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.
During the last month, I have had the privilege of working with four different boards and management groups, helping them wrestle with why the company they govern exists (its purpose, or reason for being) ahead of formulating strategy to pursue the agreed purpose. All four engagements have been invigorating, revealing many insights and much passion (and debate!) within the assembled groups.
However, three troubling signs became apparent amidst the boards' commitment to the cause. These signs, which are not uncommon, have the potential to stymie the quality of the resultant strategy and management's ability to implement the approved strategy. The following comments highlight the issues:
The temptation to embrace detail, confuse the roles of the board and management and shorten the view remain very real challenges for companies around the world. If boards are to fulfil their responsibilities well, a clear sense of purpose supported by a coherent strategy is vital—regardless of the company's size, sector or span of operations.
The great news is that increasing numbers of boards are starting to realise that material benefits are available if they contribute directly to both the process of determining purpose and formulating strategy. However, boards have some way to go before the value they have the potential of adding is actually realised, if the evidence of the past month is any indication.
Monday 8 May 2017 shall, in our household anyway, be remembered as a significant date. It was on this date that a father and a daughter both crossed the stage to receive recognition for their respective achievements.
While the day was special for close family members in attendance, the awarding of academic credentials is by no means an endpoint. Rather, it marks a weigh point on a long-term journey. The priority for Megan now is to build her career in international business, marketing and customer service (get in touch if you have an opening for a willing and able staff member). I will continue to encourage boards and directors to focus on what really matters: fulfilling their responsibility for company performance.
Further to my recent announcement, the full findings of my doctoral research are now available. You can read the abstract here, or download the full thesis (all 359 pages!):
Understanding corporate governance, strategic management and firm performance: As evidenced from the boardroom (5.2MB, PDF)
The research is informed by a longitudinal multiple-case study of two large high growth companies. Data was collected from direct observations of boards in session, and multiple secondary and tertiary sources, creating a rich and rare data resource. The analysis revealed numerous insights, leading to a mechanism-based model of the governance–performance relationship and an explanation of how boards can exert influence beyond the boardroom including firm performance.
If you would like to discuss the research (or raise a challenge), ask a question or explore how your board might benefit from the findings, please get in touch. I'd be glad to hear from you.
In the last two weeks I have visited six countries spread across three timezones; slept in seven different beds; experienced snow, sunshine and rain; attended an intensive training course at Cambridge, one of the world's top universities; delivered six formal presentations; and, participated in more than 50 significant discussions about organisational purpose, corporate governance, strategy and board effectiveness. It's been invigorating! Along the way, I've been fortunate to gain many insights, a few of which are summarised in the points below:
These are but five significant insights to emerge. If you'd like to know more, please get in touch.
This is the first of two postings, covering the first week of my nomadic journey. Here's the second instalment.
Longstanding readers of Musings may recall that I embarked on a journey in 2012, to try to understand whether boards of directors are able to influence the performance of the company they govern and, if so, how. The journey has been long and arduous, with many challenges and setbacks along the way to be overcome.
That journey, my quest to answer a most difficult question, has reached an important milestone, the awarding of a doctorate degree. I'm thrilled that the examination panel has seen fit to recognise the groundbreaking research, a longitudinal study of the boards of two large high-growth companies. The panel's decision confirms the validation provided by the academic community late last year. Here is the doctoral citation:
Boards of directors have been the subject of considerable research attention in recent decades. While a large body of knowledge has been published, substantive evidence to explain how boards actually exert influence over firm performance from the boardroom has remained elusive. Crow conducted a longitudinal multiple-case study of two large New Zealand-based high-growth companies. Data was collected from direct observations of boards in session, and multiple secondary and tertiary sources, creating a rich and rare data source. The analysis revealed numerous insights, leading to a mechanism-based model of the governance–performance relationship and an explanation of how boards can exert influence beyond the boardroom including on firm performance.
