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The role of the corporate manager in the performance evaluation of boards

by Simon Longstaff
01 December 1998
BUSINESS AND PROFESSIONAL ETHICS

Introduction

There is a considerable amount said and written, in the field of business and professional ethics, that amounts to little more than common sense. I suspect that my offering, today, will amount to much the same.

Indeed, I suspect that many people will think that the topic of board evaluation leaves little to the imagination – and that the topic is best addressed simply by outlining the basic principles of best practice in this area.

If only things were so simple! Alas, any attempt to understand the role of the Corporate Secretary in this field requires that we come to grips with two fairly fundamental and related questions:

  •     What are the proper functions of a board of directors?
  •     How do these functions relate to the purpose of a company?

You will be pleased to know that I do not intend to delve too deeply into these and related questions. However, I must touch on them if what I have to say, on the more specific points that I have been asked to address, is going to make any sense. Other speakers will have touched on some of the points that I wish to make.

However, I hope that some of what I have to say represents a somewhat different perspective. Finally, in order to answer each of these questions, their order will have to be reversed.

As indicated above, it is not really possible to say anything sensible about board evaluation until we know what it is that directors are supposed to be doing. This, in turn, depends on our conception of the purpose of a company. It is to this first issue that I will now turn.

The purpose of a company: two competing conceptions

A minimalist's view:

    The company exists for the ultimate benefit of shareholders.

Until recently, the most conventional response to a question about the purpose of a company was a paraphrase of Milton Friedman1 along the lines that the purpose of the company was to generate the best possible return on the investment of shareholders.

Based on a variation of Adam Smith's argument concerning the benefits that can flow from the unadulterated pursuit of self-interest, it has been argued that a single-minded pursuit of profits will, in the long run, ensure that market signals will be properly attended to by the company. As such, the company will aim to produce goods and/or services at the lowest possible cost and then sell these at the highest possible price to the greatest number of purchasers.

To put the purpose of a company in these terms is, of course, to engage in a form of caricature. Life is never quite so simple. But for many theorists the 'wrinkles' in the theory are few and far between.

A rational company will maintain a general level of good standing with investors and consumers by avoiding doing anything likely to harm its image in the eyes of these groups.

For example, issues of the kind raised by people concerned about the social responsibility of business are dealt with by arguing that a rational concern for profitability will ensure that all costs are minimised and all opportunities maximised. Therefore, a rational company will maintain a general level of good standing with investors and consumers by avoiding doing anything likely to harm its image in the eyes of these groups.

In a similar vein, such a company will ensure that it avoids the payment of fines (and other penalties) for breaches of regulation and the law and so on. In other words, such a company will go about its business in a fashion that is limited only by a set of side-constraints imposed by the market or in the form of legally and sanctionable laws and regulations.

The performance of directors of this kind of company will, on this view of the world, be judged ultimately in terms of their capacity to generate superior returns for their investors. All other considerations will be subsidiary. For example, a concern to minimise damage to the environment or to foster the development of a humane working environment in which people flourish will only be of significance to the extent that it contributes to the bottom line.

Of course, even this characterisation of the board's responsibility is plagued by the vexing question concerning the identity of the shareholders whose interests are supposed to be best served. The practical reality for most boards – and especially those with active institutional investors – is that the current crop of shareholders demand that their interests are supreme.

Yet, again, matters are not so simple. For example, it has been persuasively argued that if the directors' duty is to shareholders, then it is to shareholders in perpetuity. Indeed, this follows clearly from the fact that a corporation, as a legal person, is theoretically immortal. Since its natural-person shareholders are all too mortal, it would be unjust of directors to act in ways that deliberately advantage one class of shareholders (the current group) at the expense of others who might hold those same shares at another time.

The implications of this are put quite succinctly by one of the doyens of an earlier generation of Australian company directors, Sir John Dunlop2. As he once observed:

"I put it to you that the directors are responsible to the shareholders for profit in perpetuity; and that this general expression of a principle permits, indeed requires, directors to pay full regard to their employees, to labour relations generally, to the community, to the country, in all their decisions for and on behalf of shareholders."
     (Dunlop, 1987, p 7)

Even so, the original conception of the role of the company (and hence its directors) as I have been describing it above, is left intact. For directors all concerns – other than to shareholders – are subsidiary.

