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Boards and Stewardship

Corporate Governance

Boards and Stewardship

  • Boards and Stewardship Create long-term value by progressing to value-based governance. A look at companies such as Google, Apple, Facebook and Amazon (GAFAs) who have accomplished this.
  • Date: Jan 31, 2018
  • Category: Corporate Governance

Boards and stewardship: The evolution from mechanical governance to value based governance as a challenge to GAFAs

Are failed boards structured significantly differently? Board structures are more or less the same in any regulatory environment – the mechanism of governance that relates to gender diversity, board size, independence, board meetings, CEO duality, director compensation and ownership are similar for most companies. Failed boards might not be as different as one might imagine.

In many academic or investor’s studies, board elements are quantified, compared and tested to show that certain structures, such as gender diversity, are related to firm performance. However, the results cannot be generalised across countries as there is no ‘one-size-fits-all’ solution to corporate governance, due to differences in regulations, cultures or social norms. Forcing companies to follow certain governance structures might not lead to higher firm performance, as empirical results would suggest.

Mechanical board structures, at best, scratch the surface of governance. To build a relationship between board, governance and performance, we have to come back to the fundamental questions about governance and board. What is the role of governance? What do boards need to do to improve governance? This is what stewardship or values-based governance tries to address.

Today, some of the most influential companies in the world are the internet-based companies, such as the famous GAFAs (Google, Apple, Facebook and Amazon) and NATUs (Netflix, Airbnb, Tesla and Uber). By transforming their relationships with customers and employees, these companies are redefining wealth creation as well as social balance. How well governed are they for long-term success and for the wellbeing of society? Furthermore, should they care?

In a 2008 article, Caldwell et al. proposed that governance theories are concerned with four issues – how an organisation seeks to optimise performance and accountability, how values and goals are integrated within the systems and structures that are created, how leaders develop and maintain relationships that generate the commitment and cooperation of those who work with and for them, and how principles of leadership and management are formally applied in the conduct of organisational business. These governance issues relate closely to the board’s responsibility.

From a legal perspective, the board of a publicly listed company should bear responsibility for the company’s long-term wealth creation, a commitment to develop the interests of stakeholders, and the creation of company’s systems and structures to advance organisational goals. It becomes clearer if we view it from a stewardship perspective instead of a mechanical perspective.

Defining Stewardship

Stewardship is about fulfilling one’s responsibility in growing the assets entrusted such that they would be handed over to the next generation in better shape.

Stewardship is built on internal relationships, both with employees and with customers, suppliers and others. Well stewarded firms have solid foundations, building on these to develop capabilities that make them resilient to crises. Companies which declare a clear and distinct objective and align their values, structures and processes accordingly provide their managers and employees with clarity of purpose. Engaged employees make real contributions to efficiency and innovation, as well as operating margins and branding.

Stewardship is also characterised by a broader and longer-term perspective, as well as a deeper understanding of context. The impact of the firm’s actions today, as well as over time, will inform its strategic decision making and operations. Through their interactions with internal and external stakeholders, well stewarded companies gain the contextual intelligence and relationships they require to act as a constructive force in society, playing a positive role in the wider community in which they operate.

In essence, a firm needs to consider its impact on society, not just in achieving its stated purpose, but also in the totality of its operations and how these evolve over time. It must be willing to sacrifice short-term benefits for some for long-term gain for all.

Context for Fostering Stewardship

Are there certain characteristics across cultures that make a company more likely to survive and thrive? One study found that long-established companies had an ability to adapt to social, economic and political conditions and consumer needs.

The analysis revealed the common characteristics to these long-lived companies included:


Conservatism in financing, including making sure they had enough liquidity to remain flexible


Sensitivity to the operating context (their leaders were aware of the external world around them, noticing changes in their environment and helping the organisation to build capabilities to adapt)


Cohesion and company identity, which is sensed among employees (for example, there is a sense of purpose among employees and identification with company values)


Tolerance, regarding experimentation and outliers, which allowed them to stretch their conception of what was possible, frequently enabled by a decentralised structure and authority

The fact that there appear to be characteristics that are common to long-lived companies across cultures would suggest that there is a universality in stewardship orientation among companies in different contexts.

Steward Leadership

Stewardship requires leaders with a vision of long-term benefits, who can communicate this to their employees. They recognise that stakeholder interests may not always be aligned, and that their role is to balance these to create value not just for the organisation but for societal stakeholders too. Through consistent and reliable performance, as well as integrity, steward leaders build the trust that engages employees, while allowing for optimal interactions between stakeholders.