Entrepreneurs—that group of individuals who put their resources and, often, their reputation on the line, in pursuit of a big dream—are interesting people. Some are brash and larger than life; others are quieter and more considered. Despite variations in style and personality, one common thread that binds entrepreneurs is the importance of leveraging (often limited) resources to best advantage to maximise the chance of seeing their dream realised. One important and oft-overlooked resource is the board of directors. Some of the questions I've heard entrepreneurs ask include:
I will be in Brisbane Australia on Tue 7 February 2017 to help entrepreneurs and directors of entrepreneurial businesses explore these questions. The Brisbane branch of Entrepreneurs' Organisation, a global network of more than 10,000 business owners in 42 countries, has invited me to deliver a talk and to host a workshop for members. The title of the two sessions are as follows:
The action of turning the calendar to welcome a new year generally sees commentators spring into print, creating lists of trends, predictions and recommendations for their field of interest. This year has been no exception, with many contributions in the areas of boards, board practice and corporate governance including by the CEO of Diligent Corporation, EY, KPMG, the Institute of Directors and Martin Lipton, amongst others. Some of the suggestions are specific to a jurisdiction or an operating context and some, when read together, are contradictory. How should boards and directors decide what is important and how their time should be allocated? Which commentaries are most relevant, and what issues do boards need to pay closest attention to?
Rightly understood, the role of the board is to govern: to provide steerage and guidance to ensure desired company goals (purpose) are achieved (i.e., to practice corporate governance). The board needs to give its full attention to this demanding task, lest it become a cost centre—simply monitoring management—or, worse, subservient to management. The following suggestions provide a starting point for boards wishing to improve effectiveness in 2017:
The pursuit of value (embrace a performance orientation): The board of directors carries the ultimate responsibility for business performance. This is understood in law, but what of practice? When surveyed or interviewed, many directors say that business performance is a high priority of the board. However, a quick review of how boards actually spend their time reveals a slightly different story: most boards seem to be more concerned with compliance, monitoring and control activities—the avoidance of corporate and reputational risk. If the board is to fulfil its responsibilities well, it needs to become a source of value creation (cf. value protection or risk avoidance). This means allocating sufficient time to the consideration of corporate purpose and strategy, and ensuring that all strategic decisions are taken, explicitly, in the context of the agreed purpose and strategy. (This is not to say that performance monitoring should be ignored. Rather, boards need to ask management to report actual performance against agreed strategy and strategic priorities, so that the board can determine whether desired outcomes are being achieved or not. If the CEO's report is written in this way, the board can take it as read, rather than waste time interrogating each section.)
Understand and respond to the complex risk landscape: In recent years, many correspondents have encouraged boards and directors to become more savvy in specific risk areas. These have included climate change, cybersecurity and disruptive technologies, amongst others. While calls for specific expertise to be added to the board are not inappropriate per se, the more pressing challenge for boards in 2017 is to embrace an increasingly complex risk landscape holistically. Directors, collectively, need to be able to identify major risks to the business (i.e., the achievement of strategy and desired performance goals) on an on-going basis and, having understood them, make informed decisions to maximise the chance of achieving the agreed strategy and goals. This is not to ask directors to be experts on all emerging risks in a dynamic landscape. That is wasteful and, probably, futile. Boards need to stay focussed on the big picture—the determination and achievement of strategy. In so doing, boards should seek out experts (notice the plural) from outside the company (this is important, otherwise, the board risks being captured by management), to address the board directly and debate the likelihood and appropriate response options to emergent risks. This additional source of information should enhance both the board's consideration of strategic options and the quality of the strategic decisions that follow.
Accountability: Many companies have suffered at the hands of sanguine and, sometimes, fraudulent managers and ineffective boards (because they are not sufficiently engaged or informed) in the past. Sadly, more examples emerged in 2016 to suggest that some boards continue to flout their responsibilities: Wynyard Group and Wells Fargo being two of them. It is little wonder that 2016 saw further rises in shareholder activism. At the core, the problem is social; one of behaviour and expectation. If boards are to contribute effectively, to minimise the chance of corporate failure, one or both of two accountabilities—the board holding management to account and the board providing an account to shareholders—must be addressed. Directors are appointed by shareholders, and boards are responsible for both ensuring the on-going performance of the company they are charged with governing and providing an account to shareholders. While a strategic mindset is crucial (the value creation imperative), the underlying attribute needs to be one of service: the board and management working harmoniously together, as a team in service of the company.
These suggestions are offered for the consideration of boards seeking to make effective contributions in 2017 and beyond. While this short list is neither exhaustive nor intended to replace any other list, it may provide a useful basis for debate at a board meeting. The three suggestions—drawn from personal observations of boards in action, interactions with directors and readings—seek to establish an overall context to assist boards consider emerging trends and strategic opportunities, and so govern effectively in an increasingly complex world. If you would like to discuss the applicability of these suggestions to your situation, please get in touch.
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?
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.