance, is a matter of implementation – there are different options – but the important thing is that the rationale for paying is right. It doesn’t work in isolation but it is an important step for improving governance.

GB: This should be voluntary and trustees could donate their fees.

• BB: I like the idea of a professional qualification for independent directors. How would you go about this?

AK: The movement for the professional qualification of independent directors has already started. We have well established bodies such as the Institute of Directors, certain newcomers such as the Financial Times, Directors Development Unit and certain universities who are increasingly providing director development, for example, Kellogg, USA; INSEAD, Europe; IMD, Switzerland; Cranfield UK and Henley UK. In fact, Henley now offers the very first in the world Masters Degree on Board Practice and Director Development (MA, Board Practice and Development). The Henley programme in particular is based on extensive global research identifying board and director best practices, broken down into teachable components in order to award the degree. The same applies to the INSEAD programme (Diploma) and to the Certificate of Attendance programme offered by US universities. The secret is undertaking meaningful, widespread research on what independent director performance really entails and from that design relevant professional qualifications. The role of the independent director has become so important in the safe guarding of numerous interests and in the making of quality strategic decisions, that in the future board candidates will need to display their professional development and qualifications before they can be considered for a board position.

FM: There are a select number of educational and professional institutions that have strong tradition in providing professional training for directors. In the UK, the Institute of Directors and Henley Business School are two of these institutions with a strong history in delivering director-level training. There is no doubt a push from investors and regulators in the various sectors to see a professional qualification emerge for board directors. The role of board director is complex and requires a unique skill set and a particular development that is not readily available. This is because few people have real access to and understanding of what goes on inside boardrooms and the challenges of the board director role. Andrew is promoting an MA in Board Practice and Directorship developed at Henley and this is the very first academic qualification for board directors. I have some contribution to this programme, and hope that the programme can establish itself in this complicated area of director education.

GB: The government department should convene a group of interested parties including the Institute of Directors, CBI, various Leading Business Schools etc and then publish a Green Paper.

• BB: The pressures on the NHS pre-Covid-19 were considerable. Do you think that it can survive in its present form?

AK: It is highly likely that the NHS will survive in the short term in its present form. However already certain aspects of NHS functioning are being outsourced to the private sector, particularly American companies, under the guidance of beating COVID. A great deal of attention has been given in the press and media to the pressures that the NHS currently faces due to COVID. However, this is exaggerated as the Nightingale hospitals have been hardly used. The real pressure is locating suitable staff. The appointment of relevant medical staff at present is being hampered by Brexit and the ensuing inflexible bureaucracy. Thus, the issue is not the survival of the NHS, but that of attracting the right medical and support staff. Whether the NHS will survive in the medium to long term is another matter. Over this period survival will not depend on resources but more on political decisions influenced by what public sector assets should be transferred to the private sector. Irrespective of COVID, the step by step privatisation of the NHS is under way. How far this will continue is now determined by political will and public acceptability.

FM: In my opinion, The NHS will not only survive but thrive. The Covid-19 has come to expose many of the fragilities of the NHS, but also its absolute importance to the population. It also has put to question many of the assumptions contained in the 10-year forward plan for the NHS. Clearly the NHS will have to change as a result of Covid-19. In some respects the current path of privatising parts of the NHS will continue, but the NHS will have to be strengthened in other areas that were made salient with the current public health crisis. Any attempt to dismantle the NHS will be met with public anger and I don’t think any political party will want to go down that route, nor do I think they should.

GB: The mandate of the NHS needs to be reviewed.

• BB: A personal question: 'independent directors' might sound to be a rather dry subject but I found the book riveting. How did you all learn to write so well and to make it sound as though it's come from a single author?

AK: In my opinion we formed a very good team. The three authors each have considerable experience of boards, organisations, management, leadership and governance. But perhaps most of all we worked very closely together through the research stages before the book was drafted. We had differences of opinion, but we let the data (the evidence) do the talking. So in this way we really reached meaningful conclusions whilst being fully engaged with each other, with our editor and publicist. A warm thank you for your kind comments that you found the book riveting but it was the quality of our research and our joint endeavour as well as having a very good editor and publicist that gives the impression of a text written by a single author.

FM: Thank you for considering the book riveting. When looking at the end product many people may be tempted to think this was a smooth journey. It was not. There was much debate and disagreement, but the team found a way forward. To me personally, the journey was long and intense, with many hours dedicated to the project and strong commitment to deliver the best outcome possible. I have also had the pleasure to meet and talk at some length with extraordinary leaders in each of the sectors which made the process extremely enriching.

GB: We used an advisor.

• BB: What's next for Gerry Brown, Andrew Kakabadse and Filipe Morais?

AK: I really do hope that the three of us work together on further projects. In the meantime, each one of us is pursuing fascinating initiatives. I, Andrew Kakabadse, am promoting the MA for Board Directors across Europe, USA, Asia, as well as other relevant short course programmes. I equally sit on a number of committees that are examining the future governance of Europe and its implications for each European nation. These findings will be used to influence thinking at the Commission and with Heads of State. So, all three of us are busy but I suspect that when we come together for the next project our additional experiences will enrich us even more and spur us on to produce even better work.

FM: I think the three authors have at least one thing in common – all three enjoy pursuing different projects and challenges. I am sure both Gerry and Andrew are already looking to the next endeavour. I am currently leading the Henley MSc in Management for Future Leaders for a variety of organisations, continue to produce impactful research on governance, strategic leadership and sustainability and recently joined the board of a firm operating in the area of sustainability and ESG.

If the right conditions are created there may well be a next chapter for Brown, Kakabadse and Morais.

GB: I am writing another book with Professor Randall Peterson from the London Business School about Scandals in Business

• BB: Thank you all for taking the time to reply - it's been fascinating reading the answers.

You can read more about Gerry Brown here.

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