The changing nature of the J'can Corporate Boardroom (Part 1)
By Vindel Kerr, Contributor
GRACE, Kennedy & Company's decision of slashing board size from a massive 22 to 12, which took effect January 1, 2002, has been the most radical move by any local company to implement corporate governance self-regulation practices. Chairman & CEO, Douglas Orane, states that "a smaller board will cause us to be more nimble in the ability to make decisions". He is dead right. Herman (1981) of Cambridge University, and many other corporate governance researchers, have proven that large boards are usually weak boards, since these boards make in-depth discussions unlikely, and increase the prospect for diversity and fragmentation. Orane also observes that "another objective of the restructure was to rebalance the proportion of executive directors to external ones (non-executives)". In this article, I shall be examining issue of executive versus non-executive directors, and other emerging corporate governance issues.
SMALLER BOARDS
Whilst Grace, Kennedy's intention is also to improve the ratio of non-executive versus executive directors, a smaller board makes it possible for each director to become more intimately involved in board committee matters, thus adding greater value to the organisation. Taking this matter of smaller board size even further, there are emerging trends on the matter of evaluating corporate directors, to include chairmen too. Where this is practised, it is found that a smaller board provides more challenges for each director and thus his/her creativity, influence and deliverables are usually more visible and measurable.
One of the features of the table below is the current trend of board sizes around the world. One must be cognisant of the fact that the average turnover or sales of the corporations studied in the countries highlighted in the table, is in excess of twenty times that of Grace, Kennedy, and other similarly-sized Jamaican companies. Research conducted by this author into 42 publicly listed Jamaican companies using data from the Jamaica Stock Exchange Year-book 2000, confirmed average board size to be eight, which range from 4 to 22. The statistical outlier at that time was Grace, Kennedy with a board size of 22, and the next largest board had 16 members. Given the fact that average board size of Jamaican companies in year 2000 was eight, supported by averages in table of this text, Grace, Kennedy's move is empirically justified.
YOUNGER MANAGERS
Maybe the most interesting and potentially beneficial element in Grace Kennedy's recent initiative is in its new policy of inviting young managers to make presentations at board meetings. This move will now give the long awaited opportunity to many young, bright, innovative, talented and "globally-focused" managers a chance to prove their worth and to become more visible in the eyes of directors. In many companies, younger managers quite often become frustrated by not being given a chance through the boardroom door. If they excel, the possibility is greater to get the green light to move that well-crafted and packaged project. In other cases, immediate bosses become the natural stumbling block to the progress of the talented young manager by not providing the deserved recognition and internal and external exposure. This strategy of an occasional presence at the boardroom podium and/or the white board should help the members of the succession planning committee to spot talent and to encourage challenges. In many companies where younger executives sit on some board committees, board members get a chance to provide on-the-spot executive mentoring and to build closer working relationships with those in whom the implementation of board directives are vested. In addition, this also gives board members an opportunity to provide early coaching, and the instilling of the importance of company loyalty, which ultimately will lead to a more certain and smooth transfer of executive power to younger managers.
Furthermore, there is overwhelming evidence pointing to the fact that executive's age positively affects organisational decision making processes and outcomes. Younger managers, for example, have consistently been found to be associated with innovation, risk taking and impacted company growth positively. Some studies have also pointed to older executives that they tend to be more conservative and less likely to initiate strategic change. They are very often quick to veto ambitiously proposed strategic changes, just for the sake of authenticating their seniority.
Next week in Part 2, I examine the inside and outside directors' role and that of Chairman/CEO duality.
Vindel Kerr is doctoral-student researcher on corporate governance at the Manchester Business School, England, and an international business strategist. Contact: vkerrl@anngel.com.jm
