Is the current model of governance enough for modern business?

As Carlos Ghosn faces punishment after being accused of misrepresenting his earnings at Nissan, I think this is a classic example of when CEOs believe their own rhetoric and how business governance is failing to safeguard big business in modern times.

Mr Ghosn’s good reputation had grown exponentially after saving the Japanese car manufacturers Nissan from near-bankruptcy. Mr Ghosn was also responsible for uniting Mitsubishi Motors, Renault and Nissan in an alliance where he stood as both CEO and Chairman for the alliance.

The well-respected and loved businessman’s reign has ended abruptly after being hit with criminal charges accusing him of underreporting his income by about 5 billion yen (£35 million) over five years up to 2015.

With no clear, immediate successors or succession plan in place, the Renault–Nissan–Mitsubishi partnership’s future is unclear. Stock prices for all three entities took a nosedive after news of Ghosn’s arrest, proving that trust in Japanese governance is weak – and with the downfall of such a well-liked and connected businessman, will interim CEOs have enough influence to keep the business afloat? More importantly, it must be asked how can we stop this from happening time and time again? Not for the sake of those in leadership roles, but the businesses themselves.

In this particular case, following Ghosn’s arrest, it must be questioned as to why cracks in the system were not spotted earlier. A business being ran by one leader (once thought infallible) without intervention from senior board members was a recipe for disaster and to be honest, just highlights the risk of having ‘all of your eggs in one basket’.

It’s apparent that the current model is not working. Simply increasing the number of board members sitting on boards and attempting to police business is a strategy that has been ineffective. The Plan B needs to firstly be more fluid to deal with business today and secondly, in a more controversial stance – I think it is time that Plan B became Plan A. In these situations, being proactive is far better than reactive.

With the Securities and Exchange Commission rumoured to be potentially investigating Nissan regarding their executive pay practices, the risk is tighter regulation will emerge as the solution to bad governance practices. Sadly, this solution fails to consider what is the root of the cause – which is that Board governance needs a major overhaul. It’s time to recognise that the Board structure is no longer fit for the purpose it was intended to serve. There is a huge opportunity to disrupt and reconstruct and create a new model for governance. The question is are businesses and Boards brave enough to take up the challenge?

We need to move on to a model of governance that can stand up and hold its own against modern business. We need to leave behind static boards of directors and move towards being dynamic.

Bringing an end to a ‘big boys’ club’ of boards and committees with seats that are all about who you know rather than what you know, and replacing them with boards of directors who are experts in their fields to act in advisory roles would be a fantastic start.

For more difficult or unusual scenarios, having a network to fall back on when your experts are no longer expert will protect business. Being able to access a talent bank, readily available to bring their knowhow to the table is invaluable.