I had the distinct privilege of attending the 9th Global Peter Drucker Forum in Vienna this week. Approximately 500 people attended the two day forum held in Aula der Wissenschften (Hall of Sciences). The programme included fifteen plenary sessions and a parallel session (four tracks). The very full programme was run to time; a Swiss watch operated with Germanic efficiency, in the birthplace of Drucker.
Many global authorities in strategy, innovation, entrepreneurship and related addressed those in attendance (and many more utilising the live feed option). Presenters included Richard Straub; Angelica Kohlmann; Jenny Darroch; Hal Gregersen; Roger L. Martin; Anil K. Gupta; Bill Fischer; Rita Gunther McGrath; Sidney Finkelstein; Tammy Erickson and Carlotta Perez, and more. The forum produced many insights; the following commentary merely a portion lifted from my 28 pages of notes:
Richard Straub, President of the Peter Drucker Society, set the scene by noting that Drucker, a man genuinely interested in the bigger 'why' questions, maintained a strong focus on business performance. He avoided cookie-cutter 'solutions', a reflection perhaps that such solutions don't work within the dynamic and social context of modern organisations. Straub went on to say that management is most accurately conceived as a liberal art [to be understood holistically], not as a social science that can be reduced to constituent elements.
Lisa Hershman, DeNovo Group, posed the question, "How do we generate growth and ensure more people participate in it?" This was not a veiled call to embrace left-leaning socialist ideals and anti-business practices, but rather a clarion call for 'inclusive capitalism'. (I've been using an equivalent term in speeches in the last couple of years: 'capitalism with a heart'.) Hershman noted that around half of the young people in the United States say they prefer socialism over capitalism. This, she said, is a clear indication that something is wrong. Business leaders have become too focussed on themselves and shareholders, to the exclusion of others. This collapse of confidence needs to be addressed by business leaders. If it is not, companies are likely to find it increasingly difficult to recruit motivated and capable young people. Why? Because they are not interested in working for poor leaders who they do not believe in, much less aspire to.
Jenny Darroch, Dean, US Peter Drucker School, explored the essence of an effective business and societal ecosystem. She described five key interests (characteristics), namely, a functioning society, where all can participate; recognition that management is a liberal art, not a simplistic of formulaic process; that self-management is important, because neither the state nor business 'owes' people work; that performance [actually] matters; and, 'transdisciplinarity' (i.e., looking beyond the immediate context, sector, role, team) is crucial. These comments set a solid platform for what was to follow.
Hal Gregersen, MIT Leadership Center, spoke on the important topics of community and communication. He asserted that isolation is the number one enemy of innovation. The world is far too complex for one person acting alone to be effective. Leaders that sit in their office and wait for input are far less effective that the best leaders, who actively seek to reduce (to zero, if they can) barriers in pursuit of the best possible information to understand current reality and what might be possible, so as to inform effective decision-making. The best leaders also encourage dissent, inviting people to both ask and respond to uncomfortable questions, because they want to discover what is wrong and what can be improved. Asking the right questions and, importantly, getting authentic responses (but not necessarily simple answers) depends on being in the right place (read: with staff, customers, in the market) and inviting people to challenge the status quo.
Roger L. Martin, Rotman School of Management, built on Gregersen's comments by observing the prevalence of certitude (that sense of 'being right' common amongst leaders especially so-caleld alpha males and queen bees. Rather than stridently asserting preferences and blindly applying models (which are often wrong because they are simplifications of reality), Martin recommended that leaders reframe their statements as follows. "I'm modelling the world, but my model is incomplete. What can you add?" Great leaders pursue multiple models, combining and building to make something better (note, a better solution not a compromise). According to Martin, this always leads to better outcomes.
Several speakers addressed the question of whether growth is actually an imperative. No speaker spoke against growth or its optionality. Rather than almost assumed the answer is 'yes', and moved quickly to consider how growth might be achieved. Anil Gupta, for example, noted that China is responsible for 27 per cent of global carbon dioxide emissions, and India 6.6 per cent. He opined that if India is to grow out of poverty then growth must be coloured—green—to avoid killing the very people it seeks to lift out of poverty. The recommended route is to industrialise, but to do so with smart technology to avoid the avoid the environmental mistakes (and their negative consequences) experienced by China and others.
