Two Italians walk into a bar

Two Italians walk into a bar and the bartender asks ….

No this is not the start of an inappropriate joke, worthy of referral to Tim Soutphommasane.

Earlier this morning, fellow Cat-Contributor Lucius Quinctius Cincinnatus wrote about company board diversity.  Having been given privileged with the keys to the executive Catallaxy wash room by DoomLord, Spartacus will take advantage of his ability to make comments in a post rather than in the comments section.

Lucius writes:

But I do agree that boards do need diversity of opinion. Sadly that is the one thing that is not diverse – groupthink is a common feature in Australia’s boards. And that’s because they are selected by the club network. You get a board position not because of your skills, experience or quality of thinking. No, you get a board position because you’re a member of the club or you know David Gonski and that you hold similar views to other club members.

There are so many more capable people that could sit on boards but are denied because of the club mentality. A mentality that has condemned Australian boards to consist mainly of superficial clones with no diversity of opinion. And a system that has rewarded the insiders by making it seem their numbers are small and thus bidding up their remuneration. Our boards have been captured by the mediocre. Where are the eccentrics? Where are the philosophers? The geniuses? Certainly not on any Australian corporate or government board.

Dear Spartacus has been on and around boards for a while and offers the following observations.

Firstly, boards don’t need cultural or gender diversity.  They need cognitive diversity.  Sometimes cognitive diversity is achieve through cultural and gender diversity.  Sometimes it is not.  It depends on the company and the circumstance.

A female investment banker does not really add to diversity if a board is already stacked with investment bankers.  Ditto a female lawyer on a board full of lawyers.

This is why externally dictated board quotas (from governments, from industry groups, from corporate governance councils) are not only idiotic, but destructive.  It is up to the shareholders/members of the company to construct a board that is optimal for the company and not for the cultural commentariat.

Secondly, to Lucius’ questions of Where are the eccentrics? Where are the philosophers? The geniuses? Well.  Believe it or not, there are some pretty talented and intelligent people on the boards of the large Australian companies.  You don’t get to run a large organisation by being a monkey in a barrel.  Yes there are some duds, but eventually, they are found out and retired.

But as to the eccentrics, philosophers and geniuses, quite often, they don’t want to be on public boards.  Being on a board is not as easy a job a people seem to think it is.  According to the Corporations Act, it is the board that is responsible for the management of the company, but for practical reasons, they delegate management to a management team.  But they are still responsible and accountable.

Yes mistakes are made.  Yes people are imperfect.  But what is the alternative?  Government ownership and management?

A bit of perspective please.

Follow I Am Spartacus on Twitter at @Ey_am_Spartacus

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21 Responses to Two Italians walk into a bar

  1. Roger.

    A mentality that has condemned Australian boards to consist mainly of superficial clones with no diversity of opinion.

    Donald Horne’s second raters are still very much with us.

  2. Roger W

    Surely, if any company hasn’t ensured it has the people on its board and in its senior management who are best able to maximize its performance and profit, it has failed its shareholders. Unfortunately, far too many companies seem to have forgotten these days why they exist at all. Too much virtue signalling, too little profit making, perhaps? Maybe linking all salaries/benefits/bonuses etc to company performance, including negative result paybacks, is the answer? Don’t hold your breath, though.

  3. Dr Fred Lenin

    We gorrah get more indigenius peoples on them bordes ,you gimme de name ah one haboriginal on them bordes, we wanna job like them ,one day a month for all the money they gets.an plenty of free grog . Eekwality for indigenius!

  4. Corporate Vagrant

    Seems to me there are essentially two breeds of directors. Those who quietly go about guiding a business toward plain value creation and those who politic their way through networks of patronage. There used to be little clubs around BHP and Amcor and NAB. Or PacDun, ANZ and NML. Today you have the Lowy/Gonski clique and so on, which generally offer comfortable landings for people who suck up and piss down. The seriously good ones are at solid performers like CSL and Resmed and, dare I say it, Macquarie.

  5. egg_

    A Scotsman, an Irishman and an Englishman walk into a bar…

    Global liquor supplier Diageo Board of Directors

  6. Driftforge

    You get a board position not because of your skills, experience or quality of thinking. No, you get a board position because you’re a member of the club or you know David Gonski and that you hold similar views to other club members.

    Part of this is that compiling a board is a branding process as well as a governance process. I’m involved in a startup at the moment, and having a board with ‘names’ on it is a significant plus in terms of attracting investment.

    The hope of course is that there is a degree of correlation between being a ‘name’ and being competent. And generally ‘names’ have both run their own company and done so with a degree of success. Or have enough wealth to be a rung or two up on others.

    There are so many more capable people that could sit on boards but are denied

    This is I suspect an issue of ‘define capable‘. When we are looking for a capable person to be on our board, we are looking for very different things than say a leftist academic might be. Track record making high level consequential decisions. Capacity for insight in the 20-30 year time frame.

