In the wake of the failures in corporate governance that led to the global downturn, CIMA believes that businesses should integrate long-term sustainability into their core activities. In setting the ethical direction of an organisation the tone must come from the top - that is from the executive and non-executive board directors.  A key responsibility of the non-executive directors is to uphold values that put the long-term future of an enterprise above short-term profits. This also entails management providing non-executive directors with the most relevant and accurate management information available, data which would help the board identify if the company is cutting corners ethically to get quick returns.

CIMA’s report, Enterprise Governance: Restoring Boardroom Leadership, looks at what boards need to do to be more effective – and how management can support them in that task.  In the wake of the biggest and most damaging failure of corporate leadership of recent times, there is a growing public expectation for organisations to operate ethically and responsibly as leaders look to restore trust in the corporate world.

Integrated model

The report presents a practical, integrated model which shows all the key factors that support board effectiveness. People, behavioural issues and risk management are considered as well as supporting frameworks, processes and structures. In light of recent failures, there is a particular focus on how organisations can create a culture of ‘effective challenge’ where boards are encouraged to scrutinise management proposals.

“Public expectations of corporate behaviour are now, understandably greater than ever before,” observes Charles Tilley, CIMA Chief Executive. “Both boards and executive management need to combine a commitment to the highest ethical standards and the long-term sustainability of their businesses with a keen awareness of the public interest dimension of what they do.”

“Our new report provides a practical framework to help in this task. We place much emphasis on a constructive, but challenging relationship between boards and their management.  This does not mean a cosy complacent one!  But we would argue that a board can only be as effective and as healthy as the underlying business that it governs.”   CIMA’s boardroom leadership model suggests key ingredients to create a climate in which constructive challenge of the CEO is possible.

• High quality management information.
• Diversity in skills, perspectives and experience.
• Mutual respect among players. There needs to be an understanding and acceptance on all sides that constructive challenge is vital. 
• Robust processes and frameworks to support strategic development. It is difficult to challenge strategy if the board agenda does not allocate enough time to discuss strategy. Boards may find other devices useful, such as designating someone to play devil’s advocate for a particular discussion.

Challenging management

In the Harvard Business School white paper, Perspectives from the Boardroom – 2009, a board director recounted how he dealt with the management team. “When [the management team] walked in and sat down around the edge of the room, I said: ‘Folks, we’re very aware of all the work you’ve done. We’ve had a great review of all that, but there is an enormous amount of information here.’”

“‘You all, we know, have made very significant decisions to get to the conclusions you’ve come to. We suspect they are the right decisions, but the only way we will know and be able to put our judgment on that is if you’ll permit us the opportunity to test you in many ways during the next couple of days of discussions, so that we can get through the same small knotholes and decisions you did in the same way that you did. And you’re going to need to be patient with us.’”

Although there may be acceptance that a challenge culture is positive, it is not easy to define, create or maintain. The following questions need to be considered:

• What does a constructive challenge look like in practice?
• How can a company assess its effectiveness?
• Are there best practice examples of a constructive challenge that prevented costly mistakes?
• How much time should be spent on challenging proposals?
• When does a challenge become counterproductive?
• How can a company demonstrate to stakeholders that it has an effective challenge culture?