As noted above, my presentation of this model is overly simplistic. Very few directors would see their companies quite in the terms I have outlined. Instead, they would recognise that, as a bare minimum, the fact that they (and their companies) exist in society generates a number of additional obligations – many of which are expressed in the law of the land.

Indeed, they may very well recognise that they have duties, as citizens, to uphold the law – even if to do so would not be in the interest of shareholders – let alone the company as a whole. Even so, the thing to note is that, unless such laws apply to directors qua directors, any concern about broader community standards may be external to the role of director unless they impinge upon the profitability of the company.

Discussion of community leads me to outline, again in a rather simplistic fashion, an alternative perspective on the role of the company.

A broader view:

    The company exists for the ultimate benefit of society

As noted above, modern corporations are non-natural persons. That is, they are artificial entities. No law of nature or of man requires that they exist – let alone in the form that predominates in liberal-democratic capitalist societies.

Yet, for all that, we might justifiably consider the joint-stock, limited liability company to be one of the canniest inventions of humankind. Although there will be some who have radical objections to the consequences that have flowed from the invention of these entities, most will probably agree that the material benefits flowing from the liberation and consolidation of individual capital have been nothing short of staggering. And so it should have been. Otherwise, how would we ever explain the extraordinary privileges accorded, by society, to investors?

Few people think of the issue in this way, so it might be worth spending a moment or two exploring this point. Imagine that a person who outlines his need for a new structure of legal privileges approaches you. Put simply, he wants you to agree to an arrangement under which he is allowed to make an investment, which could, in principle, generate for him an unlimited 'upside'. Indeed, even a modest investment could, over time, net him a fortune.

On the other hand, if things go badly, he wants you to agree that his losses be limited to the extent of his investment. No matter how much is owed to creditors, no matter what is done by the company in which he has invested, he wants his liability strictly limited to that investment. If you agree, he says, then this opportunity should be made available to anyone with money to invest – and on the same terms.

As we all know, this is the basic structure under which most companies operate. Now, the ability to have unlimited 'upside' matched by a limited 'downside' is, when you think about it, a pretty amazing legal privilege. So why would any rational community create the corporate veil which, in reality, only a few might enjoy?

There can only be one answer. A rational community would only make such a decision on the basis that to do so would be in the interests of the community as a whole. Or, to put it another way, it would be an act of folly to institute arrangements of a kind that were reasonably believed to lead to a situation in which society, as a whole, were to be worse off. It is thus that the most basic form of a 'licence to operate' is constructed.

There are, as we all know, a plethora of rules and regulations that further constrain what a corporation might do (or not do). These two form part of the formal 'licence to operate' that governs the work of corporations. However, all of these formal requirements are underpinned by the fundamental notion that companies (and by extension, the world of corporations) should do nothing that will, in its considered opinion, reduce the community's overall quality of life.

This model still leaves plenty of room for the traditional pursuit of profits and an increase in the wealth of shareholders. Indeed, if it did not, then the whole model would, in the end, be self-defeating.

The duty to shareholders needs to be considered in the context of a wider obligation to society as a whole.

Yet, it makes it clear that the duty to shareholders needs to be considered in the context of a wider obligation to society as a whole. This is not because to do so is ultimately in the interests of shareholders in perpetuity, nor is it in deference to the dictates of the law (which may, in any case, vary from time to time). Rather, it takes seriously the idea of an obligation to the community in and of itself – because this is part of the bargain on which the whole corporate structure depends. Seen in this light, corporations are vital parts of the community. They come in from the cold and escape any suspicion that they are merely necessary evils required in the service of the 'invisible hand' of the market.

As this analysis might suggest, the broadening of concerns to include something more than the interests of shareholders has implications for any assessment of the performance of boards. Under this model, the very least that might be required as an additional skillset is an ability to develop a more critical and strategic view of how the company's operations impinge on its stakeholders and the wider society(s) of which it is a part.

One should not make too much of the differences that the alternative understanding of the role of the corporation might have. As we will see, there is a considerable amount that is shared.

