Tags

  • Published on

    Hyundai: navigating along a pot-holed road

    Governance Leadership Performance
    The rather smooth road along which Hyundai has been travelling in recent years just got bumpy:
    • Yesterday, reports emerged of some rather shonky decision-making in the Hyundai boardroom, whereby a major land transaction was approved by the board, even though it did not know the ($10B!) price tag. The market reacted by stripped $8B off the value of the company's shares. Strike one.
    • Today, it was the workers turn. Over three-quarters of the workforce walked off the job, in protest. The union had been negotiating employment terms and conditions, and had been stonewalled by "cost issues". It now turns out the cost issues may have been related to the land transaction. Strike two.

    Claims (that the land purchase will enhance brand value) and counter-claims (that the Chairman wields outsized influence) are circulating. Whereas the company has performed well in recent times, things may not have been as rosy on the inside as they seemed to be from the outside. Clearly, Hyundai has struck a nasty section of potholed road. The board and shareholders face some difficult decisions:
    • Will the directors admit their rather large mistake and at least offer their resignations?
    • Will the management team, who successfully pulled the wool over the board's eyes, now respect the authority of the board?
    • Will the shareholders step in and shake-up the board?

    One hopes the shareholders, board and management might set their egos and inherent response (save face) to one side, to create and implement a plan to repair a now-damaged brand image. This nasty series of potholes will not be fatal to Hyundai's long-term prospects if the three parties act quick and smartly, and do so together as one. However, if they don't strike three may not be too far away.
  • Published on

    And so the CEO remuneration escalator continues...upwards

    Governance Leadership Performance Societal Wellbeing
    The latest round of annual reporting in New Zealand confirms that the size of CEO remuneration packages are continuing to track upwards. Reports from SkyTV, Ebos and others suggest that the now well-established trend shows no signs of slowing down.

    The concept of executives (actually, all staff) receiving remuneration commensurate with their performance and the value they add to the corporation sits comfortably with me. However, the steady spiral upwards of CEO packages, at what seems to be an unchecked rate, may be the harbinger of a longer term problem: that any linkage between the package, actual performance and market forces is lost. If boards are truly focussed on the optimisation of performance in accordance with the wishes of shareholders, then boards need to ask the following three questions every year:
    • Is value being delivered by the CEO? 
    • What is the company prepared to pay for that value?
    • Are alternative CEOs available if the incumbent declines any package offered?

    I am sure that the first and second questions are being asked by boards: the evidence is in the packages. However, I suspect the third question gets much attention. If a board was exploring its options, the likelihood of being captured by the CEO (or their reputation at least) should be much lower. While easy answers are unlikely to exist, boards need to grapple with these matters, by asking and acting on all three questions. Until they do, the law of supply-and-demand is likely to prevail, and the upward trend is likely to continue unabated, possibly to the detriment of long-term shareholder value.
  • Published on

    Where should the accountability benchmark be placed?

    Governance Leadership Performance
    Corporate boards and executive managers have endured some criticism of late, as yet another wave of reports of incompetence, fraud and hubris have reached the public domain. Some directors have been lambasted for their actions, while others have avoided any direct consequences. Clearly, this raises an interesting question of consistency. Where should the accountability benchmark for acceptable director performance be placed? 

    My sense is that directors need to think very carefully about why they are appointed and what duties they must fulfil having accepted any appointment. All directors have a duty of care and a duty of loyalty—to the company or to the shareholders (depending on the jurisdiction) and not to themselves. This means that the director role is a servant role, of serving the best interests (of the company/shareholders). In fulfilling these duties, directors need to ensure they are adequately informed and well-intentioned, lest the wool is pulled over their eyes or they make decisions that are not consistent with their duties. The role of the director bears a weighty responsibility, so directors need to take their appointments seriously. Most do, but some, clearly, flout the boundaries of moral and ethical acceptability. 

    Directors need to be beyond reproach, and clear demarcations of what is acceptable—and what is not—need to be established. The challenge, of course, is holding directors to this level of performance, in the public domain and through any legal processes that may be required.
  • Published on

    Outsource the board? I don't think so.

    Governance Leadership Performance
    The contentious topic of board performance seems to be getting more and more attention in the popular press. The attention is great, because boards are responsible for company performance, in accordance with the wishes of owners, and they need to be held accountable. However, not all of the discussion is helpful. For example, this provocative article appeared in the Economist recently. While the article was well-written, the proposal it contained—to outsource the board—was irksome. I remember tweeting about it at the time.

    The board is a proxy for absentee owners, to represent their interests. Why any owner (shareholder) would allow a board to (re)outsource what is, in effect, an arrangement that is already outsourced is beyond me. If the board is not delivering the results the owners want it should be replaced, not outsourced. Thankfully, an influential commentator has provided this rejoinder to Schumpter's article, and in so doing reintroduced some much needed balance and a modicum of sensibility.

  • Published on

    BAM2014: Final programme published

    Conferences Governance Leadership Management Research Strategy
    The 28th Annual British Academy of Management Conference is now less than a week away. The conference is being held in Belfast, Northern Ireland, on 9–11 September, and the final version of the BAM2014 programme is now available on the conference website. I'm down to deliver my paper on Thursday morning.

    This year, over 640 full and developmental papers will be delivered over three full days. Helpfully, the wide range of topics have been grouped into 24 tracks. In addition to the papers, keynote speakers will address the delegates each morning; and there are symposia; special interest group meetings; professional development workshops; and, a gala dinner (at the Belfast Titanic Museum, no less) to attend. Delegates will be busy!

    If you are interested in a particular track or specific paper, but cannot attend, please let me know. I will do my best to attend the presentation for you and report back. Also, if you are planning to attend the conference and would like to meet up over a coffee or snack, please contact me via Twitter or email.

    PS: As has become my practice during conferences, I will provide summaries and reflections throughout BAM2014, so please check back regularly if you are interested.
  • Published on

    "Big firms fail to match growth of economy"

    Governance Leadership Performance Strategy
    Bryan Gaynor shone the light on a very important problem today—that many large firms in New Zealand simply are not growing in line with the growth of the economy. In other words, they are going backwards. Gaynor's analysis is insightful: to lose ground when the flow is good suggests that something is amiss. This raises several important follow-on questions: 
    • What have the boards of these firms been doing over the last few years?
    • Why have the boards not held the Chief Executive accountable for performance?
    • Who is actually in control and who is driving strategy? (It's unlikely to be the board, from what I can see.)
    • What changes are required to get these firms, and the economic contribution they make, back on track?

    While the issues before each firm will be unique, there are some constants:
    • The board is responsible for business performance.
    • The board needs to ensure that an appropriate corporate strategy is in place
    • The budget is not the strategy, it is a measure of progress.
    • The basis of performance should be achievement of strategy, not achievement of budgets.

    Hopefully, the boards of these firms will take stock, ask some quite tough questions, and make appropriate adjustments to get back on track. High company performance has many positive flow-on benefits beyond shareholder wealth, and these need to be realised if at all possible.