Tags

  • Published on

    Executive pay: is Thodey's call a signal that enough is enough?

    Accountability Ethics Governance Performance
    David Thodey, outgoing chief executive of Telstra, has just gone on record: CEO pay is out of control. Swimming against the tide, Thodey said his remuneration was indefensible, and called for change. A cynic might suggest that it is all very well for Thodey to say these things, especially after he pocketed $27M while he was the chief executive. Nevertheless, Thodey's call is not unique. One in four chief executives think that time is more important the money.
    Is Thodey's call, and those of others, a harbinger of change to rein in executive pay? I hope so. History tells us that gross disparities between the 'haves' and the 'have nots' can lead to uprisings and, potentially, bloodshed. The French revolution, Bolshevik Revolution and the Arab Spring are notable examples, although there are many others. To make some adjustments now may be just the pressure release valve that many in society are looking for. 
  • Published on

    Boardroom authenticity: are director actions consistent with their claims?

    Accountability Governance Performance Strategy
    The NYSE has just published the results of its 12th annual director survey. The survey, conducted by Spencer Stuart, makes for interesting reading. For example, strategy and performance features as a "perennial concern" of respondents—directors claim a strong interest in strategy. However, the responses do not bear this out. When asked to identify board actions that are critical to company performance, the top six responses from directors were:
    Directors say they know strategy and performance is important. That's clear. So why, when directors are asked specifically, do 'monitor' and 'control' activities feature more highly? Ouch! Why are some director's actions inconsistent with their claims?
    Do you notice anything unusual these responses? Apart from reviewing the strategic plan (presumably developed by management), none are practices of strategic management at all! If the board is responsible for business performance, why isn't it directly involved in the development of strategy, or monitoring strategy implementation, or verification of business performance goals? Why don't these elements, which are crucial to any influence the board might exert on business performance (watch for my forthcoming research), feature at all?
    • Regular CEO evaluation 96%
    • Strategic plan review 91%
    • Review of bench strength 83%
    • Capital use review 83%
    • M&A analysis 73%
    • Meeting on-site managers 62%
  • Published on

    Directors, you are accountable—the Supreme Court says so

    Accountability Ethics Governance Performance
    Is the worm starting to turn? After many years of relative calm—save a small number of judgements including this example from the New Zealand finance sector—directors seem to be facing increased levels of scrutiny, including being held accountable for actions (or inaction).
    A new judgement, by the Supreme Court in England, places a stake in the ground for British companies. The seven judges determined (unanimously) that directors were responsible for their actions, and that where those actions were fraudulent directors should be held personally accountable. No doubt some directors will throw their arms up in horror, asking how they could possibly know everything in order to make informed decisions. Yet directors are responsible for the overall operation and performance of the business they govern. Therefore, directors have a duty of care to become informed before they make a decision. 
    The Jetivia–Bilta judgement provides a timely reminder to directors. Precedents have now been set in several countries. The buck stops with us (yes, I am a director too). Directors need to ponder the implications carefully. Thankfully, those who are not happy to carry the responsibility and accountability that goes with every appointment have an 'out'—they can (and should) resign.
  • Published on

    ICAEW posts excellent discussion on capital market changes and impact on corporate governance

    Accountability Governance Leadership Performance
    The Institute of Chartered Accountants in England and Wales (ICAEW) has recently published an informative series of documents to help directors and executives respond to changes in capital markets and how they affect the foundations of existing corporate governance frameworks. The material is great. Here's a series of links to the source documents:
    While the intended audience is the ICAEW membership, the commentaries are useful for company leaders in other jurisdictions—if not directly then certainly as discussion starters around board and executive tables. If you are based in England or Wales and have any technical questions, please contact the ICAEW. If your business is based outside the UK and you would like to organise a facilitated discussion to explore how to take advantage of the suggestions, I'd be happy to help.
  • Published on

