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Liber Amicorum Prof. Dr. Abigail Levrau

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Governance - the Art of Aligning Interests

At the dawn of the third wave of governance Prof. Dr. Lutgart Van den Berghe is passing the torch as Executive Director of GUBERNA.

Being one of the founders of the “Instituut voor Bestuurders” in 1995 she co-initiated the merger with the “Association belge des Administrateurs”, giving birth to GUBERNA in 2008.

Under her leadership, GUBERNA has become the Belgian centre of expertise for good governance, combining rigorous and significant academic research with the practical knowledge of the extensive member network on which GUBERNA is uniquely able to draw.

Through her work, both at an academic and at a business level, Lutgart has earned the friendship and the admiration of numerous experts who, despite their different fields of expertise, are united in their passion for corporate governance. Many of these experts have also inspired and challenged her, contributing in their unique way to Lutgart’s aspiration of being “one step ahead”.

Together with those friends, we are proud to present these selected works on governance, which aim to honour Lutgart not only as the leader who made GUBERNA what it is today, but also as a driving force for good governance practices for over two decades and – hopefully – for many more years to come.

As Lutgart repeatedly iterated throughout her career, governance is a dynamic process in which “one size does not fit all” but which should be tailored to the type of company, evolving with the stage of its life cycle. “Substance over form” being the leitmotiv when implementing recipes of good governance.

In parallel, governance always aims to promote balanced decision making, resolving “agency conflicts” (through mechanisms such as the important steering role assigned to the board of directors) during the “first wave” and balancing shareholders’ interest (with recipes such as independent directors) during the “second wave”.

The contributions to this Liber Amicorum perfectly reflect this duality, highlighting on the one hand the evolutive and adaptive character of governance and pointing on the other hand to the basic continuity of the essence of governance: aligning interests.

This is still the case today at the dawn of the “third wave”, as fundamental questions are raised about the role of enterprises in society and as strategy must be developed in a digital and connected society, with new forms of cooperation and consumption.

The fascinating voyage we are inviting you on is strikingly illustrated through the drawing we selected for the cover: Pieter van der Borcht’s “Allegorie op de moeilijkheid van het besturen” (property of Rijksmuseum, Amsterdam).

This beautiful sixteenth-century drawing shows a large monster with animal heads, all facing different directions. It represents how division (referring at the time to the politically and religiously divided Netherlands) leads to lack of focus and mismanagement.

Not only does this drawing reflect the general theme of the book – the necessity of aligning interests –, attentive readers may also note the link with what we identify as the “new and third wave of governance”: the monster and its representatives are being carefully watched by the stakeholders (various religious and secular representatives of society).

Since aligning interests is clearly an issue of all times, this Liber Amicorum takes the reader on a rich voyage through the various instruments designed to achieve this noble and timeless goal.

Starting with the framework of hard and soft law, the first chapter highlights the importance of the new company code, which enables new ways of governance which will affect many organisations. For a start, although the new definition of “corporate interest” in the Code of Companies still requires a “for-profit” purpose, it nevertheless opens possibilities for the shareholders to more clearly guide the company’s managers and directors in the implementation of the company’s strategy.

Moreover, the chapter highlights that sound corporate governance principles should be supported by a relevant accounting framework, serving as an essential economic communication and reporting tool, which should, however, be contingent on the socio-economic context.

The new Belgian two-tier model is explained in a “crystal clear” manner and critically analysed, questioning the “purity” of the new dual system and emphasising a continued possibility of contractual division of powers between the supervisory and the management board.

The second chapter of the Liber Amicorum focuses on the different participants in the governance tripod (shareholders, boards and management), considering the angles of governance from their respective positions and viewpoints. The first article of this chapter introduces our readers to the Shareholder Rights Directive II and its set of rules aiming to ensure the effective participation of shareholders in company decision making. The second contribution builds on the same topic, analysing relevant data to propose links between shareholdership, voting modes and informed decision making.

A particular interest is shown for the composition and dynamics of boards because, in the end, it always comes down to people. Based on empirical research, the contribution regarding the impact of board structure and composition on bank performance in Belgium stresses the importance of independence and reveals important trends to be taken into account in bank governance. The study on board effectiveness in FTSE 250 companies, carried out by interviewing 30 board members, confirms that directors’ perspectives are shaped by the range of experiences they have had in their lives. This study strengthens the model promulgated earlier by Abigail Levrau and Lutgart Van den Berghe and confirms that the relationship between board composition and effectiveness needs to be expounded further.

That is exactly what the following contribution of this chapter does: it addresses the influence of board members’ personality on board dynamics, presenting the first and promising results of a pilot study carried out during GUBERNA’s board simulation module, sowing the seeds to further explore personality characteristics of individual directors.

In the same vein, the next section perfectly illustrates how boards could benefit from uncovering and sharing their mutual experiences of being-in-the-board and how a reflective evaluation process, including behaviour within the board, may strengthen the board’s performance and make the difference, especially in an era where artificial intelligence is advancing fast.

Strategy, of course, remains a key driver for organisational success. Deciding upon the strategic direction of the organisation is one of the essential roles of the board, in interaction with the management. An increasingly complex topic over time, our Liber Amicorum’s contribution proposes a layered approach, combining the traditional recipes with insights from new theories on disruption and turbulence, and presents recommendations on how to do this in practice.

