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Companies that bury their heads
in the sand—like the proverbial ostrich—
may be reluctant to be held accountable
for actions and decisions, with damaging
consequences for business ethics.
See also: Profit before perks 124–25 ■ Who bears the risk? 138–45 ■ Profit versus
cash flow 152–53 ■ Balancing long- versus short-termism 190–91
MAKING MONEY WORK
of the business and its owners—
the shareholders. Nonexecutive
directors have an important role
to play in corporate governance:
they are not company employees
and should be able to quiz
executives with impunity.
Board-level scrutiny
In 2011, consultants McKinsey &
Company published findings from
a survey of 1,597 board directors,
providing fascinating insights into
the proceedings of board meetings.
The survey showed that in Asia,
no more than a third of a board’s
meeting time was spent scrutinizing
management actions and decisions;
far longer was spent on strategic
planning. Although this sounded
sensible, it suggested that
accountability and governance
received less time. By contrast, in
North America nearly two-thirds of
board time was spent on scrutiny.
More surprisingly, the same
sample showed a lack of satisfaction
with fellow board members.
Directors thought that more than
30 percent of their peers had
limited or no understanding of the
risks their company faced. This
suggested a flaw in the ability of the
board to hold executives to account.
Most of the time, in most
companies, executives make sound
decisions that require minimum
scrutiny. However, good governance
ensures that the board is always
alert—so it will be fully aware of
what is happening when a mistake
is made. Such a mistake might be
related to strategy (an overpriced
takeover bid, for example), or to
the ethics of a particular situation.
Independently minded nonexecutive
directors should be in a prime
position to question, for example,
whether the company is right to
be using very low-cost suppliers,
or whether a contract has been
won using questionable means.When things go wrong
The importance of good governance
was made clear in the case of
Japan’s mighty Olympus camera
business in 2011. Newly appointed
Chief Executive Michael Woodford
found that a $1.7 billion cover-up
of losses had been made when
acquiring other companies. The
Olympus directors had hidden
these losses from the published
accounts and therefore from public
scrutiny. The board responded
by firing Woodford. Only after a
successful campaign by Woodford
did the Japanese authorities charge
key Olympus directors with fraud.
Eventually the whole board
resigned. The case demonstrated
how ineffective Olympus’s
nonexecutive directors had been
in holding the board to account,
and how important good governance
and accountability are to the
well-being of every company. ■Jamsetji Tata
Born on March 3, 1839 in
South Gujarat, India, Jamsetji
Tata might have appeared an
unlikely candidate to be the
founder of a business that
would grow to be one of the
largest conglomerates in the
world. Tata followed his
father—who had broken the
family tradition of being a
Brahmin priest—into business
at 14 and soon showed
potential, graduating from
Elphinstone College in
Mumbai in 1858. After
working for his father, Tata
took on his first enterprise—a
cotton mill—in 1868. One of
his dreams was to found a
steelworks, and although this
business aim would not be
achieved in his lifetime, Tata
Iron and Steel Company was
set up in 1907 by his son
Dorabji. The steel industry
went on to be the foundation
for Tata Group’s global success.
One of Jamsetji Tata’s
overriding principles was
fairness, which permeated
his entire business approach.
In terms of accountability, his
vision was simple: “We started
on sound and straightforward
business principles, considering
the interests of the
shareholders as our own.”Accountability breeds
response-ability.
Stephen R. Covey
US management consultant (1932–2012)