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    Expecting (start-ups) to fail is dumb

    Management Readings Societal Wellbeing Strategy
    One of the joys of being a researcher is that you get to read widely. Alongside the governance and research methodology material that comes across my screen every day, I see articles about related topics like philosophy, strategic management, start-ups and leadership. 

    One particular article about start-ups and venture capital caught my eye today. The WSJ correspondent cited new research from Harvard Business School that three out of every four VC-backed companies fail to return their investor's capital. That's right, three out of four. And that's the good news. The failure rate of non-VC-backed companies is worse.

    "Venture capitalists make high-risk investments and expect some of them to fail, and entrepreneurs who raise venture capital often draw salaries". Why is this? To my arguably naive mind, expecting a business fail is just plain dumb. Why aren't VCs more discriminating? Surely, some more effort up front, to assess an opportunity more rigorously and ensure a robust strategy is selected, would make sense? Or is that akin to asking an adrenalin junkie to avoid high-risk pursuits? Perhaps it is, but more so, perhaps it's time for the VC community to adopt a less cavalier attitude with what is often other people's money in the first place. I suspect the failure rate associated with pushing unsustainable ideas would decline. And if that happened, we'd all be better off, I'm sure.
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    When is a director no longer independent?

    Governance Management Research
    Does the holding of company shares automatically compromise a director's independence? And when is a director no longer independent?

    These questions have troubled shareholders, prospective directors, legislators, and researchers for many years. I suggest the answers depend on what one means by the words "independence" and "independent", because there is a world of difference between acting independently (independence of thought and decision) and being independent (no vested interest).

    If a director holds no pecuniary interest in the company then it is reasonable to expect them to act independently in their considerations, discussions and decision-making. Things can get a little more complicated when a director holds shares. They are no longer independent (by definition), however they may still act independently. In my experience, there is no hard-and-fast line, beyond which independence is automatically compromised. Some directors with small shareholdings (1–3%) struggle to act independently, whereas others with larger holdings (5–10%) seem to be able to act independently, even though they are not independent.

    I would be interested to hear the views of others, particularly behavioural specialists, to debate these questions, and determine whether finding answers actually matters (or not).
  • Published on

    Gender diversity and performance: new evidence

    Governance Research
    Does gender diversity in the boardroom improve company performance? This question has been comprehensively researched and debated for many years, however definitive evidence has remained elusive—until now, perhaps. A comprehensive research report just published by Credit Suisse shows that companies with gender diversity in the boardroom perform better than companies with all-male boards, using data from 2360 companies from 2005–2011.

    While the results show some definite trends (the benefits of diversity within management, for example), the researchers stopped short of attributing the increased performance to the presence of women on boards. Clearly, diversity is having an impact, but how and why? As the report states, "there is not one easy answer to why gender diversity matters". Could it be that a wider set of experiences and viewpoints is contributing to a more vigorous debate; or that the presence of women leads to a greater level of engagement by board members? The results from the Credit Suisse report are helpful, but the bottom line is that we simply don't know—yet.
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    Why do Boards focus on monitoring (vs. strategy)?

    Governance Management Phd Research Strategy
    A very interesting discussion is underway in one of the LinkedIn groups at present. It has arisen out of a survey conducted by PwC, which showed many discrepancies between what Boards actually do and what directors think they should be doing or concentrating on. While attitudes are starting to move, actual behaviours are lagging well behind.

    Several researchers and practitioners (including me) are exploring why Boards concentrate on monitoring and control, when the respondents said they want to spend more time on strategy. Others are discussing the Board's role in IT oversight.

    These are important issues for Boards. I suggest you have a look, and contribute your views!
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    Detecting competitive threats early

    Management Strategy
    One of the challenges that many businesses face is keeping up with the moving competitive landscape—and matching strategy to the competitive environment. All too often, something changes and businesses don't see it coming.

    As with any potentially destructive natural events like earthquakes and tsunamis, businesses need to monitor the landscape carefully to detect the emerge of competitive threats early—to maximise their response. The helpful article published by HBR this week encourages strategists to think carefully about how tomorrow's industry could be structured. The world-class authors posed five questions to help work through this. I commend the article to you.
  • Published on

    When the penny drops and the fog lifts...the view is great

    Governance Phd Research
    Image description
    Have you experienced the pure delight, the visual symphony, of looking to the horizon after reaching the pinnacle on a seemingly unending trek? When the view changes from the near detail of the next step to the overall context? Yesterday, I had exactly this experience with my research. After spending several weeks wading through a great pile of weighty tomes, academic articles and handwritten notes, feeling somewhat daunted by the seeming lack of progress, a penny dropped and the fog that'd been masking my view lifted.

    All new knowledge needs to be built on a worldview (technically, an ontology and an epistemology). In my case, discovering the most suitable starting point for my governance research. I've been struggling with this, because the theory of knowledge doesn't come naturally to me at all. Much of the governance research to this point has employed positivist (financial analyses), post-positivist (structure and composition research) or constructionism (boardroom behaviour) worldviews. Unfortunately, much of the research to date has revealed very little about the impact boards have on performance. Therefore, my work needed to look at the problem quite differently if any progress was to be made. The new lens finally became clear during a meeting with my Supervisor yesterday, when we explored a couple of seemingly left-field ideas that I'd been investigating in recent days. An intense 30-minute discussion around the whiteboard was all it took. The path forward became clear. And in case you're interested, the worldview is pragmatism, supported by a multiple-case study design and grounded theory.

    With the launching point now clear (in my mind, at least!), it's time to pause for a coffee and admire the view, before heading onward and upward again to face the next challenge. Thank you to everyone who has encouraged me in recent weeks, I (now) appreciate it.