The drivers of executive remuneration and its impact on behaviour, as set out in the next section, demonstrate that boards should carefully assess and critically benchmark the various practices in this matter, and align them with strategy and the creation of long-term value for shareholders and society at large.

As mentioned before, there is no “one size fits all”. The third chapter highlights the overall importance of aligning governance with the type, the size, and the structure of the organisation, including its ownership and all possible forms of cooperation.

Where listed family firms are concerned, we present you with an interesting, case-based paper pointing to the outperformance of such companies, resulting from a combination of steady family ownership, entrepreneurial drive and a multi-generational time-horizon on the one hand, and the fiduciary quality of the company’s governance context on the other hand.

The next paper on ‘Good governance in higher education’ reveals the changes in many EU Member states shaping a new education landscape, consequently affecting governance models of universities and higher education institutions. In these complex settings, good governance is a matter of ‘deserved trust’, involving enhanced autonomy with proper accountability towards all stakeholders, but especially the government.

Hospital governance is another rising subject, as the health sector is in the throes of change. In this article a plea is made for a clearer delineation of responsibilities and better equipped hospital boards in order to safeguard high clinical performance and quality of care services. In addition, it introduces the shift towards hospital networks and its governance challenges.

Collaborative networks is exactly the key topic in the next contribution. Although networks might be a successful means to coordinate different types of activity, they need to stay vigilant for potential failures. Diving into the heterogeneity of networks, the reader will discover the main features of an appropriate governance framework for networks to be effective and sustainable.

Taking this trend one step further in the final chapter, by introducing digital and other emerging technologies to facilitate connections, the article on sustainable platform economy challenges the conventional wisdom of governance, suitable for closed, hierarchical systems, but less for open inclusive ecosystems. Platform governance also puts the traditional regulatory environment to the test.

Nowadays, technology also impacts the performance of every single company. In this respect, the technology strategy deserves sufficient in-depth attention at board level. Our Liber Amicorum’s article adopts the point of view of a board’s chairperson to illustrate how this attention should be reflected in the composition of the board, the agenda setting and the decision-making processes.

In a highly volatile environment (the so-called VUCA world), agile decision making is a must but requires a different mindset (‘logic’), an awareness of biases and space for co-creation. This paper presents a model that should be used by the board to proactively agree about the type of managerial logic and to open the door for co-creation.

The changing ‘Zeitgeist’ also triggers a more philosophical reflection. This paper demonstrates in a unique style that governance has shifted from a legal and technical subject into behavioural ethics, intertwined with politics and ideological environments to become an ever-expanding field competing with, or being part of, management science. Indeed “the times they are a changing”.

The Liber Amicorum closes with an absolute must: the bibliometric analysis of the field of corporate governance presents an interesting overview from varying angles, such as the relevant articles and journals, the most important authors, patterns in different countries, as well as its evolution during more than 30 years.

We sincerely thank all the honourable experts for their contributions in this Liber Amicorum that will surely become a reference for the future evolution of the practice of governance that is facing important challenges.

In a society where a fundamental debate is ongoing about their role, enterprises can no longer expect to remain competitive in the long run if they destroy the ecosystem in which they operate.

At the same time, we live increasingly connected and social media provides a constant window on the outside world. Every individual can share his or her opinion unsalted (and sometimes thoughtlessly) worldwide. The press follows, at least to a large extent, the competition started by social media to serve truths and untruths faster and faster to the largest possible audience. The continuous (inter) connectivity allows big data to be collected which forms the new raw material on the basis of which citizens and consumers can be approached and influenced.

These factors influence business models and fundamentally question the strategy of companies. The strategy must be developed in a digital and connected society, with new forms of cooperation anddifferent consumption models. Not only “financial capital” but also “human” and “ecological” capital should receive attention.

New and different kinds of cooperation lead to different kinds of ownership. In several sectors, ownership becomes more concentrated. Also, we witness among some shareholders an increased focus on responsible investing. Those shareholders want their investments to have an impact.

Meanwhile, civil society demands fairer, greener and healthier organisations. Civilians, consumers and employees use their individual and collective powers to influence decision making at all levels. Social enterprises are on the rise, and the Sustainable Development Goals 2030 assign to all companies a decisive and growth-oriented role on the road to a sustainable economy.

Evidently, governance has a vital role to play in the framing of the company’s interests, starting from the shareholders, but also taking into account the stakeholders and the social context in which the company operates, and aligning all these elements.

Minding the example of her founder Lutgart Van den Berghe, GUBERNA will continue to conduct relevant and robust research, and interact with its members and partners to guide them through this new third wave of governance.

GUBERNA truly believes that better boards lead to better organisations and that better organisations contribute to a better world.

While editing this book, we have realised that Lutgart and GUBERNA have been evolved in many of the governance reflections tackled in the various papers. Of course, we sincerely hope that Lutgart will continue to contribute to this development of governance, as one of the most outstanding experts of all times and as dedicated member of the GUBERNA Board.

There is no waving goodbye to three waves of governance

Sandra Gobert                               Prof. dr. Abigail Levrau

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Agenda

10 dec 2019
BNP PARIBAS FORTIS Brussels
Alumni Event
guberna
23 jan 2020
Brussels
Member Event
guberna

Liber Amicorum Prof. Dr. Abigail Levrau