    The uncooperative Co-operative Group

    Accountability Governance Performance
    A couple of days ago, I posted this tweet, a thinly-veiled criticism of some unseemly behaviours in the Co-operative Group boardroom. The hashtag #hubris was subsequently associated with the tweet, perhaps suggesting that others had similar concerns over what is going on. Leveraging the recent safe deposit box raid in Hatton Garden, Peter Hunt suggested that the "great Co-op Group heist" was a "mighty stitch-up". Strong words indeed. Now Jill Treanor has urged chairman Allan Leighton to reverse the board's plan to put forward three (of it's own) candidates for three vacant positions. This has all become quite messy—it smells of nepotism, egos and power games.
    That the incumbent board (or factions within the board, at least) is clinging to power by putting forward three of its own nominations for the three vacancies is hardly good practice. However, that shareholders let the board get away with it is tantamount to dereliction of the shareholder's 'duty'. 
    Normally, shareholders would be expected to contribute nominations, and then to select directors through some agreed election process. In this case, the tail (certain directors) seems to be wanting to wag the dog (the shareholders). If the shareholders are interested in the performance of the business and in certain outcomes being achieved, they need to assert some control over the nomination process. However, if the shareholders remain passive, the board is free to act as it sees fit—within the bounds of the law and the Co-operative Group's constitution, of course.
    One final point. If the shareholders do wish to act, and any of the incumbent directors resist such moves, the shareholders could consider taking the somewhat bolder step, of replacing the uncooperative directors. The good of the company is at stake after all—and let's not forget who the company actually belongs to.
  • Published on

    We talk about value creation, a lot, but what is it?

    Accountability Governance Leadership Performance Strategy
    Much has been written about the notion of value creation in recent times. The phrase is used in commerce, especially by directors, managers, consultants, researchers and facilitators, amongst others. If you listen into board meetings, discussions between managers, sales meetings, product development workshops and planning sessions, questions like "Does XYZ add value?', "How is value created?" and "What is our value proposition?" are likely to be asked. These pop up often, which suggests that value creation is recognised as being something important to be striven for. However (and alarmingly), different people have rather different ideas of what value creation is or might be. Worse still, their ideas are often based on incorrect assumptions!
    We talk about value creation as we would an old friend, yet in many cases we lack a common understanding of what 'it' is! Here's one suggestion, from the Reference for Business:
    Value creation is the primary aim of any business entity. Creating value for customers helps sell products and services, while creating value for shareholders, in the form of increases in stock price, insures the future availability of investment capital to fund operations. From a financial perspective, value is said to be created when a business earns revenue (or a return on capital) that exceeds expenses (or the cost of capital). But some analysts insist on a broader definition of "value creation" that can be considered separate from traditional financial measures. "Traditional methods of assessing organizational performance are no longer adequate in today's economy," according to ValueBasedManagement.net. "Stock price is less and less determined by earnings or asset base. Value creation in today's companies is increasingly represented in the intangible drivers like innovation, people, ideas, and brand."
    This paragraph exposes the nub of the problem. We assume we know what it is. Several simple but incredibly powerful questions need to be asked and answered before business leaders can hope to allocate people and resources effectively in pursuit of business goals:
    • Who is the recipient of the intended value?
    • What is valuable to them?
    • How can this value be created?
    • How will it be measured?
    Rather than make assumptions (think how often have you heard sales people use "unique value proposition"), boards and managers need to seek clear answers to these questions from the beneficiaries of the value that is to be created (because value is determined by the recipient not the creator). Expect to hear several answers to these questions, because 'value' means different things to different people.
    Starting at the 'top' of a company, boards should sit with shareholders and ask (or propose, if the shareholder is unclear) what 'value' looks like to them. Responses might include increased share price, a long-term market position or business model, increased market share or something completely different. This is the 'core purpose' question. Similarly, managers and staff need to sit with customers (or prospective customers) and ask the same question. Staff also need to be asked: their motivations are likely to be different from those of shareholders and customers. 'Great solutions' that 'add value' to customers / staff / shareholders are highly unlikely to do either if customers / staff / shareholders do not recognise, or are not interested in, the value that is supposedly being offered. As with strategy, boards need to take the high ground, by ensuring that value created for one recipient does not erode value elsewhere. Boards need to become crystal clear about value in a holistic sense: what it is, who the recipient is, and how it is created. 
    Once the value matrix (what and to whom) is understood and agreed, the answers need to be communicated in a clear and concise manner, so that effort and expectations can be aligned accordingly. Finally, the board has an ongoing role: to ask probing questions at board meetings, to ensure the required alignment (between purpose, strategy, strategy implementation and value) is actually in place and that the expected value is actually being created and delivered to the intended recipients.