• Published on

    ECMLG2014: Service as a required leadership competency

    Noel Pearse, of the Rhodes Business School, Grahamstown, South Africa, presented the next chapter in what is rapidly becoming his magnum opus.  I first met Noel twelve months ago, in Vienna, when he presented a paper on servant leadership. This year, he spoke on service as a specific leadership competency. 
    Thinking of leaders and followers, most people understand that an important role of the follower is to serve. In a business context, that means to serve other colleagues; managers; and, customers. The same people would probably suggest that leaders are to be followed and, by implication, to be served. However, emerging leadership trends provide an interesting juxtaposition, whereby leadership responsibility is being distributed; so-called celebrity leadership status is being rejected; and,  ethical leadership is becoming increasingly valued. Further, servant leadership is quite common in high-performance organisations.
    With this background, Pearse posed an interesting question: whether service is actually a required leadership competency. Building on the seminal work of Boyatzis (1982) which identified attributes and competencies of effective leaders, he asked whether certain underlying attributes (my phrase, not Pearse's) are necessary. I was fascinated by Pearse's work—still at a theoretical stage—because it appears to bisect my work on underlying personal qualities of effective effective directors as they seek to exert influence in the boardroom. We plan to stay on stay in touch.
  • Published on

    What is the real purpose of business?

    Does the question posed in the title of this musing have a straightforward, even profound‚ answer? I would have thought so. In fact, when I am asked this question—as happens on a fairly regular basis—my reply is that the purpose of business is to provide a return to the shareholders, whether by way of a dividend or a capital gain, or both. The shareholders own the asset (the business), so it seems fair that they receive a reward for making the asset available. I've thought this for the long time, on the basis that the shareholders are the ones that put up the money in the first place. Staff, suppliers and others receive payments for services rendered and products supplied at the time they are provided.
    However, if companies become selfish and get too greedy, by trying to maximise profit at the expense of almost anything else, as some do, then cries of protest can be expected from some quarters. Do cry-ers have a point? Maybe, but not if they are promoting some form of social engineering, whereby profits are distributed to others beyond the shareholder base. Businesses exist for the purpose of making money for their shareholders. They are not social clubs for a wide group of so-called stakeholders. Others disagree, I know, but the purpose of a for-profit business is to make a profit! Otherwise, the business would be a not-for-profit agency.
    It would seem to me that, in the context of an open market, those companies that achieve dominant positions are very good at what they do. Yet no business is exempt from the invisible hand. The self-regulating behaviour of the market described by Smith over 200 years ago remains in control. It will have an effect, perhaps sooner rather than later if boards and shareholders get too greedy with profit maximisation.
    So, back to the question. What is the real purpose of any business? To make a profit for its shareholders, and those that do this well, in an ethical manner, can and should expect to operate successfully for many years.
  • Published on

    Have you seen the poppies?

    My wife and I had the opportunity to see the poppies at the Tower of London first-hand in early September, as the display commemorating the soldiers that paid the ultimate price in World War 1 was being prepared. This is what we saw:
    Picture
    Picture
    As impressive as it was at the time, the display then is not a patch on the moat today, now that all 888,246 poppies have been "planted". The poppy had huge significance for the allied soldiers on the Western Front. It continues to be significant for their descendants. I am looking forward to visiting the commemoration again, on Monday 10 November—along with a great many others, I suspect.
  • Published on

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

    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.
  • Published on

    And so the CEO remuneration escalator continues...upwards

    The latest round of annual reporting in New Zealand confirms that the size of CEO remuneration packages are continuing to track upwards. Reports from SkyTVEbos 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

    Another example of directors escaping guilt: has justice been served?

    More news on the Feltex front today: a judge has just cleared the directors of liability for disclosure failures. I have discussed the sorry story of Feltex before. That the directors were charged seemed to be fair, given the seemingly strong evidence that something was awry. However, the judge has now issued their reserved judgement. Many will be surprised that, in the face of incriminating emails and other evidence that directors knew there was a problem with the business fundamentals, the decision was not guilty. However, and interestingly, the judge did note "some justification" for the criticisms of the prospectus upon which the case was based.

    Is this a case of well-heeled directors being able to rally a strong defence to protect their reputations, or was no wrong done? Regardless, the decision has been made, and with it a potentially dangerous precedent has been established—that the standard of accountability for directors may actually be quite low. While this is good news for directors, I'm not sure it is good news for shareholders, or for society more generally.