University of St. Gallen - School of Business, Economics, Law and Social Sciences,
International Relations and Informatics (HSG)
Board Governance
Karen Anabel Keller
Tigerbergstrasse 2
9000 St. Gallen
+41 (0)79 122 92 99
karenanabel.keller@student.unisg.ch
20-612-693
Master Accounting & Corporate Finance
Universität St. Gallen
9,120,1.00 Board Governance
Prof. Dr. Michèle Sutter-Rüdisser
December 20, 2024
Board Governance
Karen Anabel Keller
1. An international Board View
Under the leadership of Dr Michael Joseph, Safaricom, a Kenyan mobile operator listed on the
Nairobi Stock Exchange, partnered with Vodafone in 2007 to launch M-Pesa, a groundbreaking
mobile money transfer, payment and microfinance service. M-Pesa has since revolutionised
financial inclusion across Africa, providing access to financial services to millions of people
with limited access to traditional banking systems (Vodafone, 2024). In his keynote speech, Dr
Joseph articulated that the ultimate goal of M-Pesa - and indeed the primary role of business is to positively impact people's lives. This vision positions him somewhat between the decadeslong debate between shareholder primacy, which focuses on maximizing shareholder wealth,
and the stakeholder approach, which prioritises broader societal benefits.
The debate between shareholder-centric and stakeholder-centric views has been at the heart of
the corporate governance literature for years. Milton Friedman (1970) argued in his essay that
the sole responsibility of business is to increase shareholder wealth in accordance with the laws
and ethical customs of society. This idea—later referred to as shareholder primacy—has been
the dominant framework for decades, influencing governance practices around the world. In
other words, company law structures ensure that companies generally act in shareholders'
interests. Employees, creditors, suppliers, customers and others may have contractual claims
against a company, but the shareholders claim the heart of the company (Smith, 1998, p. 278).
Corporate actions should be driven by attention to the needs of its shareholders, usually thought
to be measured by share price, earnings per share or other financial metrics (Freeman & Reed,
1983, p. 88).
In contrast, Freeman & Reed's (1983) stakeholder theory suggests that companies have
responsibilities beyond just their shareholders. According to them, "the list of stakeholders
originally included shareholders, employees, customers, suppliers, lenders and society" (p. 89).
Long-term success depends on integrating the interests of all stakeholders. Stakeholders can be
described as any identifiable group or individual on whom the organisation depends for its
continued existence (narrow sense of stakeholder) or who can affect or is affected by the
achievement of an organisation's objectives (wider sense of stakeholder). (Freeman & Reed,
1983, p. 91).
In recent years, this idea gained popularity as companies increasingly address environmental,
social and governance (ESG) issues. Corporate governance frameworks, such as the OECD
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Principles (2023, p. 8), emphasise that business success and social well-being are closely linked.
They highlight the need for transparency, accountability and ethical practices to benefit both
companies and their stakeholders, including employees, customers and communities.
In my view, Dr Michael Joseph's perspective is closer to the stakeholder approach than the
shareholder primacy approach, but is ultimately better described as a ‘people impact first’
approach. While the stakeholder model focuses on balancing the interests of different groups,
Dr Joseph's vision, particularly through M-Pesa, prioritises empowering individuals and
improving lives through financial inclusion. His primary focus is on creating direct social
impact for underserved communities, rather than managing the interests of all stakeholders. As
such, I believe his approach is more about people-centred impact than the traditional
stakeholder model.
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2. Panel: Board Governance in Action
For many entrepreneurs, an Initial Public Offering (IPO) is considered to be the ultimate sign
of success. It is one of the most transformative decisions a company can make. There are
excellent reasons for going public in terms of wealth creation, operations, and funding.
However, the path to an IPO is not only expensive, but also time-consuming and requires
significant changes to a company (Bragg, 2009, p. 3 f.). A company has to be prepared to
comply with the structural and regulatory requirements as well as with the increased scrutiny
of the public. In addition, understanding the IPO landscape is crucial as it fluctuates with
economic cycles, world events, political shifts and regulations. Knowing when to act and
having a well-thought-out plan in place can make all the difference in seizing the right
opportunity for growth and lasting success. (PwC, 2022, p. 3)
According to Valeria Ceccarelli of the SIX Swiss Exchange Executive Board, the IPO process
consists of three distinct phases: IPO preparation, IPO execution and being public.
