Just over twelve months ago (6 January 2016 to be exact), I wrote this muse, a reflection on both the state of corporate governance and the usage of the term. At that time, confusion over the use of the term 'corporate governance' was common, and the profession of director was shadowed somewhat by several high profile failures and missteps. The blog post seemed to hit a nerve, triggering tens of thousands of page views and searches within Musings; many hundreds of comments, questions, debates and challenges (including some from people who took personal offence that the questions were even asked); and, speaking requests from around the world. That many people were asking whether corporate governance had hit troubled waters and were searching for answers to improve board effectiveness was reassuring.
That was twelve months ago. How much progress has been made since?
At the macro level, seismic geo-political decisions; the rise of populism and the diversity agenda; and, risks of many types, especially terrorism and cyber-risk have altered the landscape. Also, new governance codes and regulations have been introduced to provide boundaries and guidance to boards. Yet amongst the changing landscape something has remained remarkably constant: the list of corporate failures or significant missteps emanating, seemingly, from the boardroom continues to grow unabated. Wynyard Group and Wells Fargo are two recent additions; there are many others.
Sadly, companies and their boards continue to fail despite good practice recommendations in the form of governance codes and (supposedly) increasing levels of awareness of what constitutes good practice. This is a serious problem: it suggests that, despite the best efforts of many, progress has been limited. Clearly, ideas and recommendations are not in short supply, but what of their efficacy—do they address root causes or only the symptoms? And what of the behaviours and motivations of directors themselves, and the board's commitment to value creation (cf. value protection or, worse still, reputation protection)?
That the business landscape is and will continue to be both complex and ever-changing is axiomatic. If progress is to be made, shareholders need to see tangible results (a reasonable expectation, don't you think?), for which the board is responsible. If the board is to provide effective steerage and guidance, it needs to be discerning, pursuing good governance practices over spurious recommendations that address symptoms or populist ideals. How might this be achieved?
An important priority for boards embarking on this journey towards effectiveness and good governance is to reach agreement on terminology, culture, the purpose of the company and the board's role in achieving the agreed purpose. If agreement can be reached, at least then the board will have a solid foundation upon which to assess options, make strategic decisions and, ultimately, pursue performance.
The level of interest in board effectiveness and good governance outcomes seems to be growing, or so it seems if the number of advisory, speaking and workshop enquiries that have arrived in recent weeks is any indication. Already, 2017 is shaping up to be busier than last year!
My first trip to the UK and EU for 2017 is scheduled for mid-March. The programme is starting to take shape, as follows. Commitments include speaking engagements (topics: the board's role in value creation, emerging trends and findings from my latest research), workshops (board capability development), advisory meetings and a training course.
If you have a question or want to set up a meeting, please get in touch.
EDIT (30 Jan): My diary is now nearly full—the only remaining opportunities to book a meeting are in London. If you want to meet, but not in March, or if you want to discuss the possibility of an engagement in the future, please register your interest. At this stage, it is my intention to return to the UK and EU in June and September.
One of the great joys of the holiday season is the opportunity it presents to let the mind wander, both to relax and recharge after a busy year, and to draw strength for the year ahead. Whether out walking, chatting with friends, completing personal projects or, more simply, sitting and reading, the time and space afforded by the lull in both business activity and the associated flow of correspondence is one to be savoured.
Amongst the books and papers that I have read in the past two weeks, the edited summary of a speech by Admiral James G. Stavridis at the National Defence University convocation in 2011 stood out. (Stavridis retired from the US Navy in 2013. He is now Dean of the Fletcher School of Law and Diplomacy at Tufts University.)
Stavridis offered the class of 2012 three keys to successful leadership in the 21st-century: read, think, write. The straightforward though wide-ranging message contained some real gems, applicable to leaders from many walks of life, especially those involved in demanding and fluid environments. Here are a few of the standout comments:
"The quintessential skill of an officer [leader] it to bring order out of chaos."
"Reading is the rock upon which you will build the rest of your career."
"We must think our way to success in incredibly complex scenarios."
"After you read, and think, I would argue you must write. Writing ... is essential in communicating what we have learned, as well as allowing others to challenge our views and thus make them stronger."
"Diversity of capabilities, capacities, and responses to any challenge should be seen as a strength, not a weakness, but only if action and tools can be used synergistically."
Stavridis said that collaboration, an innovative mindset and a preparedness to move quickly in response to emergent opportunities are crucial attributes if leaders are to meet and successfully overcome complex situations. The keys—of reading, thinking and writing—provide the foundation. However, a comprehensive approach is still needed: to bring together and synergise the talents of a variety of people from many different quarters, because no one person has all the insights let alone answers.
The parallels between the military examples mentioned by Stavridis and the business context are striking. If military campaigns are to be successful, generals must understand complex and fluid situations, deal with emergent opportunities and challenges, and make decisions promptly. Similarly, company success is contingent in no small measure on the effectiveness of the board as a decision-making team.
Despite the seemingly unending demands that press in, the most valuable asset in the director's arsenal remains: namely, the gift of time. How will you use it to your advantage in 2017?