Rooted in compassion, equity, prudence, accountability and care, the behaviour of steward leaders can be characterised by three seminal attributes. First, leadership by impact. Transformational leadership occurs when leaders make the interests of their employees a central concern, when they motivate employees and engage them through enhanced awareness and acceptance of the organisation’s purpose and mission, and when they inspire them to look beyond their own self-interest for the collective good. Second, safeguarding the future. When stewardship is embedded within organisational culture, the commitment of the firm targets the long term. Relationships are based on trust, structures are decentralised and power is distributed, and employees are motivated to contribute to the company’s purpose in the long-term. Third, driving social good. Staying in touch with external and internal stakeholders’ expectations of the company and minimising discrepancies with the leader’s expectations helps to ensure solid relationships, ensuring that there is a positive two-way exchange between the corporation and its broader societal context.

The Board and Stewardship

To accomplish objectives of long-term value creation, preservation and sharing, the board needs to be able to make informed and substantiated judgements about the direction of the business and its capacity for growth. All directors, both executive and non-executive, need to have a good grasp of the company’s fundamentals, including its purpose and core values, its capabilities and risk profile, the stakeholders who are important to it, the relevant sustainability issues and its long-term strategic considerations, among other things. They must be able to keep sight of what is important to the company and decide, on that basis, and in a timely manner, what strategic changes or transformational actions are appropriate and are in line with the company’s core values.

The board also needs to communicate clearly with its various stakeholders, including investors, customers, employees and society-at-large. It has to keep them informed, balance their concerns and manage their needs and expectations, which may vary widely.

The chairman plays a central role in the board’s practice in good stewardship. He or she needs to ensure that the board has the right composition, and sufficient preparation and capabilities to fulfil its responsibilities. This would include ensuring that board members stay updated and engaged about the company, managing meetings efficiently, and encouraging board members to acquire relevant skills and knowledge. Sometimes the chairman, together with the relevant committee, may even have to make the decision to replace certain board members who are unsuited for the company’s needs.

In 2014, the Uber board was dominated by short term, sometimes conflicting interests of direct investors or main stakeholders (founders) with no diversity and a former government official for lobbying power. The board was only concerned with short-term issues, which has had significant consequences for the company’s culture and long-term viability. It allowed the development of a somewhat abusive, certainly sexist and subsequently dysfunctional corporate culture that resulted in the departure of founder and CEO Travis Kalanick. Before that, the company faced many adverse headlines, underpaying drivers, spying on customers or on competitors, deceiving law enforcement, false advertising and more. Many of the influential high-tech companies seem to suffer from that syndrome, though for some, the issues have been less pronounced. Look, for example, at the tax structures chosen by most of the organisations in question. Google made headlines with its double Irish organisation, but Google’s case is far from unique. The question, then, is how sustainable are they, when organisation lifespan is shortening, even for industry behemoths? And even more fundamentally, their boards should ask themselves, what kind of society they are creating?

The Board’s Stewardship Mandate

An effective tool toward sharpening the focus of the board’s stewardship perspective is the development of a board mandate, or a formal statement outlining the company’s purpose, how it wishes to be known to its stakeholders and what drives its business direction. This mandate summarises the company’s fundamental characteristics, such as its charter, its core values and principles, its appetite for risks, its culture and aspirations, as well as its approach to business and sustainability.

What differentiates the mandate from other forms of information about the company is that it can be used as a framework to guide the company’s long-term development. Because it clearly sets out the company’s character and definitions of success, the board mandate provides a useful baseline for decision making at the highest levels – for instance, does a particular strategic action, such as a major acquisition or an expansion into a new market, fit with the company’s purpose, or even its profile of what it is or what it wants to be as described in the mandate? Family businesses are used to that process and are often naturally value driven by long-term visions.

A mandate, or any other aspect of stewardship, that is created or executed as a box-ticking exercise will make little difference to the company. Here, again, the chairman could play a prominent part in developing the mandate and ensuring its relevance to the board when it comes to application in practice. So does diversity. And so does classical governance, when done with the right spirit.

In conclusion, the board’s role is inextricable from the principles of good stewardship. It involves a deep understanding of the company, the stakeholders and the community where the company operates. It is multifaceted, involving decision making on short-term and long-term matters, needing attention on tangible and intangible assets, as well as encompassing focus that sustain the well-being of the company and community alike. And, in fulfilling that role, each member of the board, indeed the board as a whole, must make a commitment to the sound custody of the company on behalf of all stakeholders. Ultimately, the role of the board does not lie in the mechanical application of governance principles, including composition, structures and processes. It is to be the trusted steward of the organisation it steers.


Didier Cossin and Abraham Hongze Lu, written for the Financier Worldwide.

Didier Cossin is professor of finance and governance and Abraham Hongze Lu is a research fellow at IMD. Mr Cossin can be contacted on +41 (21) 618 0208 or by email: [email protected]. Mr Hongze can be contacted on +41 (21) 618 0505 or by email: [email protected].


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  • Tags : Board, Stewardship, Steward Leadership, Governance, Mandate.

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