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    Invitation to submit a paper to #corpgov conference in Croatia

    Conferences Governance Performance Research
    A few days ago, I was invited to submit a paper to the 10th European Conference on Management Leadership and Governance (ECMLG). The 2014 edition is being hosted in Zagreb, Croatia. I'm humbled by the opportunity to offer a contribution.

    The deadline for paper submission is mid-June. My topic will 'access'. Simply stated, the paper will suggest that governance research needs to move on from its predilection with typically quantitative secondary data, to study what actually occurs in the boardroom. It is my view that first-hand observations are crucial if we want to truly understand how boards work, and to make credible suggestions about how they contribute to business performance. You can read the preliminary abstract here. 
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    CEO salaries are supposedly out of control. So what?

    Governance Leadership Performance Societal Wellbeing
    A blog entry on the Reuters page today makes interesting reading. "Supersize" CEO salaries have caught the attention of legislators, in California at least, with proposals to apply a punitive tax regime. It seems some people have had enough, or is this a case of a legislature seeing a revenue gathering opportunity?

    CEO salaries have been steadily climbing ahead of inflation and most other economic measures for years, particularly so in the US in the last decade. Market forces seem to have been at work, whereby reputations are on the line, and boards have offered increasingly large deals, to attract new CEOs and to retain good ones. No doubt some high-performing CEOs have seen this and demanded big numbers as well. For example, Mark Adamson, CEO of Fletcher Building, seems to be demanding more. Not all CEOs have the same outlook however. In the same article, Mark Powell, CEO of The Warehouse, a very successful retailer in New Zealand, seems to be somewhat embarrassed by his salary package.

    The topic of supersize salaries is an easy target for journalists, mates having a drink, the unions, and others. However, when all is said and done, does it actually matter? If a company is socially responsible and the CEO is creating considerable shareholder value, then probably not. However, if the company is flagrantly abusing its staff, suppliers or customers, then it probably does matter. My preference is to let the invisible hand of market forces determine the outcome. If a gross imbalance or inequity occurs, a correction will follow, sooner or later. Hopefully it won't be so late that the society collapses though.
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    On boardrooms, digital mongrels and company performance

    Governance Leadership Performance Strategy
    Mike O'Donnell is a business manager, company director, family man and self-confessed techno-geek who writes a weekly column for the Dominion Post. Mike's comments can be provocative, cynical, irreverent and highly insightful—sometimes in the same column. Almost always though, his comments are entertaining and relevant. His latest contribution, which recounts a speech he delivered at the recent Institute of Directors annual conference, fits in the inspired and relevant category. Here's a piece from the column:
    I see the role of directors as being threefold. First, to select and appoint the right CEO for the company. Second, to provide meaningful governance on issues like solvency, risk, remuneration and health and safety. Third, to help set a strategic direction that will deliver growth and help monitor its implementation.
    In three points, Mike summed up the role of the board really well. However, I would alter the sequence, because the third point needs to come first. Without purpose and strategy, there is not much for the CEO to do, or the board to govern.
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    Actions and consequences should go together

    Governance Performance
    Another entry was added to the rather sad chronicle of Ross Asset Management yesterday. David Ross, the founder, has been struck off by the New Zealand Institute of Chartered Accountants. It is pleasing that the Institute's rules have such provisions. Membership of a professional body should be obligatory for all practitioners, to provide consumers of the services rendered with confidence. However, it should not be a right. It should be reserved for those that satisfy specified entry criteria (through formal assessment)—and continue to do so. Membership and responsibility go together, including a commitment to on-going professional development and the upholding of professional standards, amongst others.

    The Institute of Directors in New Zealand (IoDNZ) is partway through a process of professionalisation, to bring governance into line with other professions. The chartered director proposal includes a tiered membership structure and a commitment by members to the maintenance of standards and on-going professional development. This is timely, as some directors have been in the news in recent months, for all the wrong reasons. Members will vote on the proposal at the upcoming AGM. 

