Fred Hilmer and his team (mentioned in the acknowledgements) present a strong challenge to the prevailing governance landscape. They heavily critique the current arrangements (legal, ASX listed companies, regulatory, media, public expectations), as well as the direction of travel. They argue in favour of fit-for-purpose governance, instead of so-called “best practices” (which are often not backed by evidence)… Hilmer and his team argue for tailored governance approaches that fit the publicly listed company’s circumstances, striving for greater effectiveness/efficiency in order to compete with the alternative ownership/governance models. Law/regulatory reform, mindset shifts, and evidence-based prescriptions will also be required (amongst other things).

“The more-of-the-same approach to governance is simple, convenient, and supported by many in the governance industry. Its only problem is that is has not, and most likely will not, help directors and managers address fundamental governance issues.”

The authors bemoan that the direction of travel for governance is towards conformance over performance, form over substance, process over outcomes (much of the governance industry and director time is now taken up with “box ticking” exercises). In particular, the following practices are characterised as a bad fit with boards and having mixed or little evidential support: excessive focus on director independence (with mechanistic tests); director recruitment driven by technical competencies and framed in terms of a skills matrix; massively increased quantity of information (both in board materials and disclosed by companies); operational compliance burdens on directors (who often lack time/industry depth/company knowledge). They argue for a combination of focus and delegation from directors/chairs, pushing much of the compliance burden down to management. This frees board time for decisions that only the board can make, such as CEO selection/evaluation and approval of strategy (take a look at the excellent section on pages 148-149 called "Where to focus and what to delegate").

The framing of their narrative is fascinating, making use of a corporate governance definition from Professors of the Stanford Graduate School of Business, being that corporate governance is a: “collection of control mechanisms an organisation adopts to prevent or dissuade potentially self-interested managers from engaging in activities detrimental to the welfare of shareholders and stakeholders.” Hilmer himself is an experienced non-executive director, executive manager, and academic. The book doesn’t focus on the diverging interests of various parties, the management of conflicts, or the principal–agent problem. But it does bring to the surface many practical challenges for boards, which occur when interacting with powerful/influential executives.

Governance approaches labelled as “best practices” have become mandated in many cases, at the same time as hundreds of laws have been passed allowing the conviction of directors on the basis of strict or positional liability – this removes the ordinary protections of the criminal law (with directors having to prove that they are not guilty). Executives may spend ten times as many hours on the business compared to board members (and in some cases a much larger multiple of time than this), plus executives have vastly superior access to information and industry knowledge when compared to Non-Executive Directors (this is especially the case for large/complex organisations operating amidst VUCA environments). The book “highlights how being a director of a listed company is fast becoming more complex and less attractive”.

More-of-the-same will result in further decline for publicly listed companies. The book is focused on the largest listed companies, who have seen high profile failures of leadership/governance/management during the last couple of decades: Financial Services Royal Commission, APPA report into Commonwealth Bank, casino licence inquiries, Rio’s destruction of rock shelters at Juukan Gorge, Volkswagen emissions scandal, Lehman Brothers and subprime mortgages (Global Financial Crisis), UK financial services failures including Northern Rock, ABC Learning Centres, HIH Insurance, Enron, General Electric, Uber, WeWork (failed to list), Facebook scandal involving Cambridge Analytica, Afterpay and buy now pay later peers, UK newspapers breaches of trust, concentrated media ownership’s role in climate change denialism and swaying the outcome of democratic elections, Wirecard, lax cyber security including privacy breaches (such as Equifax and most recently the hack of Optus), large fines for big tech companies (Didi Global, Amazon, Instagram, WhatsApp, Google, and Yahoo), as well as two fatal crashes of Boeing 737 MAX aircraft.

Publicly listed companies are seen as inferior in important respects when compared to private equity, direct investment, and other forms of ownership (such as family offices or sovereign wealth funds). Listed companies as well as traditional investment managers have been assailed by activist investors, passive funds, hedge funds, and quant investors. The number of publicly listed companies in the UK and US has halved during the two decades to 2017. Large asset owners are able to access direct investments and alternative asset classes, which are harder for retail investors to access.

Would it have been possible for the application of “best practice” governance to prevent the operational risk and culture deterioration at Commonwealth Bank that resulted in the APRA investigation? Did Boeing need “more-of-the-same” governance approaches to avoid the 737 safety issues? Many of the recent scandals were squarely within the operational sphere, sometimes at lower to middle management level and lacking the visibility of executives. Full-time internal experts or targeted external expertise would have had a much better chance of making a difference than the board. It’s unfair as well as inappropriate to hold part-time non-executives accountable, especially with strict liability that assumes guilt unless otherwise proven.

What are the implications for smaller listed companies, non-listed companies, charities, other non-profits, government entities, and other boards? The key thesis applies to all of these governing bodies – don’t blindly apply “best practices” and uniform governance approaches when they aren’t fit for purpose. I’ve personally seen the ASX Corporate Governance Principles being advocated as rules for NFPs, rather than as guidelines for listed companies. There is also a tendency for graduates of the Company Directors Course (and other board education/professional development) to hammer round pegs into square holes. Instead, pause and take a step back to assess which tools/approaches/mechanisms are proportionate as well as appropriate to the circumstances. The recommendation for greater focus and delegation, as well as the emphasis on performance, is also highly relevant… The static constitutions, and dated membership models, of some NFP organisations impede their ability to adapt as circumstances change. Smaller NFPs should perhaps consider advisory boards or operating committees, instead of board structures (internalising the combined management/governance functions, rather than attempting to separate them along the lines of listed company governance).

This book also provides a reality check relating to accountability – boards are responsible for appointing CEOs, who have extensive delegated authority for managing their organisation. Executives and staff are engaged with stakeholders/processes/obligations on a daily basis, they have vastly better/deeper/contextual understanding and they control the flow of information to boards. Centuries of legal precedent should not be ignored when allocating responsibility for unethical, criminal, or inappropriate behaviour. Misdeeds of an employee/supplier/volunteer will often be covered up, in deliberate concealment from an oversight body or regulatory authority…

The book makes an excellent attempt at diagnosing flaws as well as providing helpful suggestions for improvement. The resonance with Hilmer’s 1993 book Strictly Boardroom is remarkable – encouraging directors and chairs to focus on performance (especially the unique responsibilities of the board), while ensuring compliance (with assertive delegation to management). More-of-the-same will not overcome human behavioural bias, counteract personality traits, nor reverse the magnetic pull of self-interest/short-termism. If this book doesn’t provide a wake-up call, then we as a society will continue to bear the costs of the path that has been travelled for the last couple of decades.