Getting the ratios right
— Governance Matters (@GovernanceMatt) October 26, 2017
The pub test – now there’s a great Australian institution, that metaphorical test that unearths the thoughts and opinions of ordinary folk when it comes to judging the behaviour of groups or individuals.
It’s usually spot on, and no more so than in the perceptions of CEOs and their salaries, where those in the front bar will tell you – as they did recently in the case of Australia Post’s outgoing CEO, Ahmed Fahour – that there’s a yawning gap between public expectation and reality.
Indeed, a raft of respected research suggests that huge CEO salaries can have a detrimental effect on the organisation.
When a binding vote shouldn’t be a bind for boards
— Governance Matters (@GovernanceMatt) September 1, 2016
New British PM Theresa May has hardly got her feet under the desk at 10 Downing Street and already she’s sending out signals that she’s committed to a corporate governance overhaul – making shareholder votes on pay binding and getting employees onto company boards her two main thrusts.
And while it sounds more like the words we’d expect from Labour leader (well, at least he is at the time of writing) Jeremy Corbyn, these sentiments are to be welcomed.
Let’s take a closer look at the first issue, that of giving shareholders a binding vote on executive remuneration, this week, before turning to the employee representative matter next time.
So What’s a Board’s Most Important Job?
When I was asked recently to present a paper at a corporate governance symposium in Kuala Lumpur on ‘What is a Board’s most important job?’ it didn’t take me long to arrive at my answer and prepare my paper accordingly.
It also had me thinking what answers others might proffer, so we decided to use social media to tap into the broader thinking – and here’s a sample of what came back…
Great CEO performance assessment always a genuine two-way process
If there’s one common thread running through all successful CEO performance assessments, it’s a genuine commitment to a transparent and two-way process, where the board and CEO agree on the key goals and measurements and the board then works with and supports the CEO in achieving the objectives.
Thankfully, such practice is now commonplace in our commercial sector: sadly, it’s still pretty much the exception in our Not-For-Profit and Government organisations.
Of course, in the commercial world CEO performance assessment is intrinsically linked to the CEO’s remuneration package. Indeed, it defines the package, determining not only the base salary and short-term incentives such as annual bonuses when targets are met, but dictating how a CEO will be rewarded – usually with share options – when achieving longer term objectives that drive company and shareholder value.
And given that there’s so much riding on getting these three components right, it’s not surprising that boards of commercial companies have long understood the need to treat CEO assessment seriously.
CEO Succession Planning
Succession planning is anything but a dirty term
While there’s debate over whether it was Benjamin Franklin or Winston Churchill who coined the phrase ‘when you fail to plan, you are planning to fail’, there’s no doubting its soundness – particularly when it comes to CEO succession planning.
Yet mention the words ‘succession planning’ in governance conversations and you’ll be amazed at how many boards – and remember, boards are responsible for finding replacement CEOs – still consider it a ‘dirty’ term, dripping with undertones of dishonesty, sneakiness and behind-the-scenes manoeuvrings.