Martin Reeves, Boston Consulting Group, added that while growth is necessary, it is beomcing increasingly elusive. As a consequence, companies operating in developed nations need to change their focus. Rather than growth at any cost, companies need to discover and pursue the right type of growth. Invoking Aristotle, Reeves observed that companies that embrace both economic and social goals (oikonomic companies) do better in the long term. Specific recommendations (boards and directors, take note) include:
Allyson Stewart-Allen, International Marketing Partners, and Julia Hobshawn, Editorial Intelligence, sounded a warning, arguing that the unfettered pursuit of connectedness—networking in pursuit prosperity, health and whatever else—has a dark side: info-besity. An over-reliance on social media networks have the unwanted effect of starving people of what actually matters: deep socail connections. People are human beings, not human doings, and social connections matter much more than activity masquerading as social connectedness. Pointedly, sustainable relationships and business sustainability is dependent on people, and their interaction and curiosity not social media. I found myself thinking, "Isn't this obvious?". Maybe so, but a quick glance around the room suggested maybe not: almost everyone within eyesight has their eyes down, using a smart device as the speakers continued.
Joseph Ogutu, Safaricon, and Haiyang Wang, China–India Institute, provided insights from a developing nation perspective. Whereas many Westerners perceive social disparity to be limited in developing nations, the reality is somewhat different. Disparity between people groups in developing nations is actually higher than in developed nations. Further, many African nations have de-industrialised since gaining independence. The speakers made strong calls for developing nations to embrace manufacturing as a means of achieving the economic growth needed to lift millions out of abject poverty. While many entrepreneurs and investors stand ready to fund initiatives, local communities need to pursue partnerships, lest they suffer new forms of dependency.
Steve Blank, entrepreneur, and Bill Fischer, IMD, observed that the pressures faced by chief executives in the twenty-first century are different from those in the twentieth century. Then, if CEOs met the expectations of their boards (however expressed) and responded to competitive pressures, then they were reasonably safe in their role. But things have become more complex since the turn of the century. Two additional forces have emerged, namely, activist investors (read: corporate raiders) and disruption. If CEOs are to respond well to this new reality, they need to become comfortable with ambiguity and chaos. Helpfully, Blank and Fischer offered four additional suggestions to enhance leadership effectiveness in the twenty-first century:
Rita Gunther McGrath, Columbia Business School, introduced the forum to a tool to help leaders and investors undertsnad the future growth prospects of any given company. The 'ImaginationPremium' is, simply, a ratio of a company's market capitalisation and value from operations. If the imagination premium is high (but not too high to become hype—Tesla), the sustainable growth is likely. Conversely, low ratios suggest growth is unlikely. The extreme case of a ratio less than 1 suggests shrinkage.
On strategy, innovation and disruption. Several speakers outlined cases to demonstrate that a coherent, longer-term strategy is actually more, not less, important in times of change and disruption. They noted that well-formed strategy, not detailed plans (often, incorrectly, called strategic plans), helps lift the gaze of both leaders and staff above immediate technologies and disruptions, to focus on purpose, the customer and longer-term goals.
General observations. Standing back a little, the investment to attend was well-spent. To be amidst giants, and chat with some of them (all were accessible and none pretentious) was a privilege and an honour—I learnt a lot. The only disappointment from my perspective concerned the speaking roster. While about 20–25 per cent of the speakers were world-class (both content and delivery), a similar percentage were disappointing. The lesser speakers either repeated what others had said, or their presentations were thinly-veiled sales pitches. Upwards of ten attendees, including some speakers, voiced similar concerns in private. My hope for future editions is that the organisers review speaker candidates more closely, to ensure a consistently high standard. Stepping beyond that, the general calibre of the forum (organisation, content, delivery) was very high. My intention is to return to Vienna in November 2018, for the the 10th edition of the Global Peter Drucker Forum. Hopefully, I'll be able to share the platform, offering some insights relevant to the theme.
Bob Tricker just did it again.
Long the doyen of corporate governance (Sir Adrian Cadbury used the term "father of corporate governance"), Tricker has just posted this article, a stinging critique of several emergent ideas that, through repetitive use, have permeated thinking and are becoming accepted as conventional wisdom. Risk, culture and diversity are singled out as populist memes. Yet robust evidence to support the notion that any of these memes are directly contributory to effective governance—let alone company performance—in any predictable manner is yet to emerge. Tricker's timing is, once again, exemplary.
Thankfully, Tricker offers far more than a straightforward critique. He reminds readers that the purpose of the board of directors is to govern:
The governance of a company includes overseeing the formulation of its strategy and policy making, supervision of executive performance, and ensuring corporate accountability.
The purpose of a profit-oriented company is also made clear (a point famously made by Friedman):
To create wealth, by providing employment, offering opportunities to suppliers, satisfying customers , and meeting shareholders' expectations.
In calling out this matter, Tricker has hit the nail on the head—the effect of which is to place those motivated by the promulgation of unfounded memes in a rather awkward position. I am with Tricker; our understanding of corporate governance needs to be reset. Rather than pursue new memes (a perfectly adequate definition was established over fifty years ago), boards need to discover how to practice corporate governance effectively. Tricker (Corporate governance: Principles, policies and practices), Garratt (The fish rots from the head) and a few others provide excellent guidance as to how this might be achieved.
