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    The South Canterbury Finance case: How blind is the law?

    Governance Management Performance
    Earlier this week, the Chief Executive and two former directors of South Canterbury Finance, the failed finance company, faced Justice Heath to hear his verdict relating to New Zealand's largest ever fraud case. Some $1.6B was owed to creditors when SCF collapsed in 2010. Justice Heath found one director guilty on five charges, and he acquitted the other director and the Chief Executive on all of the charges they faced. In his decision (all 258 pages), the judge blamed the former chairman (Alan Hubbard, who was killed in a car crash some time after the collapse), who appeared to rule with a dominant hand.

    What I cannot fathom in this case is how one director can be found guilty of knowingly making false statements and the chairman can be blamed for ruling with a dominant hand, yet another director was not found guilty. Clearly, the director adjudged to be guilty was not happy. The board is a collective of directors, so decisions should be decisions of the board—surely the prospectus was considered and approved by the board and not an individual? That the board is one is what we teach on the Institute of Directors' Company Directors Course and elsewhere. 

    This judgement raises some interesting issues relating to the law (that I don't profess to understand) that are relevant for practice. I have requested a copy of Judge Health's decision, and plan to read it over the coming week, because clearly I am missing something.
  • Published on

    On succession planning: Yes, but three years out?

    Governance Leadership Management Performance Strategy
    Acer Computer, once a strong and proud manufacturer and exporter of personal computer products, has been doing it tough lately. Record losses in the last few years, as the company has struggled to adjust its strategy to the shift from desktop computers to mobile devices, have seen the company chew through three chairmen in fairly quick succession. There have been arguments between the CEO and the board over strategy as well. What has gone wrong? Apart from missing the market shift to mobile devices, I wonder whether the company has run out of ideas and has become stale. The last three chairmen have been company stalwarts for example, steeped in the culture and history of the business. Realistically, how much fresh thinking would you expect to emerge in such environments?

    Now the founder has stepped in. A outsider CEO has been appointed, for the first time, to lead the company—and to become the chairman in three years' time. This first part of this is good; it should see the introduction of some new strategic options, but only if the founder (who has come out of retirement to occupy the chair) allows it to be so. However, the second part—of anointing a leader three years before the fact, in an industry sector characterised by rapid change and tectonic shifts, is a huge call. I would have thought it made much more sense to recruit the new CEO and then recruit a new (and probably but not necessarily independent) chairman in twelve months' time. This would give the incoming CEO time to get underway, begin to deliver on the confidence the founder has placed in him, without the additional burden of preparing to add the chairman role at the beginning of year three. What say the new CEO is no good? What say a different skills and expertise mix is required to lead the board effectively in the future? The founder has, in effect, closed off the possibility of introducing new thinking around the board table—even though this seems to have been one of his aims. 

    Complex businesses need highly capable leaders: two good heads are almost universally better than one. Keeping one's options open, to react and respond to changing market forces is smart. Painting one self into a corner is not. Notwithstanding this, the founder can exert influence as he wishes. My view—that the longer-term future of the business, and of the value to shareholders in particular, may have been better served with a succession plan that revolved around two separate appointments—probably doesn't count for much. 

    What do you think?
  • Published on

    Research update: closing in on the prize

    Phd Research Research Update Time Management
    "So, how's the research going?"
    "Pretty well, thank you for asking."

    I've been party to this brief exchange, or a close variant of it, most weeks this year. It's usually originated by someone who knows me; or someone who has an interest in what I'm doing; or, someone who finds it odd that I stopped working a couple of years ago to investigate how boards influence performance. My response has typically been quite private—as above—without wanting to appear to be rude. That someone might actually be interested enough to listen to me wax on for a few minutes is an assumption I have wished to avoid, However, with the project now in its final couple of months and the write-up well underway, and seemingly increasing levels of interest in the findings starting to come from business people and academics, I've decided to write a weekly update from here on in. Please let me know if they are helpful or not. If you have a specific question, please post a comment below or send a note, and I will do my best to provide an answer. My goal, of submitting the completed thesis by Christmas Day, remains intact. It'll be tight—because work has an innate capacity to expand to fill the time available—but doable. 

