An exploration of the challenges facing today’s boards

Dambisa Moyo, the Zambian-born economist and writer, was on stage in 2010 at the annual meeting of a board on which she served when a shareholder asked the chairman, while gesturing at her: “What are the credentials of that statutory board member that she would be allowed to sit on this company’s board?” Since she was the only woman on the board and visibly from an ethnic minority, the suggestion was clearly that she was a diversity token hire.

Moyo had impressive academic credentials and a successful career at the World Bank and Goldman Sachs. She had also produced an acclaimed book attacking the ineffectiveness of government-to-government aid in Africa and was an accomplished speaker on platforms around the world. Given that the company’s annual report included descriptions of the education and work experience of all board members, the questioner was displaying not only prejudice but ignorance.

Moyo’s new book draws on her experience as a non-executive director of a number of mostly large companies including SABMiller, Barclays, Barrick Gold and currently Chevron and 3M — a blue-chip tally that requires us to sit up and take note.

The most informative literature on how boards work tends to come in the form of postmortems — official reports or journalistic accounts of what went wrong at Enron, Lehman Brothers, RBS and other corporate train wrecks. By contrast Moyo offers a combination of a primer and an exploration of the evolving challenges that today’s boards face together with suggestions on how they should adapt to cope with heightened economic and geopolitical uncertainty.

On the basics of how boards are structured and how strategy is set, this sometimes leads to important but near-platitudinous injunctions such as “boards must regularly check that they possess the skills, knowledge and experience needed to fulfil their duties”. While the book claims to be an insider’s account, it spills few beans — inevitably so, given that Moyo is a professional non-executive.

Yet on areas of governance that remain controversial she has much of interest to offer, starting with the purpose of the company. Moyo highlights that lobby groups such as the US-based Business Roundtable have moved recently to adopt a more stakeholder view, whereby directors owe duties not just to shareholders but to customers, employees, suppliers and the community.

What emerges clearly from her discussion of specific board decisions is that large, complex multinational companies simply cannot operate as pure profit maximisers in a world where societal pressures for environmental consciousness, gender and racial equality and employee advocacy affect the company’s licence to operate. Moyo writes well about the rapid evolution of the concept of corporate culture and the broadening demand for social responsibility in an environment of low trust in business and increasing pressure from institutional shareholders.

As for diversity, she makes a powerful case for how race and gender can bring valuable insights to boards, but is conscious of the potential pitfalls. It is dangerous for corporate performance, she rightly says, to allow identity to take precedence over skills. And there is a risk that competent minority candidates may be tainted as only being there because of their race and gender rather than their ability. That harms not only the candidate but board members’ ability to work together with mutual trust.

Throughout, Moyo puts special emphasis on the need for boards to put ethics and values at the heart of evaluating potential chief executives, equal in importance to financial performance.

Among the book’s suggestions for improvement, the least satisfying concerns what to do about short-termism. Moyo sees this primarily as a problem arising from investor pressure and boardroom failures in understanding of risk,…