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    On making predictions about the future

    Phd Readings Research Societal Wellbeing
    I've been reading some back issues of The American Scholar recently, as part of my personal commitment to read widely and explore topics that I'd not normally think about. Reading widely is the side story of my quest to explain how Boards influence company performance. It provides a bit of balance to the humdrum of reading academic papers. 

    Some of the articles and books that I have read have really captured my attention and thought. One such article, originally published in the Spring 2010 issue of Scholar, summarised British philosopher A.C. Grayling's book Ideas that matter: The concepts that shape the 21st century. Grayling introduced 12 ideas that would, in his opinion, dominate public consciousness and debate during the century ahead. 

    This sounded remarkable, for the making of reliable predictions—especially longer-term predictions—is notoriously difficult. A reliance on empirical evidence can easily lead to erroneous conclusions—the White Swans Thesis is a famous case in point. Notwithstanding this, most, if not all, of Grayling's predictions are coming to pass, just three years after his thesis was published. What does this say about Grayling's ability to predict the future? Did he see something that most of us missed, or is Grayling's "long term view" actually much shorter than what readers might have assumed in reading the title? I suspect the answer lies somewhere in the middle. Call me a sceptic if you will, but I'm yet to see a robust case to suggest that the making of future predictions based on empirical historical evidence is anything more than intelligent guesswork.
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    On coping with growth...what is the Board's role?

    Governance Management Performance Strategy
    There have been several interesting developments at sharemarket darling Diligent Board Member Services recently—developments that merit discussion and comment. Last week, Diligent, a high-growth, publicly-listed company, announced that it had incorrectly recognised some revenues relating to new customer agreements. Then, at the AGM held this week, the Board announced that no dividend should be paid in 2013—despite strong revenue growth and cash reserves—and that consideration is being given to dual market listings. Individually, these announcements seem relatively uneventful. However, when read together, they raise some interesting questions of governance:
    • What role is the Board actually fulfilling as the company copes with growth?
    • Does the Board really understand how the executive is progressing in terms of strategy implementation and the management of risk?
    • Why did the Board's Audit Committee not detect the revenue recognition error, particularly as the scale of the error was not insignificant?
    • How clearly defined are the company's strategy and governance practices?

    High rates of growth naturally present challenges for most companies, and this latest series of announcements suggest Diligent is by no means exempt. All power to the Board though, because it has recognised that it is experiencing stresses and strains, and it seems to be committed to resolving them. It will be very interesting to see how the Board responds, particularly in terms of the strategic decisions it makes to redeploy resources and adjust processes, in order to secure the next stage of business growth.
  • Published on

    Report: Most company failures are failures of governance

    Governance Performance Research Strategy
    A recent study, conducted by UK firm Reputability LLP, has found that failures of governance are at the seat of most company failures. A lack of [governance] skill and an inability to influence management were cited as the root cause of 88% of the failure cases studied. Gosh, that's nearly nine out of every ten failures attributable to poor governance! Information asymmetry, a tendency to rely on quantitative data (numbers) and poor 'soft' skills were identified contributing factors. The full report is available, for a fee, here.

    This report is an indictment on governance. It clearly exposes an underlying problem with governance. Boards, in general, are not operating effectively. I'm not particularly surprised by the findings of this study. Most corporate Boards operate within a framework called 'agency theory', whereby an adversarial relationship between the owner's representatives (the Board) and management exists. The Board sees its role as that of a policeman, to monitor and control management, in order to protect the interests of the owner(s). In such situations, trust is typically low, reputations are carefully protected, and information is shared carefully and sometimes under duress.

    The tragedy is that agency theory remains the dominant governance framework—in the western world at least—despite a seemingly endless body of evidence that shows companies are not well served by it. Perhaps this report might prompt Boards and shareholders to take stock, and consider other governance frameworks whereby Boards and management actually work together to maximise performance. After all, the evidence is compelling. Is that asking too much? 
  • Published on

    On redefining success

    Conferences Performance Readings Societal Wellbeing
    Periodically, the topic of success appears in my musings. As recently as yesterday for example, I wrote about core purpose and values—in tandem—as being crucial to achieving high performance and, by implication, success. But what is success? How do you define it?

    For eons, most Western cultures have defined success extrinsically—by what others have, what others think about us, or what we think others might think. Money and power are the benchmarks of success in any society founded on accumulation. You know the story: the more people have the more they want—all in the name of so-called success—and so the bandwagon rolls on.

    I have long thought that extrinsic ambition is hollow and fraught with danger, because the price one has to pay to be successful in monetary or power terms only spirals one way—upward and, inevitably, out of control. Thankfully, calls to redefine success are starting to emerge. I hope such calls are heeded, lest our society simply collapses around us. And we wouldn't want that, would we? 
  • Published on

    Nailing down core purpose...properly

    Governance Management Performance Readings Societal Wellbeing Strategy
    The core purpose of most organisations is to maximise its performance—whether it be a not-for-profit agency, a government department, a faith-based group, a health provider, a commercial enterprise, or any other organisation. The definition of performance differs from organisation to organisation differs, of course. NFPs measure performance in terms of services provided, whereas commercial enterprises generally measure performance in terms of wealth creation, for example.

    Notwithstanding this honourable goal of maximising performance, many organisations struggle to perform as they'd like. Often, regulatory frameworks and internal confusion (over purpose, strategy and operational priorities) divert attention and resources away from the "business" of the organisation. Why is this? I'd like to suggest that many organisations are not entirely clear about why they exist—even though they think they are.

    When I'm asked to help an organisation with its performance, one of the first things I ask about is core purpose. Sometimes a clear statement is provided, but only sometimes. More tellingly though, the underlying values and belief system—upon which behaviour is based—is generally not nailed down. Organisations are complex, socially dynamic entities, and even the best laid plans can be readily undermined by dissenting (and sometimes well meaning) individuals or groups. And therein lies a root cause. High performance is generally contingent on having a clear purpose and an agreed set of values to guide behaviour and decision-making. Just ask the CEO of any successful enterprise.
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    On the aspirations of women in business

    Management Performance Research Societal Wellbeing
    The topic of gender diversity has been a popular theme in the popular press and academic literature in the last couple of years. Awareness groups have been formed to speak into the diversity debate, and to promote the interests of women in business. Research reports have identified a correlation between women and performance, in that the presence of women in Boardrooms and executive suites seems to enhance company performance. However, the research is not conclusive, and a sound causal explanation is yet to emerge.

    With all this interest and activity, you would think women would be actively pursuing executive positions, particularly the C-suite. I thought this as well—until I read McKinsey's report entitled Unlocking the full potential of women at work. The most intriguing insight was that, despite their career success, 59% of women said they did not aspire to the C-suite. The main reasons for the reluctance? Structural obstacles, lifestyle choices, and corporate politics in the C-suite. While the market seems to be keen to provide opportunities for women to participate in all levels of the business community (which I applaud), it seems that for some roles at least, women just aren't interested.