There are a few quality-of-character checks I perform when looking at a company. One of these is a close squint at the biographies of Directors, especially the Independent Non-Executive ones (the INEDs).
Red flags include suspiciously young Directors (often family being groomed), suspiciously well paid non-Executive Directors (often family collecting stipends) and INEDs with more than a couple of other INED gigs at unrelated companies (i.e. rentals).
Directors I never have a problem with are academics with no other company affiliations who have specialist knowledge of relevance to the operations of the company they’re watching over. I can, I believe, assume these are people of integrity. Moreover, they face significant reputational downside in their academic careers if the company they’re affiliating with badly misbehaves.
Research highlighted today from Yue Cheng (et al.) from the School of Management at the Cranfield University in England confirms my hunch.
They find, from a detailed study of Chinese companies; “..that a higher proportion of academic directors is linked to stronger CSR performance, especially in non-SOEs and high-tech firms.” They further highlight the mechanism at work: “Analysis of underlying mechanisms reveal that they contribute through both resource-provision and monitoring, with greater effectiveness linked to their broad industry experience, prestigious education, audit committee membership, and long tenure.”
As an aside the research notes nearly 70% of Chinese companies have at least one academic Director which they attribute to the lack of fungible management talent in the system. Unlike the situation in the U.S. and elsewhere where there are always retired ‘Titans’ looking for something to do (often for preposterous fees). I know whom I trust more to look after my long-term interests!
You can read the paper in full via the following link Academic Directors and Corporate Social Responsibility.
Happy Sunday.