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Research Shows Board Directors Hampered By Compliance Issues

Should board directors contribute to strategy and leadership? Research from the University of Auckland Business School indicates that directors want to but feel hampered by compliance issues.

As most board activities are commercially sensitive, private and confidential, there has been virtually no research on this issue.

But an article entitled Board Directors and the Swamp of Compliance by Emeritus Professor Kerr Inkson of the University of Auckland, which was a finalist in the Business Research Translation Competition, reports interviews with 60 directors. This included 35 CEOs and 25 board chairs from the same companies, across a range of industries and firm ownership types, including commercial companies, public services and not-for-profits.

Inkson’s collaborators in the original research were Brigid Carroll of the University of Auckland and Coral Ingley of AUT.

Board directors are key to business performance. and have special abilities, experience and networks to offer. But what do they see as their role? And what do they actually do? Are they controllers, ensuring that their organisation meets its statutory obligations and safeguards shareholders’ interests? Or are they strategists and leaders who use their abilities, experience and networks to guide, inspire and innovate?

“By interviewing a large number of NZ board directors, we were able to determine their mind-sets - broad patterns of thinking that determine actions - concerning their governance roles and experiences,” says Inkson.

The research found that in practice compliance-related tasks often took over meetings, dominating both time and talk, and ensuring that more time was spent on those issues rather than on strategic direction.

Thus, while involvement in strategy and leadership represented an ideal for directors, concerns about compliance and control – the statutory requirements of the board – made the ideal almost impossible to attain. This indicated a conflict between the directors’ compliance and strategy mind-sets. To the researchers’ surprise this contradiction didn’t just apply to some types of board but to virtually all of them.

“Many boards members have huge energy, talent, and networks but their assets are wasted by confining them to important but mundane compliance tasks,” says Inkson.

Most participants could clearly identify the problem but did not know the solution.

“Directors need to reflect seriously on what they honour and lead their organisation by reframing the strategy/leadership mind-set as a complement to their compliance mind-set,” says Inkson. “This will enable boards to make the strategic and leadership contributions that create real stakeholder value.”.

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