Internet could end the cosy boardroom

Boardrooms have to wake up, directors have to get their hands dirty, and they have to take more risks.

That is the message from veteran Australian businessman and director par excellence Stan Wallis in a landmark address challenging boardroom conventions.

The chairman of AMP and Coles Myer, and a veteran of 35 years in boardrooms in Australia, New Zealand, Europe, North America and Asia, says the new economy will chew up boards that prefer to go by the book because they are cowed by institutional shareholders and the threat of legal action if they take one risk too many.

"There is little soundly based empirical evidence which indicates that best practice corporate governance delivers best practice outcomes for shareholders over the long run," Mr Wallis told a riveted audience at the Centre for Corporate Public Affairs in Melbourne.

"Business progress has always been about taking risk and you can never make big moves forward and eliminate risk by an excessive reliance on governance and due process."

For example, Mr Wallis argues that the corporately correct trend toward independent directors, which is supposed to make boards more accountable, does not do much for shareholders.

"Australian boards are already arguably the most independent in the world but our results aren't anything to boast about."

Mr Wallis says conforming will not cut it in the new economy where intellectual capital has become much more important than financial capital. He prefers to turn the current dogma on its head.

"We are now measuring the quality of corporate governance by ticking the boxes in terms of attendance, committees, chief executives/chairman roles, independent directors and so on.

"The trend to measure governance performance by listing the structures and processes in the annual report is trivialising the really important issue of board performance."

Damn the focus on correct procedures, Mr Wallis says. Instead of spending 80 to 90 per cent of its time on routine reviews of last month's performance and agenda issues about process and governance, boards need to concentrate on "the major issues that go to the heart of the success of the business over the next five to 10 years."

Directors must get stuck in.

"At present the life of a typical director is spent mostly pre-reading the board papers alone, travelling to a meeting and then participating in quite formal discussion around a heavily panelled table that is in so many ways very remote from the business that the board oversees," says Mr Wallis.

"In future directors will have to spend more time ... with management and employees, customers, suppliers and investors to gain a greater understanding of the business."

If that means fewer directorships, so be it. Mr Wallis believes his three chairmanships is one too many.

If the conforming, Australasian-style, post-1987 sharemarket crash board is so wonderful, why hasn't it worked better?

On the Wallis hit list are:

* A one-size-fits-all structure. "We are attempting to impose a uniform model, irrespective of the size, complexity and domicile of the corporation."

* The usefulness of monthly meetings. Mr Wallis points out that WalMart's board meets only four times a year but the 3600-store chain has been far more successful than Australia's biggest retailers, David Jones and Coles Myer, who meet 10 to 12 times a year. He favours fewer, higher-quality, longer meetings.

* The almost religious pursuit of independence from the executive. In the United States the opposite prevails, with about 80 per cent of companies combining the role of chief executive and president of the board.

In Britain, more than 50 per cent of directors are executives. In Europe, advisers and others who have relationships with the company are valued as directors.

* Failure to rate the performance of individual directors. Although half of all listed companies appraised the board as a whole, it was left to the chairman "to have a quiet talk with an errant director." Formal appraisal would work better.

* Compulsory retirement of directors. There was "justified resistance" to rigid formulas that forced good directors off boards by virtue of age. Mr Wallis favours tighter renomination processes for directors, depending on performance.

* The drift towards risk-averse boardrooms. "We need to accommodate entrepreneurs around our board tables, not suppress them."

* The preoccupation with financial and operational data. "Today, we often don't see the forest for the trees." Mr Wallis says boards should focus on "major, future-oriented issues."

* Inflexible remuneration. A percentage of directors' fees should be risk-based and probably include stock options, as in the United States.