This is the third update of several to summarise observations from the 33rd Governance Institute of Australia National Conference being held in Sydney this week. Here are the links to the first and second updates. (The final update, covering the second day, will be published tomorrow.)
This update includes observations from the late afternoon session.
The session was dominated by a panel discussion on the topic of culture and why it matters. John Price and Judith Fox, both of whom had addressed the conference earlier were joined by Peter WIlson (Chairman of the Australian Human Resources Institute) to discuss this important topic.
Fox and Price quickly established the strong correlation between positive organisational culture and company performance, although they did so through the 'back door': asserting the poor culture often leads to erosion of value. While this assertion is intuitively accurate, the next statement caught many in the audience off guard. The statement was, and I quote, "Good governance frameworks lead to good culture". Really? I looked forward to hearing how this might be. Sadly, the claim was not substantiated—the audience was left hanging. I was hoping for something more substantive than a straightforward claim. Fortunately, Wilson provided it—his comments caught the audience's attention.
Wilson tackled several myths of culture head on, reminding the audience that culture and performance are different; that a good culture is not a reliable predictor of high company performance (although the opposite is more reliably true as Fox and Price made clear); and, that culture can actually be measured, despite assertions to the contrary. Wilson backed up each of these claims with stories and/or evidence, all of which had strong practical undertones. Most notably, Wilson called out the importance of the board to set the 'tone at the top', and to insist (through reporting and walk-throughs) to ensure that the 'mood in the middle' is consistent and not, as is more common a 'muddle in the middle'.
Beyond the panelist's comments, my thoughts wandered to the title of Garratt's helpful book The fish rots from the head several times throughout the session. If the board is not leading by example, it is not leading at all.
You must give newly appointed Wells Fargo Chief Executive Officer Tim Sloan credit. No sooner had disgraced former CEO John Stumpf left the building, Sloan delivered a speech to all employees to apologise for the scandal that had beset the company. That Sloan delivered an apology is a good first step on the path towards redemption (the company boasts a long and proud history), even though "we're sorry for the pain" appears to be an apology for the angst employees faced rather than the fake accounts action itself.
Two things are especially notable in this case:
That Stumpf's (and now Sloan's) boss has both remained silent and appointed from within is very telling.
(Note to the Wells Fargo board: If you want to talk further, in total confidence, here are my contacts details.)
Former sharemarket darling, Wynyard Group, was put into voluntary administration this week. The announcement was made via a notification to the share market and notice on the company website.
The company was highly-valued, well-funded and governed by seemingly capable directors. Its products, software systems to assist in crime fighting, were seemingly in demand—evidenced by strong revenue growth since an IPO in 2013. Milford Asset Management, a shareholder, valued the company at nearly $120M at the time of the IPO. But Wynyard failed to make money, then or since. The result was inevitable: the company became caught in an ever-deepening hole that, in the end, was too deep to climb out from. When last traded, the notional value of the company had fallen to less than $40M. Now that the liquidator is involved, the residual share value is (close to) zero.
What went wrong?
Whereas some failures reported this year appear to have been grounded on hubris or fraudulent behaviour, such motivations do not appear to have been significant at Wynyard Group. The failure appears to have been more straightforward. Indicators have been visible for some time as well. Ultimately, the actions (or inaction?) of the board of directors need to be placed under scrutiny.
The company's business model was characterised by infrequent high-value sales (read: a lumpy revenue profile). The company also employed lots of highly-capable software engineers and other technical specialists. Effective cash management is crucial in such companies. Superficially, the company appears to have been carrying too much cost, suggesting that it took on expense too far ahead of the revenue curve. The company does not appear to have had a backup plan to be activated if revenue expectations were not realised (in either the expected timeframe or manner).
The market seemed to know there was a problem (track the share price over the last 18–24 months), yet the situation was allowed to continue seemingly without any major corrective action being taken. The company burned through over $140 million of shareholder funds. It's little wonder that the investors became bitter.
Why were the problems not addressed by the board much earlier? Was the board (which included several high-profile directors, three of whom resigned in May and June 2016) not in control as it should have been? Though present, were directors asleep at the wheel rather, in effect adopting a passive style of oversight—in contrast to that conceptualised by Eells, Cadbury, Garratt and others? Was the board captured by an optimistic outlook and charismatic management? More pointedly, who was actually in control? The early indications suggest that the company was being controlled by management—ineffectively so, as is now patently clear—usurping the board's statutory role.
What can we learn?
That Wynyard Group has now joined (unwittingly) a rather long list of companies of interest to governance researchers and MBA classes (adding case example of what not to do) is clear. This case will also, no doubt, be played out in the business media and by 'experts' in the days to come. In the meantime and regardless of whether Wynyard is wound up or continues to trade in some form, the case provides salutary lessons for boards elsewhere:
Boards should discuss these and related matters periodically, to ensure they are appropriately focussed on (and adequately equipped to pursue) the value creation mandate. A formal, externally-facilitated board and governance assessment (providing an outside perspective) should offer useful insights as well, so long as any recommendations arising are acting on.