Having said that, one should also avoid making too little of the distinction. For example, a minimalist is likely to hold that, all things being equal, the company should spend as little as possible on say, the environment. In other words, meet only the strict requirements of the law. On the other hand, those persuaded by the broader perspective might require a company to balance the need to generate profits (and therefore be successful when competing in the market for capital) against the need to exceed the minimum legal requirements – for the sake of the community at large.

The arguments against this broader view have been rigorously articulated by a number of theoreticians amongst whom one of the most notable is, as I have mentioned, Milton Friedman. They entirely reject any expanded notion of the social responsibility of business. Instead, they look to government to secure public goods – either by its own exertions or through the operation of legislation and regulation. There are many lines to this argument and the kind of response that it deserves. And this is not the place to rehearse them – except to note that one of the by-products of this approach is a relative inability to argue a strong case for the self-regulation of business.

This inability is not merely coincidental. Rather, it is a direct product of an approach that sees the limitations to business practices set at a bare legal minimum – always imposed by somebody outside the body of the company. To my mind, this is a significant weakness in that self-regulation is not only more efficient and effective than state regulation but it also breeds a capacity to exercise responsible and informed judgement that is other wise allowed to atrophy for want of use.

So, to summarise the discussion so far. I have argued that any discussion of the performance of boards needs to start with a proper understanding of the purpose of the board, in general and as it relates to the interests of particular corporations. Another way of putting this is to ask, “What is the question to which the board is the best possible answer?”

Second, I have argued that the answer to that question depends, to a significant degree, on our views of the purpose for which a company exists.

Finally, I have attempted to outline two alternative conceptions of the role of the company and, in doing so, to indicate how these differing conceptions might shape our expectations of directors.

As will have been obvious, each conception involves a significant degree of overlap – especially when the view expressed by Sir John Dunlop is taken into account. That is, we might reasonably expect that directors will have a broad strategic interest in how the company that they serve interacts with a broad range of stakeholders. So it is that we might turn to some of the more practical matters affecting the performance evaluation of boards (especially in relation to this 'common ground') and in particular, the role of the corporate secretary in this process.

Understanding the need for performance rather than conformance – and its implications

There is no better place to start a discussion of the basics of board evaluation than in the observation that good corporate governance must be driven by a commitment to increasing the quality of corporate performance – as measured right across the corporation.

One of the most compelling arguments for this stems from the work of the former Dean of the Australian Graduate School of Management, Professor Fred Hilmer. In a significant passage from Strictly Boardroom, Hilmer3 writes:

"The board's key role is to ensure that corporate management is continuously and effectively striving for above-average performance, taking account of risk. This is not to deny the board's additional role with respect to shareholder protection."
     (Hilmer, 1993, p. 33)

It is probably fair to say that Hilmer sits more comfortably in what I have called the minimalist camp.

Having said this, there are a few points that need to be drawn from his comment. The first is that many directors have taken the increase in the level of their personal liability as an unassailable reason for ensuring that the companies they direct comply with the laws and regulations governing their operation. If an increase in personal liability was meant to concentrate the minds of directors on their duties, then it has succeeded admirably. However, this achievement has been at a cost – namely, a damaging tendency for boards to focus on conformance – often at the expense of performance.

To be blunt, there are some directors who consider that their first duty is to protect their own position and only after that will they look to improving the performance of the company. Unfortunately, for them, the rise of shareholder activism has put such people between the proverbial rock and a hard place. Institutional investors, in particular, have little interest in the fine details of directors' liability. They want performance and where it is lacking, are more than ever prepared to remedy the situation by voting for the removal of directors.

This need for performance is the first practical point that needs to be borne in mind by those who would evaluate boards. Many boards consider that it has been a good year if they have kept out of trouble. As such, they will often place excessive weight on evaluating whether or not they have satisfied the limited formal requirements for ‘good’ corporate governance. These requirements can often be reduced to a kind of checklist. For example, such a list might include the following items:

Conformance

  •     Has the board been appropriately structured with the proper mix of executive and non-executive directors?
  •     Has the board effectively operated the recommended range of standing committees – especially, an executive committee, a remuneration committee and an audit committee?
  •     Has the audit committee had independent access to the external and internal auditors?
  •     Have the minutes of standing committees been circulated to all directors in a timely manner?
  •     Have potential and real conflicts of interest been properly disclosed?
  •     Have conflicts of interest been properly addressed?
  •     Have all other forms of disclosure, in relation to matters such as related party transactions, been made in the appropriate form and manner?
  •     Have directors been diligent in attending meetings?
  •     Have appropriate policies and delegations been put in place by the board?
  •     Has the board ensured that its statutory reporting obligations have been satisfied?