(Disclosure: The two books named in this article are the ones that I refer to most often when working with boards. I commend them to you.)
The opportunity to work with new and aspiring directors to build capability is something I find most gratifying. Regardless of whether the task is to facilitate an established course (Institute of Directors' Company Directors Course), pilot a new one (Governance Institute of Australia's The Effective Director Course) or run a private workshop with a board, the sense of fulfilment amongst directors as they grapple with situations, gain new insights from their colleagues and learn more about the role of the director is often quite palpable. However, the learning experience is by no means a one-way street. I also expect to (and do!) gain new insights. Here are some of the themes that have been apparent in the sessions I've led this year:
For more information about these or related topics, or to discuss implications for practice, please get in touch.
The effectiveness of company boards has become a hot topic in recent years, especially as the general public has become aware of various failures, missteps, poor practice, hubris and ineptitude, but also as attention has increasingly moved from the chief executive to the boardroom in search of high company performance.
The role of the company director is not for the faint-hearted. Market forces, technical innovations and human factors all contribute to a complex and dynamic operating environment. Directors need to consider and make sense of information from multiple sources, and make informed decisions in the best interests of the company. It goes without saying that directors and boards need to maintain a continuous learning mindset if they are to keep up to date and contribute effectively.
In a few days, I'll be in Sydney, Australia (18–20 September), to work with directors committed to the ideal of high performance. While the main objective of the visit is to present the first day of a new three-day course entitled "The effective director", I have time available to attend other meetings to share ideas and discuss emerging trends in corporate governance, strategic management and related topics of interest.
If you'd like to get together while I'm in Sydney, please let me know. I have some free time and would be delighted to meet informally over coffee, or in a boardroom setting with you and your director colleagues.
In September 1970, The New York Times Magazine published an article that subsequently became a catalyst, a touchpaper even, for a step change in the understanding of the purpose of business and, as a consequence, the priorities of managers and boards of directors. Milton Friedman, an economist and Nobel laureate, argued that the doctrine of 'shareholder primacy' should prevail over that of 'social responsibility'.
The article garnered much attention (becoming seminal along the way) especially amongst those shareholders, directors and managers for whom the maximisation of profit was of primary (read: exclusive), interest. The statement most commonly used to justify the profit maximisation doctrine is right at the end of the article:
"There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits"
Superficially, this statement is pretty clear: the purpose of business is profit and nothing else matters. But this statement is incomplete, a portion of a longer sentence. To stop reading at 'increase profits' is to read Friedman out of context. The complete sentence is as follows:
"There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud."
Friedman was clear. He argued that the maximisation of profit is an important priority of companies, and he argued that this is not, and cannot be, an unbounded endeavour—much less an exclusive one. The proviso followed without as much as a comma—the pursuit of profit needs to occur within the context of prevailing law and regulation (rules of the game), competition and fair play. That Friedman's guidance was so clear begs a rather awkward question: Why has it been misinterpreted by so many shareholders and boards?
One of the joys of my 'work' is that I get to journey with boards and executive managers as they wrestle with some pretty challenging questions. Whether the journey involves briefings, phone discussions, meetings over coffee, professional development sessions or facilitated workshops, the goal is generally consistent: to gain understanding, in pursuit of increased effectiveness and, ultimately, better business performance.
By way of example, I was recently invited to work assist ChildFund New Zealand (*), a social enterprise committed to the ideal of eradicating child poverty. The board and senior managers gathered in a modest setting—the administration office—to strip back the layers and, in so doing, re-discover the organisation's reason for being (purpose) and develop strategy to achieve the identified purpose. The intention was to reach agreement in principle on the core elements by the end of the day, so management could form up a coherent strategy document for discussion with the board and subsequent approval.
We got underway at 9.00am, as planned. Some 116 man-hours of focussed and, at times, intense effort later, it was 5.00pm. I won't mention what was discussed or decided, other than to say agreement was reached on most of the big questions. Once the strategy elements are drafted up into a suitable document and approved (there will be a couple of iterations between management and the board to tidy up loose ends, no doubt), attention will move to implementation. The ChildFund board intends to use the approved strategy as a frame, to both resource management and hold it to account (which will include monitoring strategy implementation and verifying that the expected outcomes and benefits are actually being achieved).
Tips for effective purpose and strategy workshops:
(*) It is not my usual practice to name clients! However, when one of the ChildFund NZ directors posted a picture on social media of the board and managers gathered around a whiteboard, the occurrence of the workshop and my involvement became public. Regardless, the details of the discussion remain confidential.
