May 2016 - Peter Crow | Helping boards govern with impact

Published on: 26 May 2016

Sometimes you have little choice but to activate 'Plan B'

The current fuel supply problems in France, and planned strikes involving the Parisian Metro and bus network and air traffic control is likely to have a major impact on the French economy and, no doubt, its reputation as a reliable destination for commerce and pleasure.

Normally, situations like this are simply stories on the news feeds—news from afar. However, this one is a little more personal because I am due to be in Paris 1–3 June to speak at the EURAM conference. The planned strikes will cause chaos, rendering movement around the city nigh on impossible and placing my return to London to meet pre-booked long-haul flights at serious risk. After considering several options and weighing up the risks, the best (but far from ideal) decision seems to be activate Plan B, to cancel the Paris portion of the trip. Sadly, this means I will not attend EURAM this year.

All is not lost though. The London portion of the trip has been very worthwhile. To have met several influential business leaders and participated in some important discussions has been a privilege. The prospect of several advisory and speaking engagements now looms large. Consequently, I will return to London in mid September and again in late October. Please get in touch if you want more details of the visits, have a request or you wish to schedule a meeting.

Published on: 26 May 2016

Do you hear the people sing?

I'm in London this week, meeting business leaders and board advisors, listening to their stories and sharing a few of my own. Already, after just 24 hours, a strong theme is starting to emerge. A drum that I have been beating for several years now can be heard reverberating amongst the streets of the City and beyond.

Though faint at first, expectations are starting to move. Increasingly, shareholders, commentators and even some directors are beginning to voice concerns about what boards actually do. Many boards have operated in a perfunctory manner for years—the oversight of management has been a convenient diversion. However, the amount of the red tape boards have to deal with is lifting the stakes. The expectations on boards are rising. Last week, in Brisbane, many of the 220 directors that I addressed said that boards should spend more time on firm performance. Today, in London, the suggestion that compliance-based regimes do nothing for value creation and that boards need to allocate much more time to strategy was voiced in every meeting I attended. Next week, in Paris, who knows?

Are we on the cusp of a paradigm change? Is the stirring anthem of the république gaining momentum? Perhaps. That directors are now realising that more time must be invested doing what shareholders appointed them to do—setting strategy and steering companies towards agreed performance goals—should be music to one's ears. Might we even be witnessing a 'back to the future' moment, as directors and boards embrace Cadbury's plea: that corporate governance is the means by which companies are directed and controlled, with a performance objective in mind? I hope so.

Published on: 25 May 2016

Selecting company directors: The board is not Noah's Ark

Is the diversity discourse that has pervaded board and shareholder discussions in recent years showing signs of maturing? It seems to be. Thankfully, most correspondents have moved past blunt claims—including that the presence of <diversity variable> leads directly (i.e., causative) to increased firm performance. While researchers have demonstrated that the presence of women on boards, for example, has been associated with more civil language and higher levels of engagement and critical thought, direct links to firm performance remain elusive. The reality is far more subtle: many underlying factors affect performance—some occurring inside the boardroom and some outside.

While progress is being made, concerns over the motivations of 'diversity' proponents remain. Is the goal to achieve increased board effectiveness (however that might be measured), or is a political or social agenda being played out? The challenge of selecting the 'best' company directors is far too important to be left in the hands of those with political or social agendas. I know several white male directors (all of known are highly qualified and eminently suitable as company directors) who have been told they do not meet notional diversity criteria.

How should directors be selected? One option might be to base your decision on guidance provided by Warren Buffett (see Berkshire Hathaway's 2006 Annual Report):

In selecting a new director, we were guided by our long-standing criteria, which are that board members be owner-oriented, business-savvy, interested and truly independent. I say “truly” because many directors who are now deemed independent by various authorities and observers are far from that, relying heavily as they do on directors’ fees to maintain their standard of living.

Charlie and I believe our four criteria are essential if directors are to do their job—which, by law, is to faithfully represent owners. Yet these criteria are usually ignored. Instead, consultants and CEOs seeking board candidates will often say, “We’re looking for a woman,” or “a Hispanic,” or “someone from abroad,” or what have you. Over the years I’ve been queried many times about potential directors and have yet to hear anyone ask, “Does he think like an intelligent owner?”

Enough said, don't you think?

Published on: 16 May 2016

Moving beyond 'USP' and 'point of difference'

A couple of weeks ago, I met with a recently appointed chief executive who wanted to test some ideas in his quest to identify the company's USP (unique sales proposition) and, therefore, its point of difference. Paul's concern was that the company was operating in a crowded and competitive marketplace without a coherent strategy, and that success was dependent on standing out. We had a fascinating conversation—the essence of which is repeated here because Paul's question seems to be topical (I have just come off a phone call with a chairman (different company) who posed a very similar question).

I asked Paul to describe the company and summarise the present reality. He recounted the company's past successes, current capabilities, market position and strong product line. Then he said that market share had drifted downwards in recent years. After sipping my coffee, I asked Paul why the company existed. He looked blankly at me as if I had come down in the last rain shower. "To make a healthy profit, of course".

"Of course", I said. "I expected to hear that. But doesn't every company have that goal? How does being different serve this goal, especially when barriers to entry are so low these days that difference is only temporary, at best?

"Apart from serving our collective egos, that you have something different (or even unique) to offer is of little consequence to most busy people. It matters even less when a competitor offers something seemingly similar for a lower price. When this happens, it's a race to the bottom—and that's dumb. Shouldn't your motivation be to make a difference and help your clients achieve their goals? With this in mind, might a better objective be to identify your company's 'point of impact'? In my experience, people choose to embrace your ideas and buy your product because they believe in you and what you represent. Imagine the response if MLK had uttered "I have a plan"—that speech would have been a footnote, gathering dust in the annals of history. But he didn't."

The conversation moved to other matters. Then, as we finished our coffees, Paul smiled knowing that he had some work to do. I wished him well and we parted ways.

Do you know why your company exists? The next time your board and executive gathers to review strategy and set future goals, start by asking this question. I respectfully suggest that you don't move on until a lucid answer is both determined and agreed.

Published on: 12 May 2016

Proposal for shareholders to approve management work. Why?

News has emerged from Volkswagen this week that the board has proposed that shareholders formally approve the work of the company's top management team. Wow, I'm amazed. Isn't that the board's job?

The board exists as a decision-making proxy for absent shareholders and, in so doing, the board should provide oversight of management including of its work. Regular board meetings and other board–management interactions provide the appropriate forum for this reporting, verification and monitoring to occur. In contrast, annual meetings provide a forum for the board and management to provide an account of the resultant company performance to the shareholders.

That the Volkswagen board of directors is recommending that the work of management is approved by the shareholders creates the impression that the board is not doing its job of overseeing management adequately. While this could be an obfuscation (following the trouble the board and management found itself in over the emissions scandal), if the board is attempting to shift responsibility (for oversight of management away from the board) it needs to be called out. The shareholders then need to determine whether the current board is delivering value or simply defending a position—it's own.

Published on: 6 May 2016

Looking forward to looking forward with some great Australian leaders

I'm looking forward to looking forward with some great Australian leaders in Brisbane, QLD on Thu 19 May.

I'll be talking about emerging trends including the board's role in value creation; the importance of setting a clear purpose for the business; board involvement in strategy; how to drive performance through the chief executive, in reality; and, telling a few stories along the way. Look forward to seeing you there!

Two events have been scheduled on Thu 19 May: breakfast and dinner. The breakfast event is almost booked out. However, some seats at the dinner event are still available. If you want to hear about emerging trends in governance and board practice, and their application in a family business context, click here to read more information and to register.