This type of list is not to be dismissed, items such as these are important and need to be evaluated. However, all of the items above are capable of being construed as examples of what would need to be checked in order to ensure conformance.

If it is the performance of boards that we are really interested in, then a far richer range of issues and competencies will need to be assessed. In identifying these, the basic rule of thumb is this: what should directors be doing in order to add value (in a sense that includes share value but goes beyond it) to the operations of this organisation?

As should be evident, the answer to this question will help to identify issues for assessment that cannot be reduced to a simple checklist or template. To see this, let us consider one or two examples of what might be assessed. These are offered in no particular order:

Performance

  •     Who are the board's stakeholders?
  •     How do the board's stakeholders, including management, rate the performance of the board?
  •     Do all directors participate effectively and constructively in discussions and decisions at the board table?
  •     Do all directors respect the principles of confidentiality, collegiality and 'cabinet solidarity'?
  •     Are all relevant matters brought to the board table, for discussion by the board as a whole, or do cliques form to resolve issues informally and away from the table?
  •     Do directors have a proper understanding of the business as a whole and the key factors and 'drivers' that will determine whether it succeeds or fails?
  •     Are directors capable of thinking strategically and imaginatively?
  •     Do directors have valuable skills that they bring to the board table?
  •     Do directors read and understand the board papers?
  •     Do directors play a constructive role in testing and refining policies brought to them by management?
  •     Do directors feel that they can raise dissenting points of view in an environment of candid discussion?
  •     Does any one individual or group dominate the board?
  •     Does the board complete its agenda in the allotted time?
  •     Do directors understand the management accounts and use them forensically to analyse the financial performance of the business?
  •     Do directors have an effective capacity to identify, analyse and respond to the different types of risk that face the company?
  •     Does the board ensure that its reporting to shareholders is true, fair, transparent and adequate to their task of making informed decisions about the status of their investment?
  •     Does the board ensure that its processes and requirements (such as the form and content of board papers) reinforce the application of the company's values and principles?

The fact that I have not presented this list in the form of a collection of core competencies for directors does not mean that it is not possible to make such a specification. Most people will be able to deduce these readily enough.

Having said this, the assessment of boards is so context-specific as to make a generic list of core competencies of only marginal use. To mention such things as a capacity to engage in analytical thinking, ordered and constructive questioning and so on almost immediately leads to a more specific request for information touching on the subjects to be analysed, questioned etc. Given the different form in which information comes to the board (management accounts, management reports, policy proposals and so on) it becomes somewhat difficult to specify core competencies with any greater clarity.

As will be obvious, this second list of issues is significantly different from the first in one important aspect. Whereas the first set of questions related to the impersonal structure and performance of the board, the second hones in on the individual and collective competencies of directors. As such, any exercise in assessing these matters could be extremely threatening to some – and especially that endangered species, the 'trophy director' whose major concern is the quality of wine served at lunch!

How might one evaluate such matters?

The type of issues listed under the sub-heading of 'conformance' lend themselves, rather neatly, to a fairly objective kind of assessment – and one that is easily able to be reported upon in documents such as an annual report.

For example, there is no real trick in determining whether or not a board has an audit committee – either it does or it does not. Similarly, disclosure of matters meeting the test of materiality has either occurred or it has not.

Given this, it is not inconceivable that a company secretary will be delegated to prepare a board evaluation, on behalf of the Chairman, as a fairly routine reporting exercise. Indeed, the idea of a checklist of formal questions would be a more or less simple device that could be prepared with minimal involvement by directors.

However, the list of items offered under the heading of 'performance' requires, by its very nature, that a somewhat subjective assessment be made. For example, the quality of a director's contribution cannot be measured by frequency with which she speaks. The director who sits back until able to make a crucial strategic intervention may do far more good for the company than one who paints on a very broad canvas.

