By the end of the decade, board-for-hire will be a common governance model, principally in the private company space.
In a recent paper, Stephen M. Bainbridge and M. Todd Henderson from the University of Chicago Law School argue that the current sole director faces a number of challenges.
Firstly, they are time constrained. Many directors hold full time employment or have a demanding portfolio of director and consulting roles, in part because of low levels of director remuneration. As a result, there are only a “discrete number of issues” they have time to challenge management on.
Secondly, a group of sole directors face an inherent information disadvantage, with management holding longer average tenure at companies, along with greater opportunities to access informal information channels.
Thirdly, many sole directors (due to independence requirements) are generalists whose “lack of corresponding expertise raises concerns as to their ability to effectively monitor”.
Finally, director incentives are “unrelated to corporate performance”. Many of us would also argue incentives are below equivalent market rates based on skills required, workload and risk.
Bainbridge and Henderson argue for a model I have been exploring for seven years or more.
One of my privileges is to be a facilitator for the Australian Institute of Company Directors Mastery in the Boardroom program, a simulated experience of six to nine all new directors coming together to form, storm, norm and perform as a board team over four days.
At the end of the program, nearly without fail, someone in my highly bonded board team will say: “Hey we work so well together we should hire ourselves out”. Not such a stupid idea I thought, back seven years ago when I first heard it.
Bainbridge and Henderson’s thinking runs parallel to my own in painting the benefits.
[one_half]A Board Services Firm providing a collective group is highly accountable for their performance. If a member of the team is not performing, or has not done their job, they will be removed to keep the contract to provide board services. There will be market competition based on performance, but also increased remuneration to attract the best talent. As in all markets there will be different firms providing boards at different price points.[/one_half]
[one_half_last]The majority of recent board failures have been failures of behaviour; individual and collective. A pre-built team can train before and during the engagement (not just the brief in-camera sessions of current boards).
These unionised (or guild) directors will have additional opportunity to bond as a group through professional development and social activities within the Board Services Firm.[/one_half_last]
In the pilot model I have been developing under the The Directors Suite brand, in conjunction with people partners, Bravo Consulting Group, I have been using the tool ‘Facet5’ to assess directors behavioural traits. The tool enables The Directors Suite to align a director’s contribution to the company, and map how they will work in any given team of other directors, whose profiles we also have on file.
Bainbridge and Henderson site the benefit of vertical integration. I agree.
The Directors Suite aspires to create a premium group of service providers (the Governance High Street we call it), to back up the directors in any activity they may need to perform; whether CEO recruitment, risk management, company secretarial, or insurance. I foresee “directors chambers” emerging to co-locate directors and director teams.
The model has its challenges, resistance to change not the least.
- How will regulators assign accountability and liability?
- Will it remain individual or will it expand to the collective board group or the board service provider?
- How will the board service providers self-regulate their own standards of director competency assessment and appointment?
- Will board service providers be licenced?
- What will be the shareholders role?
- Will it be like appointing an audit firm who are then free to allocate personnel as they see fit, or will they sign off on a board ticket?
- What if shareholders want to make their own changes to the ticket?
The model leaves itself open to profit taking by board services companies, squeezing the remuneration of directors.
- How are for-purpose (NFPs) boards accommodated in this model?
- Will a tightly formed board group accentuate an us-and-them divide with a tight management group, or will it strengthen respect between two groups of professionals coming together as partners rather than adversaries?
Please feel free to discuss in the comments box below.