5 Ways Asian Boards Can Improve on Governance
A year-long research study led by the Center for Creative Leadership (CCL) into the current state of the Asian boards and board leaders’ collective leadership was released last year. The study was undertaken in partnership with several southern and southeastern Asian industry institutes representing company directors in their respective countries. It included interviews and surveys of board directors of 400 medium to large Asian organizations.
Despite Asia's booming economy, which is fast becoming the new global center of commerce, the region has seen some spectacular governance failures. Study respondents were united in their view that Asian directors need to forego their traditional stewardship and trusteeship roles and take up responsibility for the overall leadership of their organizations.
Results indicate most Asian boards are ill-equipped to cope with the concentrated ownership that still typifies Asian firms and struggle to overcome entrenched hierarchies and the immense cultural pressure to preserve harmony. Half the respondents felt they were positioned alongside less than capable peers who needed to be replaced.
In his HBR research article entitled “How Corporate Boards in Asia Can Improve Governance,” Senior Director and Head of Asia-Pacific Research, Innovation, and Product Development at CCL, Sunil Puri, talks about the five steps the study identified for Asian boards to improve their efficacy.
1. Understand the Effect of the Home Country’s Government on the Boardroom
Developing strong governance and maturity within an organization is difficult in a country characterized by corruption, secrecy, and bureaucracy. As a result, boards need to be aware of how broader cultural forces such as collectivism and conflict avoidance negatively impact open discussion in the boardroom.
2. Appoint the Right People
The study highlighted the Asian phenomenon of "trophy" board appointments, that is, recruitment of high-profile board members, many of whom sit on four or more boards. Such appointees seldom have any positive impact on governance, and their time and commitment are significantly watered down. Therefore, boards must assess the motivation of prospective directors and ensure their values are aligned with those of the organization.
Directors should also have a "learning mindset," and boards should regularly engage in activities to improve and refresh members' strategic leadership and self-development competence. Currently, such activities occupy the least time of all board activities investigated.
3. Recruit for Diversity
Multiple international studies show a positive correlation between board diversity and board performance. However, Asian boards continue to be characterized by a lack of diversity in gender, age, and ethnicity. They currently rank adequately on skills diversity. However, they should ensure competence in emerging fields such as cybersecurity and artificial intelligence in the future.
4. Define Roles and Assess Performance
A quarter of the organizations surveyed had no evaluation processes for board members, and a further quarter only conducted self-evaluation. Comprehensively articulating the expectations of board appointees and objectively measuring their performance is essential to avoid inertia.
Asian boards must get better at holding members accountable for how they spend their time and whether or not they are effective in achieving what’s expected of them. Puri says involvement in external activities such as client visits and participating in vendor negotiations and sales efforts are proven ways for board members to impact the business directly.
5. Build a Trust-Based Culture
Close to a third of the study's respondents expressed the view that Asian boards act purely in a "rubber-stamping" role to company management. And the research uncovered a negative discrepancy of 25 percent between desired and actual engagement between boards and management and a similar gap in engagement between board members.
Good governance demands regular, robust engagement between the board and management and within and between the board and its directors. The study found a strong positive correlation between performance and cultural board attributes such as collaboration, commitment, openness to challenge, and forthrightness.
These attributes are the basis of trusting relationships that empower the productive conflict governance demands. Asian boards must develop the capability and culture to express divergent views, engage in intense dialogue, and make swift, transparent decisions.
Other Trends of Note
The CCL study highlights several systemic issues with Asian corporates' board make-up and functioning. But it also found positive improvements in the time allocated to discussing future readiness and increased interactions between boards and their organizations’ management and between their members. In addition, there is growing awareness of the need for new technology-related skills at the board level and a keen interest in learning about future trends.
As Asian nations become more exposed to global governance practices and foreign investment in Asian organizations grows, shareholder activism will drive more stringent regulations for Asian boards. The pace of governance is also being pushed by the urgency of global climate change mitigation efforts like the Paris Agreement to restrict temperature increases to below 2 degrees Celsius.
Environmental, social, and governance factors and requirements for transparency around them will potentially challenge the status quo of traditional Asian director roles. Under the steps outlined above, boards wishing to maintain their relevance can make the necessary changes to prepare for a more governed future.