Given this it is difficult to see how a company secretary could contemplate drafting a formal evaluation of the board for adoption by the Chairman. Instead, there are a number of possible processes, involving directors (and quite possibly, others), that will need to be used in order to measure performance. Many of these will necessarily involve the company secretary and Chairman, in receiving, collating and analysing some very sensitive and confidential information. These processes might include:

  •     a board self-assessment in which directors assess their own individual performance against a list of competencies
  •     board self-assessment which combines individual self-assessment with peer review by fellow directors and the Chairman
  •     board self-assessment combined with an external assessment in which key stakeholders are asked to assess the performance of the board in areas where they have contact or an interest. For example, senior managers (who are not directors) might be asked to comment on the contribution made by the board as a whole (or individual directors).

The role of the company secretary

As noted above, there is a crucial role to be played by a company secretary in acting as the 'clearing house' for what will be some remarkably sensitive material.

Therefore it is essential that the company secretary enjoy the complete trust and confidence of directors and those who supply information as part of a review of the performance of the board.

There is no simple technique for building this kind of trust. It is, in large part, a function of the quality of inter-personal relationships and the general competence of the company secretary. The question of trust is crucial. No other officer in the company, including general counsel, is likely to hold a position that equips them to participate in the kind of performance evaluation outlined above. Thus, a lack of trust in the competence or discretion of the company secretary virtually rules out any proper evaluation of the board – unless, of course, some totally independent agent is trusted to do the work.

However, beyond this there is also the possibility of the company secretary playing a far more proactive and creative role. Rather than sitting back and merely reporting on the relative success or failure of the board, a company secretary, in consultation with the Chairman and CEO, should be in a position to assist in the process of continuous improvement by the board. In particular, the company secretary can work back from the board and into management in a way that creates a supportive environment for superior board performance.

Let me put the point simply; management shares in the responsibility for how a board performs. In particular, it has the capacity to bring out the best in directors and in doing so, gently shape directors' expectations of themselves and the level of performance required of them.

Many managers are content to allow directors to look at the world through a benignly distorted lens that keeps them subdued as a kind of household pet.

Many managers are skilled at giving directors what they want and not what they need. Many managers are content to allow directors to look at the world through a benignly distorted lens that keeps them subdued as a kind of household pet. Of course, there is something profoundly wrong with a board that allows this to happen. Yet, for all that, it has not been an especially rare phenomenon.

Where a genuine desire to encourage superior performance by boards exists, then a company secretary can play an immensely useful role in helping to establish appropriate systems, attitudes and behaviours.

Let me give just one example of what I mean. The content and structure of board presentations and papers can have a considerable impact on the way a board operates. It is not unknown for board papers to be written in a way that allows only one conclusion (management's preferred position) to be reached. In these circumstances, boards can become resentful or worse, discount the views being expressed in the papers.

It is far better to present a balanced picture that covers the pros and cons so that an informed decision can be made. If management's argument is sound enough then, all things being equal, it will prevail. The content of papers can also have other effects. One of the boards on which I sit requires that every board paper include a section in which management outlines how the proposed policy relates to the company's values and principles. This not only helps to shape the thinking of management; it also helps to focus the minds of directors on a key issue of concern to the company.

In a similar vein, the company secretary can brief managers on the character of directors – their questioning styles and so on. Briefings such as these allow managers to operate more comfortably when presenting to the board and, as such, allow them to ensure that individual concerns are met while at the same time covering issues of particular importance.

The important thing to note in this is that we should not restrict our view of the role of the company secretary to one of mere (no matter how crucial) performance evaluation. For all the subtlety of his or her techniques, the company secretary should also work actively to generate continuous improvement in board performance.

Some concluding remarks

Having begun this paper with a brief discussion of the different purposes that a company might pursue, I then turned my attention to the need for a board culture based on performance rather than conformance.

In some senses, a proper regard for performance inches us towards the broader view of the purpose of companies. Sir John Dunlop almost had it right. More particularly, he was right for the times in which he lived. Indeed, he was ahead of his time. However, our current situation of rapid change and daunting complexity calls for a subtle revision of his argument.

In my opinion, maximum performance will only be achieved by those companies able to trust their people to make sound decisions within a condensed timeframe. Such people will need to exercise a considerable degree of autonomy.

