Governance on the Road – A Letter on Iceland from Professor Bob Garratt


This was my first trip to Iceland and I was impressed by two things.  First, the warmth and generosity of my welcome.  Second, the clear concerns over the future of the Icelandic society and economy following the 2008 financial crash.  Everybody I met expressed these worries but no-one had a clear view on how to address them.  They knew that developing effective Corporate Governance must be a key part of the solution but were unsure where to start, who to involve and how to create sufficient national momentum to resolve the current issues.  It is in a spirit of mutual development and international comparison that I have written these notes on my return.

  • Icelandic corporations are dominated by the power of CEOs. This has had a negative effect on the development of effective corporate governance for two reasons.  It has side-lined the sovereignty of the board of directors and thus weakened the role of the Chairman and the shareholders.  This is against the espoused hierarchy of powers outlined in the Chamber of Commerce Guidelines.  Yet whilst acknowledging the problem few people seem to want to tackle this issue.
  • Many people said that this was because Iceland is such a small society they are worried that the current web of family and political alliances will always rate maintaining such connections above promoting competence and professionalism, especially in directoral roles.
  • On the other hand there seem two forces for change that may help change this static thinking. First, the new generation of younger people who want to move towards a more professional and entrepreneurial business focus.  Second, the obvious growth in the number of women directors and chairmen.  On my first visit I was pleasantly surprised by this, yet puzzled as to how the younger generation and the women could better combine to achieve their stated purpose of creating more effective corporate governance across the private, public and not-for-profit sectors.

Despite the early work of the Chamber of Commerce and NASDAQ there seemed to be low appreciation of the international intellectual basis, nor ethical values of effective corporate governance.

  • The Company Law does not have a statement of the fundamental Duties of a Director;
  • There are no professionally qualified Company Secretaries in Iceland.  I feel that these are the structural underpinnings of any effective board – an Officer of the Board – yet the role is not appreciated;
  • The Chairman’s role needs major reinforcement by creating in each corporation a Chairman’s Office with its own developmental budget and small staff, quite distinct form the CEO’s office;
  • Given that the Guidelines stress the importance of shareholders there is little attention given to developing Investor Relations working with the Chairman.

Possible Future Developments 

For me much of the solution needs come from the creation of two new institutions as seen in many other countries currently:

 1) An Institute of Directors: This is to create a professional grouping to develop and assess levels of competence and continuing professionalism across Icelandic organisations.  The new generation seem interested in such an institution as was seen at the Diploma Awards ceremony at NASDAQ.  I suspect that a strong push from the women would also have a positive effect here.

2) An Institute of Company Secretaries: This is needed to create and develop this key board support role to allow the development of boards and directors in the private, public and not-for-profit sectors.

To create a truly national development process the nascent IOD and ICSA would need to develop in parallel with the development of the stock exchange to be able to prepare new companies for listing (like the Elite programme at the London Stock Exchange); and with the universities and entrepreneurial development programmes so that the new Icelandic economy can grow well beyond tourism and fishing.

I realise that these are very raw thoughts after only three days in Iceland.  But they are measured against developing corporate governance in some 25 countries and I offer them in the hope that they will be a small contribution to the development of Iceland.

Prof Bob Garratt



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