The first step is to build an internal project team, including members of Management and the
Board of Directors, as well as external professional partners with extensive IPO experience who
can help navigate the complexities of the process. Choosing the right partners, such as
investment banks, lawyers, auditors, IPO advisors and a primary market team, is key to a
successful IPO. (SIX, 2023, p. 8, 15)
Preparing for an IPO also involves establishing capital market-ready internal structures,
including robust functions, systems, processes, and corporate governance practices that meet
regulatory expectations. This foundation supports the key elements that appeal to potential
investors: transparency, accountability, and operational efficiency. Equally important is
developing a compelling equity story that effectively communicates the company's unique
value, growth potential, and competitive positioning, aligned with an understanding of
investors’ perspectives and expectations. The equity story should be concise and
comprehensive, underpinned by reliable financials and reassuring facts that demonstrate the
company's performance and potential in a way that inspires investor confidence. To manage the
additional workload associated with IPO preparation, companies must allocate adequate
resources and bring in specialised talent to ensure that all requirements are met without
overwhelming the existing team. For the Board of Directors and Management, choosing the
right stock exchange for a company’s IPO is a critical strategic decision that demands a
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thorough assessment of all potential listing venues. This comprehensive preparation phase is
critical to a successful transition to a publicly traded company. (PwC, 2022, p. 5 & SIX, 2023,
p. 21, 26)
During the IPO execution phase, the Board of Directors need to establish a formalised project
management methodology to effectively oversee the work streams and deliverables to ensure
that all aspects of the IPO process remain on track. This includes active stakeholder
management through clear and communication to keep investors, employees and the other key
stakeholders informed. Skilled resources must be allocated to critical work streams, with
experienced professionals dedicated to navigating the complex requirements of an IPO.
Furthermore, it is essential that day-to-day business continues uninterrupted to ensure that the
IPO does not affect customer commitments. At the same time, companies should closely
monitor market conditions and competitors. The project team must be in control of a smooth
execution process, able to make informed decisions at any stage and adjust strategies as
necessary to adapt to changes in the external environment and maximise the success of the IPO.
(PwC, 2022, p. 5, SIX, 2023, p. 32 f.).
In the post-IPO respectively public phase, the Board of Directors need to maintain reliable
communication with investors and the public, which is essential for transparency and trust. This
also keeps stakeholders informed about the company’s performance and strategy. Strong
management and development of the business operations are equally important, as public
companies need to scale their business efficiently while meeting shareholder expectations. In
addition, effective management and control of business risks are critical to managing the
volatility inherent in being a public company. A stable base of committed investors is important
to secure the company’s market position and to attract skilled employees. These factors can
provide a solid foundation for a successful public company. (PwC, 2022, p. 5)
Personally, I agree with Ms. Ceccarelli that the preparation phase with the readiness check of
the company is key and requires a lot of time and resources. In addition, the Board of Directors,
as part of the project team, needs to create a compelling equity story, an action plan, a timetable
and a communication structure. Interaction with the relevant stakeholders, including SIX,
investors and employees, is also crucial. Finally, timing is key to a successful IPO and the
company must be prepared to answer all the "why" questions as the market reacts quickly.
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3. The Role of the Board Chair
Research on corporate governance has traditionally focused on mature, listed companies.
However, according to Zahra and Pearce (1989), companies face different pressures and threats
at different stages of their life cycle and therefore do not have the same corporate governance
requirements throughout their life cycle stages. Zahra and Pearce (1989) argue that “Boards are
expected to perform qualitatively different roles at various points of the cycle, as exemplified
by the different ways in which a Board performs its control function in an entrepreneurial form
as opposed to a well-established, mature corporation” (p. 298). The primary role of the Board,
according to the agency theory, is to monitor and control management on behalf of the
shareholders’ interests (Fama & Jensen, 1983, p. 301).