Yet, at the same time, risk to the company must be minimised. There was a time when people thought that risk could be controlled through the application of detailed rules, regulations and compliance regimes. We now know that this approach is highly unstable and relatively costly. Things move too fast and are too ambiguous for the old paradigm of command and control to work. Instead, prudent boards and management should evolve corporate cultures in which decisions are based on the application of general values and principles – rather than specific rules and regulations.

The challenge for companies is therefore to create an environment in which its people feel that the values and principles at work within the company are real. The trouble is that it is extremely difficult to do this if the company adopts a minimalist approach and therefore seems prepared to sacrifice anything and everything in the name of increasing shareholder wealth.

Paradoxically, the key to shareholder wealth is to be found in sincerely believing in a purpose for the company that goes beyond this. The evidence for this conclusion is quite compelling. For example, recent research suggests that a proper concern with the ethical environment of a corporation is essential to long-term business success. Needless to say, many here are familiar with an interesting book, Built to Last: Successful Habits of Visionary Companies. The authors, James Collins and Jerry Porras4:

"... took a set of truly exceptional companies that have stood the test of time - the average founding date being 1897 – and ... set out to discover the timeless management principles that have consistently distinguished outstanding companies."
     (Collins and Porras, 1994, p. xiii)

One of their key findings is expressed thus:

"Visionary companies pursue a cluster of objectives, of which making money is only one - and not necessarily the primary one. Yes, they seek profits, but they're equally guided by a core ideology - core values and a sense of purpose beyond just making money. Yet, paradoxically, the visionary companies make more money than the purely profit-driven comparison companies."
     (ibid, p. 8)

A moment's reflection should suggest why the increased profitability enjoyed by 'visionary' companies is not all that paradoxical. Any organisation capable of managing the complexities associated with paying proper attention to the way in which values are expressed in practice will be well-equipped to cope with the burgeoning complexity that defines the world in which we live.

Furthermore, an organisation that deals with the ethical dimension of all its activities will be, at the same time, building a high-trust environment.

As we know, high trust correlates with low-cost. This is especially so when ethical commitments are reinforced so that they become part of the deep structure of organisations. In these circumstances, blind rule following is replaced by compliant behaviour based on the voluntary expression of dispositions that accord with desired practices.

A certain degree of vigilance is still appropriate. However, far less supervision is required. And where rules are silent or ambiguous, there is still a basis for proper action. Perhaps this is why McKinsey & Co found in 1995 that US companies which lived their values and were seen as 'visionary' outperformed the Wall Street norm by a factor of fifty over the last several decades.

All of this relates to the performance of boards in a very direct way. Directors are required to provide leadership to the corporation. As such, they need to model the very values and principles that they rely upon for the overall success of the company.

But beyond this, there is a further requirement that was touched upon above. This is that directors have a capacity to engage in the wider kind of debate that current and future companies will have to address. This ability is not a skill that can be picked up overnight. Rather, it needs to be fostered under the careful guidance of a Chairman. Yet, not all chairmen are equipped for this task.

It is for this reason that I would want to suggest one further role for the company secretary. Working at the Chairman's right hand, a proficient company secretary will be far more than an amanuensis. He or she will also be a trusted professional adviser possessed of sound, independent judgement – part of the management team and yet, somewhat apart.

I sometimes think of corporations as if they were ships at sea. A marginally competent sailor can get by when the wind and weather is fair. However, a combination of technical excellence, experience and sound judgement is required by those who would survive the occasional tempest. Many boards are forced to pretend that they are coping – even as they feel themselves caught between Scylla and Charybdis!

Every captain needs a confidante who can act as a sounding board when tough decisions must be made and executed. This means that there will be occasions when the corporate secretary may need to adopt a position of providing disinterested advice that goes beyond that of setting out the formal requirements of the law and applicable regulations.

Indeed, it could be argued that corporate secretaries are bound to adopt this role because of their chosen status as professionals. Belonging to a profession means accepting that there is a significant (if not overriding) duty to act in a spirit of public service. In fact, this determination to act in this spirit is the key defining characteristic of a professional.

One particularly influential definition of a profession was offered by Roscoe Pound. It goes as follows:

"The term refers to a group ... pursuing a learned art as a common calling in the spirit of public service - no less a public service because it may incidentally be a means to livelihood. Pursuit of the learned art in the spirit of public service is the primary purpose."