    The IoDNZ proposal seems to be sound, except the accountability component is somewhat weak. Actions and consequences should go together. The IoDNZ constitution includes provisions to strike off members who act fraudulently or bring the Institute into disrepute. However, if the IoDNZ is seriously committed to upholding governance standards, then a mechanism is required whereby members are held accountable for their ongoing compliance with the proposal. If a member fails to demonstrate a commitment to on-going professional development for example, then a downward adjustment of membership level may be appropriate. I hope members see fit to consider the inclusion of such an accountability amendment before the proposal is adopted.
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    The contribution of boards to company performance

    Governance Performance Research Strategy
    A blog article, with the catchy title How to double your company's profit: begin by refreshing your board of directors, appeared in Huffington Post today. The article is helpful because it highlights the importance of having a diverse board. Here's a snippet: 
    Imagine instead a board comprised of 10.7 people (the average board size) where directors of a variety of ages bring the relevant expertise and leadership experience that is needed, and have grown up in various regions of the world, in a variety of socio-economic conditions. Such a group, some with academic credentials or particular subject mastery, others having built and led innovative ventures, climbed the ranks of multinational corporations throughout the world, having life experiences in emerging markets, and playing and working with the latest technologies from the time they could crawl, can truly envision what's possible and also know what questions to ask management.

    With such boards of directors, multinational corporations will finally unleash their greatest potential, attaining exponential profits while achieving peace and prosperity.
    Korngold makes some great points—she is amongst an increasing number of people to suggest that better governance leads to better performance. Diversity in the boardroom is a good thing. However, a couple of her assumptions deserve comment:
    • Korngold suggests that diversity in the boardroom is causal to increased company performance. Sorry, but we don't know that. Diversity of thought and experience within a group has been associated with the making of better decisions (because a wider range of options and ideas are explored). However, placing a diverse group of experienced and effective directors together to govern a company does not necessarily lead to high performance. There are many other internal and external factors, some of which are well outside the control of the company, let alone the board.
    • Korngold asserts that increased performance occurs when board members "truly envision what's possible and also know what questions to ask management". These are important attributes of effective boards, however there is much more to it. In addition to being fully engaged in the process of governance (implied in Korngold's comments), boards need to be forward facing and actively involved in the development of strategy. Even then, increased performance may not follow.

    Governance is complex, socially-dynamic and every board is unique in some way. Things that work in one instance may or may not have the same effect elsewhere. Notwithstanding these comments, I enjoy reading Korngold's articles. They add much richness to the discourse.
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    Understand your business better: SWOT 2.0

    Management Performance Strategy
    Image description
    Do you use the SWOT tool in your organisation as a precursor to the strategy development process? SWOT (Strengths, Weaknesses, Opportunities and Threats) is a useful tool, but it has fallen out of favour in recent years, as organisations have struggled to deal with the 'laundry lists' generated during SWOT sessions. Also, other tools have become popular. 

    Many people have told me that SWOT is old (it is) and irrelevant (let's discuss this), and that newer tools do a better job. I agree, to a point. The trouble with most SWOT analyses is that they only go half-way. Identifying those internal and external things that are helpful or harmful to your organisation's success is useful if and only if something is done about them. The lists generated from SWOT sessions can be long, and complementary items often appear on each side of the ledger. Creating and resourcing effective action plans from such lists is simply too hard in most cases.

    One modification that I have used for a couple of years now is to add a 'so what?' question to the analysis after the lists are assembled. For each strength, weakness, opportunity and threat, think about the impact or consequence of that item on the organisation—by asking 'So what?'. If the impact or consequence is high or significant, create an action to maximise (strength or opportunity) or minimise/mitigate (weakness or threat) it. If the impact or consequence is low or insignificant, simply put it to one side for now. This simple addition (let's call it SWOT 2.0) helps teams prioritise those things things that actually matter. It has transformed the usefulness of the tool (and the quality of the strategy) in every case that I am aware of.

    One last word though: don't be lulled into thinking that SWOT, SWOT 2.0, PESTEL or any other tool is a panacea. They are just tools. They need to be used correctly, for the purpose for which they were designed. Often, it is wise to use a couple of tools, to ensure you get a well-rounded picture to base your strategy development work on.