During the start-up phase, a new company attempts to become a viable entity. Typically, the
organisation is small and privately owned by one or a few individuals. The structure and
processes are simple, informal, and adaptable. Decision-making is generally based on intuition
rather than systematic analysis. The Board of Directors is usually small, consisting of the owner,
a few trusted relatives and the company's lawyer. With a narrow resource base, ownership and
control are concentrated among founder-managers and family investors, resulting in low
managerial accountability to external shareholders (Filatotchev, Toms & Wright, 2006, p. 260).
The control function of the Chairman is therefore qualitatively different in the start-up phase
than in established companies. The first key challenge for the Boards Chair in the start-up stage
is to ensure that the company has access to critical resources by establishing links with external
stakeholders. Another key challenge is to develop and implement the company's strategies and
actively shape their content. The main concerns of the organisation and the Chair during this
period are to secure financial resources for its survival and growth, and to establish legitimacy.
(Bonn & Pettigrew, 2009, p. 6 f.).
Based on its success in the start-up phase, the organisation is likely to expand the number of
employees, customers, and geographical contracts in the growth phase. A company in this stage
is likely to replace the founder with professional managers and develop a more formalised
organisational structure with a developed governance system. The key challenges for the Board
of Director planning to go public are to demonstrate organisational legitimacy to potential
investors and to initiate strategies by focusing on long-term financial and non-financial
outcomes. In addition, agency costs are likely to increase as managers tend to pursue their own
interests to the detriment of shareholders' interests (Fama & Jensen, 1983, p. 301). This
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increases the need for Board monitoring and controlling. (Bonn & Pettigrew, 2009, p. 7 ff.).
The role of the Chairman is becoming more about structuring the Board’s interactions,
establishing formal policies, and setting the standard for accountability and transparency as the
public pressure increases.
In a mature listed company, ownership tends to be widely dispersed and the organisational
structure becomes more formalised and bureaucratic. The Board of Directors at this stage is
large and composed of diverse members with a wide range of expertise, experience, and skills
(Hillman & Dalziel, 2003, p. 387). The Board of Directors face the challenge to maintain
regular dialogue with shareholders and other stakeholders and to set the strategic context. The
role of the Chairman is becoming more formalised and regulated to ensure that the management
decisions are aligned with shareholders’ interests and comply with legal requirements.
In summary, the role and practices of the Board Chair evolve significantly over the life cycle
of a company, adapting to new governance challenges and organisational structures. In the startup phase, the Chair often takes a hands-on approach, providing strategic guidance and support
to the founding team as it deals with early challenges. As the company transitions into the
growth phase, the Chair’s focus is on establishing formal governance structures to ensure
effective decision-making and information exchange with the Management. In the mature,
publicly listed phase, the Chair's responsibilities become more formalised and regulated,
emphasising the importance of safeguarding shareholder interests. As the person responsible
for drafting the minutes of the Board meetings of a medium-sized company, I see that the
Chairman should prioritise good governance practices, such as maintaining a clear distinction
between Board and Management responsibilities. Throughout the entire life cycle of the
company, a great Chair should lead the agenda of meetings and guide discussions rather than
dominate them. They should act as a sparring partner to the CEO and engage, enable, and
encourage other Board Members (Shekshnia, 2018, p. 97). Ultimately, the Chair sets the tone
for the entire Board and, indirectly, for the Management as well.
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4. Case Study on Patagonia
In September 2022, Patagonia made national headlines when it announced that a specially
designed trust and non-profit organisation would own and oversee the private for-profit
company. This novel structure, rooted in the Scandinavian concept of steward or foundation
ownership, uses a trust to create a mechanism for direct stakeholder governance. (Lu, 2024, p.
587). This transfer of ownership of the company to two new entities, the Patagonia Purpose
Trust and the Holdfast Collective, represents an innovative approach to ownership that keeps
the company private while ensuring that its profits and direction serve environmental and social
objectives. Patagonia founder Yvon Chouinard explains that 100% of the company's voting
shares will be transferred to the Patagonia Purpose Trust, created to protect the company's
values, and 100% of the non-voting shares will be transferred to the Holdfast Collective, a nonprofit organisation dedicated to fighting the environmental crisis and defending nature
(Patagonia, 2022). Unlike traditional public companies, this model is designed to prioritise
long-term value over short-term profit, aligning the company's mission with sustainable and
ethical practices. Patagonia's decision to adopt a foundation ownership structure raises the
question of how this model affects corporate culture differently from the typical shareholderoriented public company.