Al Brown, restauranteur, television personality and colourful raconteur, has a way with words. In this vignette, he talks candidly about several things he has learned about running a business successfully. These include:
While Al's businesses would be correctly categorised as small-medium enterprises by most people, the principles are universally applicable. I commend this short clip to all boards, as a scene setter just before your next board meeting gets underway; and, to executive teams, as a reminder of three important elements of effective leadership.
How do these points fit with your understanding of effective business and board leadership?
I'm thrilled to announce that the Madinah Institute for Leadership and Entrepreneurship (MILE) has invited me to present a webinar entitled Influencing company performance, from the boardroom. The webinar will start at 3:00pm Saudi time on Sunday 2 October—to suit American, UK/European, Middle Eastern, African and Asian company directors and board members in particular.
For more information, click here. You'll need to register (free).
The following topics will be discussed during the 45-minute webinar (with an open Q&A session afterwards):
Reserve your place today!
One of the great challenges all business leaders face is the question of how to make an impact on the overall performance of the firm they lead. Boards are no exception. Effective boards are comprised of capable people who assess situations, make strategic decisions, and oversee management to ensure goals are achieved.
The challenge of leading well and making an impact on business performance is very real, especially in today's environment of fluid work patterns and declining levels of employee loyalty. Boards are responsible for company performance, yet they do not run companies directly (that is the job of the chief executive). How might boards respond to ensure firm performance goals are actually achieved?
Here are some considerations:
The importance of this last consideration should not be underestimated: if employees cannot collaborate effectively because crucial information is missing or hard to access, overall performance will suffer—period. The impact on employee morale, productivity and the bottom line is likely to be very significant.
The board needs to know how the business is performing relative to the agreed strategy, and the whether expected outcomes and associated benefits are being achieved (or not). Financial reports only tell part of the story. Employee engagement is an important though often overlooked indicator. If your board isn't sure whether employees are fully engaged, it needs ask the chief executive some probing questions; request a staff engagement survey; seek regular updates from senior managers (in addition to the chief executive); or, pursue some combination of these and other options (*). If employee engagement is low or any inconsistencies are discovered, weak information flows or ineffective collaboration within the company and/or with customers are likely to be contributing factors—a starting point for further investigation and subsequent decision-making.
(*) Boards that lack direct expertise to actively pursue these suggestions themselves should seek independent advice from a seasoned expert, to help them understand what might be possible, establish benchmarks and inform future board decisions. A long-time colleague of mine, Michael Sampson, is one such person. He is an expert in the fields of workforce collaboration, teamwork and new approaches to work. Michael also speaks at conferences around the world and has written several books. I commend him to you.
Business leaders cite change management as their biggest challenge, both on a day-to-day basis as well as from a long-term internal culture perspective. This challenge is what sees change management consultancies make millions of dollars per year, from acting as an external driver and catalyst. What many executives fail to realise is that they actually fear change themselves.
Are your own fears a subconscious barrier to the change you know your business needs to make?
Coming to terms with human nature:
At the most basic level, the fear of change is hardwired into us. Those of us who like change are therefore the different ones. If we fear change, we’re normal, regular human beings. Some of us might even struggle to come to terms with the fact we find change difficult. If you fit into that particular category, it shouldn’t be something you worry about.
Embrace change or walk away?
Often we’re faced with this very simple question: do we embrace change, or do we walk away? When walking away is the option picked, there may not be an actual fear of change itself, but of the process that needs to be gone through before that change is implemented.
As business leaders, we may resist change because we’re not too excited about the process of self-analysis that we need to go through. Self-analysis usually raises some tough questions that need to be asked, and human nature dictates that we don’t necessarily want to have that internal conversation—or learn the answers.
Change carries risk:
With change comes risk. This is perhaps the biggest reason why so many executives, and by extension businesses, continue with the status quo. A business with six-figure profits could embrace change, and in a few years be approaching eight-figure profits. However, this business may be happy with what it is currently achieving. While the proposed change will put certain things in motion to help the business move forward, it may also trigger other events, more self-analysis, and drive demand for change in other areas as well.
Change can, therefore, be something of an unwelcome can of worms. The executives who deal with their own fear of change effectively and, therefore, manage change better within their businesses, are those skilled at focusing on the positive final result, even if this may be years down the line.
Beating your internal fears:
Beating any internally-held fear of change comes down to your approach. Many executives—even today when data and tangible insight is more readily available than ever before—still rely on gut feeling and “tradition” in terms of their business processes. Learning to embrace change may be as simple as learning to embrace the data and tools available to help you understand the impact change can have, and how you can manage that change yourself to a positive outcome.
Most importantly, it is crucial to recognise that change is not instant. When change is implemented and managed correctly, it is very much a soft evolution rather than an immediate, overnight change in culture that completely redefines how you operate. Change isn’t always the answer, but do not allow your internal fears to stop you assessing whether it might be what you need.
Guest blog: Gemma Walford is head of Sales and Account Management for Convene for the EU region. She has extensive experience in the Public sector and a particular interest in improving productivity and business change. Azeus Convene is a board portal, developed to serve the needs of boards and management teams around the world.
Thoughts on corporate purpose, strategy and governance; our place in the world; and, other things that catch my attention.