The point should be made that to act "in the spirit of public service" at least implies that one will seek to promote or preserve the public interest. A person who claimed to move in a spirit of public service while harming the public interest could be open to the charge of insincerity or of failing to comprehend what his or her professional commitments really amounted to in practice.

In August of 1993, the Australian Council of Professions5 issued a discussion paper, Professional Services, Responsibility and Competition Policy. Significantly, a press release about this paper was issued under the title, In The Public Interest. Both the paper and the release sought to distinguish a profession from "more commercially minded occupational associations". As opposed to others, professional practitioners:

"... must at all times place the responsibility for the welfare, health and safety of the community before their responsibility to the profession, to sectional or private interests, or to other members of the profession."

If the idea of a profession is to have any significance, then it must hinge on this notion that professionals make a bargain with society in which they promise conscientiously to serve the public interest - even if to do so may, at times, be at their own expense. That is, to be a professional is to face the very real prospect of having to act with moral courage.

While not wanting to suggest that corporate secretaries are required to be especially ethical or courageous, they do have the advantage of belonging to a professional association that can support them, if it is minded to do so. Individuals acting alone may feel unable to raise their concerns for a variety of reasons which might include: a lack of access to relevant information, concern about continued employment prospects and so on. Corporate secretaries enjoy peer support, which should be directed to helping them to discharge professional obligations - especially those relating to integrity, an orientation towards the truth and a commitment to the provision of independent advice.

Let me be clear, I am not suggesting that corporate secretaries ought to substitute their judgement for that of their employer on matters of policy. Instead, I am saying that corporate secretaries must not suspend their judgement in deference to those who exercise power or influence. That is, the critical assessment by corporate secretaries should bolster a more general tradition in which professionals provide impartial advice and service to their employer. To do so is quite consistent with a more general professional obligation to discern the difference between a client's interests and wants. This is to engage in the distinctive form of 'best practice' that informs the work of members of the professions.

Talk of 'best practice' frequently leads people to concentrate on a quasi-technical framework in which measurable standards are defined. The focus is on defining what constitutes superlative technique. But is this enough? Let me state clearly that I think it essential that people aim for technical excellence. However, to leave it at that would be to endorse the development of a lop-sided kind of practitioner who is only concerned with how best to prosecute the means to an end.

While a concern for means is important, let me suggest that the idea of 'best practice' should also encompass the development of skills, understanding and dispositions that allow for excellence in the assessment of ends. It can only be so if you accept my suggestion that corporate secretaries should play a vital and creative role in assisting organisations to exercise informed judgement. Informed judgement should reflect on the destination as well as the means of travelling! It is important to ensure that both means and ends can be justified. How many times have we heard statements that boil down to nothing more than a claim that 'the ends justify the means'?

It is possible that my discussion of this topic has enlarged the role of the company secretary well beyond what many people consider to be an acceptable boundary. In doing so, I am bound to have made life rather more complicated than most would have preferred it to be.

Unfortunately, it is difficult to see how the conclusions that I have reached could have been avoided. The world is a more complicated place for companies to negotiate. Many directors feel uncomfortable in this world and are ill-equipped to deal with an emerging paradigm of corporate governance that goes well beyond today's formal requirements. Where else, in the company, is professional assistance to be found?

References/footnotes:

1. See, generally Friedman, M (1962 and 1982), Capitalism and Freedom, Chicago, University of Chicago Press

2. Dunlop, Sir John, (1987) 'The Responsibility of Company Directors: Formulation of the Major Policies of The Company' in Dunlop on Directors, Sydney, The Institute of Directors in Australia.

3. Hilmer, F (1993), Strictly Boardroom: Improving Governance to Enhance Company Performance, Melbourne, The Business Library and The Sydney Institute

4. Collins, J & Porras, J (1994), Built to Last: Successful Habits of Visionary Companies, London, Century

5. Australian Council of Professions, (1993) Professional Services, Responsibility and Competition Policy: a discussion paper prepared for the Permanent Advisory Committee, August 1993, p. 1
 

Dr Simon Longstaff AO is Executive Director of St James Ethics Centre.