    The thesis will be six chapters long. Two of the three longest chapters (Literature Review and Research Methodology) have been out for review for a couple of weeks now. Last night, I finished the third of the 'big three' chapters (Data and Initial Analysis, the chapter that contains a summary of all of the data that has been collected and starts to makes sense of it). The first drafts of the Introduction and Conclusion chapters are completed as well. The satisfaction of having broken the back of the thesis writeup was palpable. The remaining chapter is entitled Discussion and Theory Development. It will be somewhat shorter than the big three and, as the title implies, it will hopefully answer the question that I set out to address. So, it needs careful thought. Thankfully, I have a fairly good sense of what needs to be written, although the proof of whether I'm on track will come as the week progresses and the mixed bag of notes and sentence fragments congeal (or not!).

    However, there is hardly a cloud in the sky or a breath of wind in the air this morning. The sun is streaming in the window and a tui is happily calling from a nearby tree. So, I have decided to take the day off. My wife and I are going to visit a famous rhododendron and azalea garden, in our old car, with a picnic. The joys of Spring! No doubt we will chat about the real sense I have, of now closing in on the prize and of handing over the final draft so it can be examined. But one must not get ahead of themselves, for there is much to be written yet. 

    I'll keep you informed.
  • Published on

    CEO pay: one in four think that time is more important the money

    Governance Management Performance Societal Wellbeing Time Management
    The rather sensitive matter of CEO pay has raised its head (again) today. Stories of ever-larger packages have appeared in the news columns with metronomic regularity in recent years. However, change may be on the horizon. According to the findings of a new survey conducted by Strategic Pay, one in four CEOs would take a pay cut if offered other benefits, including more time with family.

    Clearly, some CEOs think that time is more important than money; that there is more to life than work.

    These findings suggest that the runaway train that is CEO pay may not be boundless after all, although some CEOs will dispute them, no doubt. However, knowledge of these results creates an opportunity for boards to initiate a much needed conversation—for the health of the CEO and the good of the company.
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    In London: available to speak, or for meetings, workshops et al

    Conferences Governance Performance Research
    My next trip to the London and Europe is just over five weeks away (10 Nov to 19 Nov), to speak at a conference and to attend meetings. I have some space in my diary, so if you think you might need some assistance with corporate governance or strategy and want to take advantage of me being in your area, please contact me to discuss your requirements. I am available to speak; run a workshop; discuss insights from my latest research; or address other corporate governance, strategy and business performance matters of interest to you.

    Available dates:
    • Mon 10 Nov: available afternoon and evening, in London
    • Wed 12 Nov: available morning, in Zagreb Croatia
    • 13–14 Nov: attending European Conference on Management, Leadership and Governance (Zagreb)
    • 16–19 Nov: available, in London, or surrounding cities and towns

    I look forward to hearing from you soon.
  • Published on

    The Alternative Board: caveat emptor

    Governance Leadership Management Performance
    I have just stumbled across a new conceptualisation of governance, one that looks great on the surface but may actually be troublesome underneath. It's called The Alternative Board.

    The concept is that of "DIY governance", whereby owners and managers of small and medium businesses join a membership organisation to share ideas and provide support. Similar organisations abound in the market; BNI and Chambers of Commerce being two well-established examples. However, when one looks a little more closely, The Alternative Board has some unusual characteristics:
    • The organisation is actually a franchise business headquartered in the USA
    • A press release issued today states that members "act as boards of directors for each other"

    Membership of an organisation that provides assistance and collegial support is a good thing, although prospective members may baulk when they consider that this is not a classical break-even membership organisation that exists for the good of the members. The primary motivation seems to be the generation of profits for the owners—that's why franchises exist after all. Owners of smaller businesses that utilise a partnership or sole trader ownership structure can decide what they think about this and whether the proposition delivers value or not.

    Stepping past this first point, there is a larger and potentially more troublesome question for those who operate their business as a company. Advisors that perform tasks similar to those of boards of directors can be deemed to be directors. As such, well-meaning members may, unknowingly and unwittingly, become bound by the Companies Act (and amendments) and the legal duties of directors.

    Given these characteristics, and the implications of them, my recommendation to owners and managers who are considering whether or not to become members of The Alternative Board is this: Do your homework first. Caveat emptor.