When corporate governance follows social changes of the society

In his latest book, Pierre-Yves Gomez, Director of the French Institute for Corporate Governance (IFGE), defines corporate governance as “a set of legal, regulatory or practical measures that define the extent of both the power and the duties of those who are responsible for the sustainable leadership of a company.” Above all, governance is expected “to be legitimate, when it comes to making strategic choices. That legitimacy continues to evolve — in line with the changes in society. The legal framework, new ways of doing things, the difficult issue of equality — all these different changes in the way decisions are taken at the highest levels of companies were the subject of a recent conference. Entitled ‘Corporate governance: After 20 years of transformation, the new challenges’, the event was held on December 13, 2018 at the Paris campus of the emlyon business school.

Separating the roles of the board and executive committee

If the board of directors is the brains of a company, the executive committee are the hands that put its strategy into practice. A fair division of tasks is therefore the secret of a healthy company and a free flow of information. In fine, the board only gets involved in the choice of corporate strategy and the monitoring of results. The operational management of a company is carried out by an executive committee and a chief executive officer. A CEO who is also the chairman of the board can take on the well-known title of ‘chairman and CEO. “In cases like this, trust and transparency are essential,” says Frédéric Oudea, Executive Officer of Société Générale. “While a board member has to know the corporate strategy inside out, they also need to avoid the trap of taking over the role of manager and effectively “taking the place of, or short-circuiting, the executive committee.”

“In cases like this, trust and transparency are essential,” says Frédéric Oudea, Executive Officer of Société Générale.

An external board member: A specialist who is readily available?

At the same time, this should not prevent board members from being fully engaged. “When it comes to dealing with strategic business, there is no room for scruples about whether or not to ask questions, judge the effectiveness of the board, get involved, gather feedback… all of which is essential for personal development and for learning,” says Frédéric Oudea. The only warning to be heeded — don’t end up being seen only as a ‘specialist’ in a particular skill or market, which would limit their progress within the company. “It’s a great intellectual exercise!”, says an enthusiastic Justine Ryst, Southern Europe Content Partnerships Director at YouTube, who became a board member of La Compagnie du Mont Blanc after obtaining her “Objective: Female Board Member” certificate from emlyon business school. “Don’t be afraid of going into areas that you’re not familiar with — and providing fresh insight; it can be a real advantage!”

Boards on the lookout for more women members

That comment reflects the experiences of women in senior positions at companies. Most of them suffer too often from ‘imposter syndrome.’ So, does success depend solely on a woman’s ability to take the opportunities that arise? The debate is wide open and stereotypical views are still very much alive and well: women represent only 15% of the executive committees in France’s 120 biggest companies. Only Sophie Bellon, Chairwoman of the Board of Directors at Sodexo, and Isabelle Kocher, Chief Executive of Engie, have senior posts in CAC 40 companies — where 100% of the chairman and CEOs are men. “Men are born to be on the board, but women have to be trained,!” jokes Marie-Jo Zimmermann, a former member of France’s National Assembly and co-author of the Copé-Zimmermann Law. A lot remains to be done before gender ceases to be the determining factor in a person’s career path.

Only Sophie Bellon (picture), Chairwoman of the Board of Directors at Sodexo, and Isabelle Kocher, Chief Executive of Engie, have senior posts in CAC 40 companies.

Legislation is changing, companies are adapting

Legislators have intervened in this issue to try and remove the obstacles. In January 2011, the Copé-Zimmermann Law attempted to open a breach by introducing a principle “on the balanced representation of women and men within boards of directors and governance committees, and equality at work.” In practical terms, after a minimum level of 20% established in 2014, the law since 2017 has been encouraging the recruitment of board members from the least represented gender to reach 40% — to create a balanced representation of women and men on boards and governance committees. The acceleration of this process sometimes requires specific training for women, courtesy of programs such as “Objective: Female Board Member” certification. Bringing together the emlyon business school and HeR value, the course aims to encourage women to become “leading players in governance” and has recently produced its 15th set of graduates.

Another area where lawmakers have played a decisive role is in France’s 1987 law on the representation of employees on boards of directors. It aims to bring staff members into the boardroom, so that companies become more representative of all their various stakeholders. The law authorizes trade unions to select two full board members and two alternate members from among the staff of companies with more than 25 employees.

A decision based on joint thinking

As a rule of thumb, the bigger the company, the bigger the legal framework and the more numerous the stakeholders are going to be. As a result, boards can help their decision-making process by creating committees. “Committees are there to provide information, but not to take decisions. They find out information and offers their thoughts to the board,” underlines Frédéric Oudea. Numerous recommendations have been made on the subject by the French Association of Private Companies (AFEP) and the Movement for French Companies (MEDEF) in a joint annual report. The priority areas? Audit committees, appointments, and remuneration. It’s worth noting that now is a good time to create committees dedicated to technology, the digital transformation and the environment, so that companies are ready to face the challenges of the future.

Governance: Evolving over time

People should never have the impressioin that a board of directors is completely disconnected from the rest of society. On the contrary, “The way that companies and boards are evolving is a reflection of the changes in society,” says Pierre-Yves Gomez, who identifies three major stages of transformation, based on the experience of Société Générale’s board of directors. “Before the 1990s, the very idea of an independent board member simply wasn’t an option: “At the time, it was unthinkable that a non-shareholder should pass judgment on corporate strategy.” At the time, 74% of the board was made up of company executives! Just 1% were external, independent members and 4% were employees. In those days, the company was a closed shop — and it remained that way until 1985, with the rise of financial services and the globalized economy.

From 1990 onward, “companies became more international at heart” and financial expertise increased. “To become a chief executive, you have to be a financier.” The structure of the board also began to open up, with an explosion in the proportion of independent external members, which has reached 46%, and while staff representation has doubled to 9%. Since 2010, the digital transformation of the economy has led to the formation of much more balanced boards. Today, around 30% are independent external members[2], 15% represent stakeholders, 30% are executive members and 25% are employees. However, before people start getting carried away… while the board members have an important role to play, they need to falling into the trap of becoming too disconnected from the executive committee. Governance is something in perpetual motion!

Timothée Barrière (with Laura Sarfati)