    For obvious reasons, such people are limited in number and tend to band together. Efforts to disrupt this are ideological, not economic.

  7. Confused Old Misfit

    Firstly, boards don’t need cultural or gender diversity. They need cognitive diversity.

    YES!
    +1000

  8. Dr Fred Lenin

    Egg,white horse walks into a bar ,says “half scotch and water ,no ice “,Batman says “do you know there’s a scotch whiskey named after you ?” Horse says “what? Eric? “

  9. flyingduk

    But I do agree that boards do need diversity of opinion

    not necessarily: If your GP, your paediatrician and your midwife all agree that your newborne baby girl should not undergo female genital mutilation, it hardly improves things by bringing in the somali cleaner who says she should!

  10. egg_

    Dr Fred Lenin
    #2706582, posted on May 9, 2018 at 11:03 am

    Pay that!

  11. jupes

    Being on a board is not as easy a job a people seem to think it is.

    Yeah sure.

    When counsel assisting Geoffrey Watson estimated that Senator Sinodinos spent between 25 and 45 hours a year working as a director for AWH for a $200,000 salary, Senator Sinodinos replied: “Does that include travel time?.”

    Nice work if you can get it. LOL

  12. Nice work if you can get it. LOL

    1 – AWH was not AMP or CBA. Was not listed. Was not licenced (multiple times). Was not multi-currency. Was not multi-jurisdictional. Probably not even operational.
    2 – 1 example does not a pattern make.

  13. Clint

    Yes mistakes are made.  Yes people are imperfect.  But what is the alternative?  

    How about instead of giving them a slap on the wrist we start gaoling them and seizing their assets. If board members and executives were regularly gaoled and reduced to paupers then it would send a clear message to the rest of them to knock the shit off.

    Obied could use a few cellmates

  14. Waz

    As a moderately successful business type who is now semi-retired and more than self funded for the rest of my natural life, I verily fail to understand why anyone would contemplate a director role. All you get is a fee, that you probably don’t economically need and basically unlimited downside both financially and reputation-wise. The only reason that I can see for folk take on these roles is basically for the perceived prestige and vanity of it. It’s different if you have skin in the game, but that basically nonsensically precludes you as an “independent”. By all means be a “mentor” and business adviser, but if you have half a brain you should eschew directorships. Leave it to the dickheads of the world being beaten up in the Banking RC. Just my two cents worth.

  15. How about instead of giving them a slap on the wrist we start gaoling them and seizing their assets. If board members and executives were regularly gaoled and reduced to paupers then it would send a clear message to the rest of them to knock the shit off.

    Do you want to wait until they are charged or even convicted. Why wait. Let’s lock em all up for having the temerity of joining a board.

  16. Procrustes

    Both blog posts have been thought provoking, so thanks.

    Sparty you say “But what is the alternative? Government ownership and management?”

    I think there is a worrying intermediate step – which those communists who run the UK Conservative government have well and truly walked down. That is: enforced reporting by companies of board diversity, company diversity and salaries and wages by gender. I think it’s actually worse than I’m describing – someone with more info might be able to fill in the detail.

    By the way – wasn’t Spartacus a Thracian?

  17. H B Bear

    Nice work if you can get it. LOL

    Arty knew exactly what he was there for – opening doors to his maaaates. Just like Used Carr at Macquarie, Bob Hawke in China, Paul Keating on the Barangaroo board and every other pollie that backs the truck up as soon as they have finished emptying out the Canberra office. He probably resented turning up to Board meetings at all.

  18. H B Bear

    1 – AWH was not AMP or CBA. Was not listed. Was not licenced (multiple times). Was not multi-currency. Was not multi-jurisdictional. Probably not even operational.

    With the exception of the specific requirements of the Listing Rules and Corps law, the requirement of public and private directors are exactly the same. Once a company is formed directors fall under their legal obligations, it doesn’t have to be “operational”, whatever that might mean.

    I’m sure you already knew that though.

  19. With the exception of the specific requirements of the Listing Rules and Corps law, the requirement of public and private directors are exactly the same. Once a company is formed directors fall under their legal obligations, it doesn’t have to be “operational”, whatever that might mean.

    Correct. But this point is material differences is scale, complexity and risk of different companies.

    Different boards, different issues, different workloads.

  20. H B Bear

    Agreed. A more interesting question is where certain (noted) directors sit on multiple ASX listed companies each of which faces the same level of operational and other risks you describe.

    The requirements of directors have been fully considered by the courts (HIH cases if I recall correctly) and anyone completely familiar with the law probably wouldn’t put their hand up in the first place as you post acknowledges.

  21. JohnA

    I know this is a serious topic, but
    Driftforge #2706510, posted on May 9, 2018 at 10:06 am

    I’m involved in a startup at the moment, and having a board with ‘names’ on it is a significant plus in terms of attracting investment.

    it sounds as if you need the Duke of Plaza-Toro.

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