Foundation-owned companies are common in Northern Europe, with notable examples such as
Heineken and Ikea. Contrary to the predictions of conventional agency theory, firms controlled
by industrial foundations are, on average, as profitable as comparable firms with traditional
investor ownership patterns. These foundations are governed by their own Boards of Directors,
which are usually self-elected after the initial Board is selected by the founder. Members of the
Board of Trustees receive only fixed annual fees, which are generally somewhat lower than
those paid to directors of comparable investor-owned companies, and do not receive any shares,
stock options, or other incentive compensation from the company. Industrial foundations are
lightly regulated, with regulators retaining the right to replace a member of the foundation
Board only in extreme cases of gross misconduct. As a result, foundation directors do not fear
removal by shareholders and enjoy significantly more autonomy and less monitoring than the
Boards of most listed companies. Additionally, foundation ownership has the important
advantage of freeing a listed company from short-term stock market pressures, allowing
directors to focus on long-term profitability. (Hansmann & Thomsen, 2021, pp. 173-189).
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The separation of voting rights and economic incentives is a fundamental premise of foundation
ownership, where the Board of trustees includes stakeholders who are not solely motivated by
profit maximisation. This model bridges the trust gap between investors, the public, and the
company by separating equity ownership. Unlike traditional companies, where shareholders
have all voting and economic rights, the ability to direct the company's business is separated
from the potential to share in the company's profits. By allowing non-shareholder stakeholders
to hold voting rights and oversee the direction of the company, this model introduces a new
form of stakeholder governance. As long as those with the power to make decisions are aligned
with the mission of the company, steward-ownership is a powerful way for social enterprises
to differentiate their commitment to social impact. However, foundation-owned companies are
still subject to normal business risks, and imprudent Management can lead to losses and
bankruptcy, even without the added challenge of generating capital to serve a social mission.
The composition of the trustees is similarly important to the composition of the Board, but trusts
are difficult to dissolve by design, and misaligned trustees can have fatal consequences.
Therefore, those who oversee the trust must adequately represent the stakeholders involved.
(Lu, 2024, pp. 619-622).
From my perspective, foundational ownership presents an innovative approach from the social
enterprise sector, to address challenges such as climate change and economic inequality. By
establishing stakeholder governance through a trust, this model gives non-shareholder
stakeholders direct oversight and ensures that a company remains committed to its nonfinancial objectives. Patagonia's decision to adopt foundation ownership serves as a prime
example of how this structure can profoundly influence corporate culture. By prioritising
stability, mission alignment, and stakeholder interests, foundation-owned companies foster a
culture that is more socially and environmentally responsible, in contrast to the profit-driven
focus often seen in publicly traded companies. Patagonia maximises the environment and
prioritises environmental protection over maximising shareholder value. Nevertheless, the level
of transparency is lower than that of public companies.
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5. Insights into Board Work
Companies in the 2020s face a range of challenges, from the COVID-19 pandemic and
macroeconomic uncertainty to geopolitical tensions, supply chain disruptions and increasing
pressure on ESG standards (Spencer Stuart, 2023, p. 3). While crises have impacted every decade
in the past, today's challenges are different in “scale, scope, pace and interconnectedness”
(Spencer Stuart, 2023, p. 4). Companies often restructure and reorganise as a strategic response
to these business cycles and changing market conditions. In such transformative phases, the
role of the Board of Directors as a strategic guide is more important than ever and can make the
difference between successfully navigating a crisis and jeopardising the long-term stability of
the company.