Corporate governance has had a bad rap of late. From not even rating a mention twenty years ago (my father, an experienced company director, had not heard of the term until 2001), the term has become ubiquitous, hackneyed even, to the point now of being conceived (blamed?) variously as a perpetrator or panacea for all manner of corporate ills and missteps. Further, a bevy of related terms has emerged; an industry in and of itself.
One especially troublesome 'related term' that has emerged in recent years is 'governance professional'. What does it mean, and to what or whom does it refer? I put this question to a professional associate recently (a highly experienced director, chairman and board consultant). His answer, delivered without pause, was telling: "A company director, of course". After a brief pause, he asked why I'd posed the question. I related a couple of stories, of recent discussions including one in which the other party asserted that company secretaries and corporate risk managers are both 'governance professionals'. My colleague interjected asking, "Really? Aren't they getting ahead of themselves?"
Let's consider this in the context of another sector and look for parallels. Take healthcare. Doctors and nurses are universally understood to be healthcare professionals—clinicians who serve patients' healthcare needs in pursuit of physical and mental wellness. But what of receptionists, administrators and practice managers? These people make important contributions to the delivery of healthcare in a supporting capacity. But organising appointments, processing paperwork and supporting clinicians is not the same as delivering healthcare, the threshold for the 'healthcare professional' moniker.
How might this example inform our understanding of troublesome term 'governance professionals'? First, let's acknowledge that corporate governance describes the work of the board. We know this from Richard Eells, the person who first coined the term (the structure and functioning of the corporate polity), and Sir Adrian Cadbury (the means by which companies are directed and controlled). Given corporate governance is something that occurs in the boardroom (i.e., a board-activated mechanism for coordinating knowledge and making informed decisions in pursuit of the long-term future of the company), my professional associate's reply (that a company director is a governance professional, but the roles of company secretary and risk manager are not) seems plausible. What do you think?
Whether or not one is consciously aware of it on a daily basis, time marches inexorably on. Indeed, 60 per cent of 2017 is now consigned to history.
That time marches on is a healthy reminder of the value of ongoing reflection, especially at the board table. It's really important for boards to understand and respond to actual performance in the context of agreed strategy, and to nip any variances in the bud early. To that end, how is your company tracking towards goals established for the year? And how is your board performing? Here's a few questions to kick start the board's reflections:
Beyond these questions, it may be helpful to think slightly more broadly. Earlier this year, I wrote several articles (below) to highlight some of the challenges that directors said they had struggled with 2016, none of which are independent from the questions above. As several boards have been in touch recently to discuss points mentioned in the articles (thank you), it seems appropriate to re-publish the links, as a resource for other boards reflecting on company performance and board effectiveness.
So, Travis Kalanick has left the building, no longer the chief executive of Uber, the company he co-founded. The company, which makes money through the use of a ride sharing application, has grown rapidly in recent years. From a good idea, the company has become a colossus valued at over US$65 billion. Kalanick deserves credit for Uber's rise. However, Uber's reputation is not without tarnish; reports of a toxic culture, sexism and several scandals have blotted its copybook. The co-founder's pugnacious style hasn't helped either.
Uber's widely-reported missteps raises some challenging questions about the role and function of the board of directors; questions that are strikingly similar to those asked following the Wells Fargo fake accounts scandal and the collapse of Wynyard Group, both in 2016:
Uber was founded on a strong vision and its grew rapidly. The board was technically diverse and debate did occur in the boardroom at times, yet the evidence suggests that board lost its way and became ineffective.
Though tragic, the Uber situation is instructive for directors and boards elsewhere. Power seems to have been a significant factor. If directors are serious about fulfilling their duties well—especially acting in the company's best interests and pursuing the future performance of the business—some shared understandings are crucial:
However, the presence of these factors is insufficient in terms of predicting effectiveness or performance. Ultimately, the effectiveness of any board is a function of what the board does and how directors behave. Research is starting to understand the mechanism of corporate governance, but causality remains elusive. Directors take their eyes off these considerations at their peril.
This is a brief note to advise that I will be in London next week, to speak at the ICSA Annual Conference. The conference is being held at ExCeL, London, over two days (4–5 July). Programme details are available here.
I'll be speaking on the first day of the conference, at 12noon. My topic is strategy, from the board's perspective. Here's the session summary from the programme:
Good strategy vs bad strategy
Sound interesting? Come along, I look forward to meeting you.
Note: I'll be in London Monday 3rd to Thursday 6th inclusive, with some free time both during the conference, and immediately before and after. Please get in touch if you'd like to meet up (day or night) to ask a question; discuss an aspect of corporate governance or strategy; learn more about my research on boards and business performance; or, simply have a chat over a coffee or a drink. I'd be delighted to hear from you.
Thoughts on corporate purpose, strategy and governance; our place in the world; and, other things that catch my attention.