Governance experts Professors Ludo Van der Heyden and Timothy Rowley uncover shortcomings that may be undermining effectiveness
A new finding by INSEAD governance scholars indicates a disparity in the ability of European board directors to match their North American counterparts. According to a benchmarking survey of nearly 300 European directors from 20 countries conducted by the INSEAD Corporate Governance Initiative and the Clarkson Centre for Business Ethics and Board Effectiveness (CCBE), University of Toronto, European directors lag their Canadian and U.S. peers in terms of governance practice.
The survey’s primary conclusions are that European directors demonstrate a lack of understanding of their company’s industry. In addition, directors act too much like managers rather than board members and fail to devote sufficient time to their director duties. In all, the survey examined nearly a dozen factors deemed to be impeding director performance.
The annual survey, initiated this year, draws upon the thought leadership of INSEAD scholar Ludo Van der Heyden, The Mubadala Chaired Professor in Corporate Governance and Strategy at INSEAD and Academic Director of the INSEAD Corporate Governance Initiative and Timothy Rowley, Visiting Professor of Strategy at INSEAD from the Rotman School of Management, University of Toronto, and home to the CCBE.
“Canada offers a great benchmark for Europe,” said Professor Van der Heyden, a global governance scholar. He noted that the nation is widely regarded as a corporate governance exemplar in terms of best practices, followed by the U.S. “Canada is also not that far removed from Europe in terms of its linguistic and multicultural diversity,” he added.
In the published benchmark study, the scholars provide the survey’s findings, which highlight the fact that Canadian directors seem to place greater importance on key governance areas—such as industry expertise—than do their European counterparts.
One area where Canadian boards strongly distinguished themselves was in the importance given to executive sessions—forums where directors can express themselves freely and privately. By a 3-to-1 ratio, Canadian boards believed this forum more important than did their European peers.
The study also offers several recommendations for how European directors might improve their performance. Improvements at the board level include educating directors to gain a greater understanding of “duty of care” toward the organisation itself, rather than acting to directly please its shareholders. In addition, directors might gain greater industry knowledge while paying more attention to “process skills,” including board and director evaluation practices.
“These process issues are especially troubling,” say the study’s authors, “since they indicate that board practices may be insufficiently evaluated and, as a result, inadequately corrected.”
The survey also highlights a disparity in terms of gender diversity on European boards. “The picture is a bleak one,” write Rowley and Van der Heyden. “Nearly one out of every two EU boards has no women directors, which is quite shocking, given all the discussion on the value of women in improving board process and collective discussion.” Here, too, Canadian boards perform better, but only slightly, with nearly 40% of their boards having no women directors.
A related issue uncovered by the survey is the general lack of formality in terms of board nominations. About two-third of all European directors gain their governance role through personal contacts rather than through management recommendations for search firms. As a result of such informality, top talent may be being overlooked. One of the key factors behind board effectiveness is the effectiveness of the board nomination process.
Overall, the benchmarking survey’s findings indicate the need for European directors to advance their formal governance education. In fact, those surveyed—INSEAD alumni and participants in the INSEAD International Directors Programme —seem to recognise their shortcomings and express a willingness to learn and improve.
INSEAD has moved forcefully over the last years to offer a rich set of courses for directors and boards, which is unique amongst business schools. Adding to this, INSEAD courses attract directors from all over the world which is quite distinct from training that is offered throughout the world, which is typically very national in content and participation. Participants of INSEAD courses always revel at the discovery that board issues across the world are more common than they are distinct.
To read the entire 2013 Benchmark Survey, please visit: www.insead.edu/facultyresearch/centres/governance_initiative/
To learn more about the Survey, please go to INSEAD Knowledge:
http://knowledge.insead.edu/corporate-governance/european-board-directors-lag-north-american-counterparts-3388
For more information regarding the INSEAD International Directors Programme, please go to: http://executive-education.insead.edu/international_directors