In today's complex business environment, effective risk management must go beyond
traditional forecasting to include dynamic scenario and contingency planning. By building
crisis scenarios that consider multiple risks, simultaneous events and interdependencies,
companies can prepare for a wider range of outcomes. This approach emphasises the
importance of adaptability over prediction. A holistic risk assessment strategy should be
considered, as opposed to an isolated and bottom-up strategy. By adopting scenario planning
as an additional methodology, companies can respond quickly to unforeseen crises and build
greater resilience in an uncertain world. (Spencer Stuart, 2020, p. 7). The Board of Directors
and the Chair play a critical role in creating value by managing risk, shifting their focus from
simple monitoring to leadership by empowering Management to deliver. The Chair must
navigate the delicate balance of knowing when to take charge, when to collaborate, and when
to step back, allowing Management the space to execute its responsibilities effectively (Charan,
Carey & Useem, 2013, p. 1). The Board must avoid becoming too involved in day-to-day
operations, while ensuring that it remains sufficiently engaged enough to provide guidance and
support.
Dr. Felix Horber mentioned in the Q&A session that the Board must first of all reach a
consensus on what constitutes a crisis, as not every crisis is a corporate crisis. Crises can take
various forms, including reputational, financial and leadership crises. It is equally important to
have a manual that clearly outlines responsibilities for different situations. The roles of
Management and the Board of Directors during a crisis should be well-defined to avoid debates
over governance and task allocation. Additionally, according to Krause, Withers, and Waller
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(2024), effective Boards of Directors prioritise task simplification and clarity in their
communication and coordination patterns (p. 657). This approach facilitates timely updates of
information, allowing the organisation to remain adaptive when faced with a crisis.
Transparent and frequent communication among Board Members, Management, and key
stakeholders is essential for effective governance, particularly during periods of restructuring.
As highlighted by Halton (2016), clear communication minimises the risks associated with
misinformation and misalignment (p. 214 ff.). Regular updates on the progress of the
restructuring ensure that the Board is aware of emerging issues and can intervene in a timely
manner, if necessary. Moreover, the formation of specialised committees or task forces can
enable Boards of Directors to deal effectively with crises, make informed decisions and
improve the organisation's adaptability in times of reorganisation.
Even though every crisis is different, companies should learn from past experiences, which
includes a systematic approach to crisis management and scenario planning. During a crisis, it
is essential for companies to secure 100% engagement from all stakeholders. Board Members
should have the flexibility to dedicate their time fully to crisis management if necessary. No
one should leave the company during a crisis; instead, it is vital to stick together, especially in
difficult times, just as you would in better times.
In conclusion, companies navigating the 2020s face an array of challenges. I believe that the
effectiveness of any organisation today lies in its ability to respond with agility and foresight,
not only in its operations but also through the leadership of a strategic, engaged Board of
Directors. The role of the Board, and of the Chairman in particular, is not only to oversee
Management, but to act as a guide in navigating complex, often unpredictable crises. By
engaging in comprehensive scenario and contingency planning as well as emphasising clear,
transparent communication, Boards can foster a culture of resilience and ensure that the
company is prepared to adapt to whatever challenges lie ahead.
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Krause, R., Withers, M. C., & Waller, M. J. (2024). Leading the Board in a Crisis: Strategy and
Performance Implications of Board Chair Directive Leadership. Journal of Management,
50(2), 654-684. https://doi.org/10.1177/01492063221121584
Lu, R. (2024). Set It in Stone: Patagonia and the Evolution toward Stakeholder Governance in
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SIX Swiss Exchange Ltd. (2023). IPO guide. https://www.six-group.com/dam/download/theswiss-stock-exchange/listing/equity/ipo/six-ipo-guide-en.pdf
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Vodafone. (2024). Technology and Innovation: M-PESA. https://www.vodafone.com/aboutvodafone/what-we-do/m-pesa
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Tools
Tools
Utilisation
Affected parts
ChatGPT (OpenAI)
Grammatical and linguistic
improvement
Entire document
DeepL write
Grammatical and linguistic
improvement
Entire document
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Declaration of authorship
“I hereby declare,
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that the topic, the thesis or parts of it have not already been the object of any work or
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By submitting this thesis, I confirm through my conclusive action that I am submitting the Declaration
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December 20, 2024
Karen Keller
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