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    On the unravelling of a business

    Governance Leadership Management Performance Strategy
    I have mused on the downfall of Postie Plus twice recently: when trading was halted on the stock market, and then when an administrator was appointed. Today, a third instalment: an initial impression of what went wrong, and what boards can learn from the case.

    The Postie Plus board and management appear to have lost sight of the company's purpose. The company's genesis was as a provider of good quality, affordable clothing that was good value for money. However, in recent years, the company has found itself competing in a higher fashion segment of the market, something that the chairman—remarkably—is on record as saying that the company did not aim to do. On this information, the company was operating at variance to its strategy. Gosh. The questions that emerge from this revelation flow thick and fast. Why did the board allow this to happen? Was the board watching? Did the board know? What was the board thinking? 

    The board is responsible and accountable for the achievement of business performance outcomes in accordance with the wishes of shareholders. Yet in this case, decisions were made (or, not made?) that resulted in the company performing less well over an extended period. Sadly, the board took little, if any, action. The Postie Plus board knew something was amiss two years ago. An interview with the chairman in December 2012 corroborates this. At that point, the board should have gone back to basics—to purpose, values and strategy—to find out what was going wrong and to make some serious adjustments. However, it appears that the company simply tinkered around the margins (while the patient was dying).

    Other boards should take note. Boards need to set strategy, and they need to review business performance against strategy on an on-going basis, to determine the appropriateness of the strategy. To do this effectively, boards need to understand the business of the business they are responsible for. They need to understand the market, the competition and the emerging trends, lest they get blind-sided by competitors, completely disruptive technologies, or, more simply, a change in buyer preferences and behaviours. On the evidence to date, the Postie Plus board does not appear to have done these things—or if it has, then it has not done them well. It is little wonder that the Postie Plus business has unravelled as it has.
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    The small question of control: A new "shareholder spring"?

    Governance Leadership Management Performance Strategy
    The question of who calls the shots in companies has been vexed for many years. On paper, the shareholders should have the final say, after all they own the company. However, the reality of what really happens is not so straightforward. Company ownership is widely held in many cases—particularly amongst publicly-listed companies—so forming a common view amongst shareholders is difficult at best. Consequently, boards and CEOs have considerable scope to seize control, in order to pursue their own aims.

    My observation is that shareholders are relatively happy to accept this situation when the going is good. However, when times are tough, or when the board or management pursues strategies that are not popular with shareholders, shareholders need to become more active. Shareholders need to ensure that boards represent their interests and that they deliver the results that shareholders want. It seems that some shareholders are starting to do just that, for a new "shareholder spring" appears to be occurring. Will it make a difference? Who knows. One thing seems clear though: passive shareholders will get their comeuppance.
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    Boards: a timely call for courage

    Governance Leadership Management Performance Strategy
    I had the pleasure of working with 24 outstanding business leaders and company directors yesterday—delegates on the IoD Company Director's Course. The topic of the day was strategy, as it always is on the second day of the course. My task was to lead the day and provoke discussion and debate, as part of the learning experience. The entire course is run under The Chatham House Rule, so delegates can speak freely and use real-world examples without fear of sensitive information being made public. However, some of the themes and conclusions that emerged from the discussion can be mentioned:
    • Boards need to be involved in the development of strategy, in some way.
    • A standard lexicon is crucial, so that everyone knows and understands what is meant when certain words are used. (We had a lengthy discussion on the question, "What is strategy?")
    • Boards owe a duty of care to ask probing questions of management, to satisfy themselves as to what is really going on.
    • Business is complex and strategy development is not straightforward. Things change, and sometimes tough choices need to be made, often without complete information.

    As we worked through the day, it became clear that the delegates had a realistic view of how boards and business actually work, and they recognised that there is often a gap between [tidy] theory and [somewhat messy] practice. The separation of governance and management, first espoused by Berle and Means in 1932 and now accepted dogma for companies in the Anglosphere, may not be the best model, for example. The discussion reminded me of a timely call made in an article that appeared in The Conference Board Review recently:
    Unfortunately, despite the theory on how boards are supposed to work, the reality is considerably messier. Reinvigorating boards with curiosity and courage would be a very good place to start fixing what is broken.
    Hopefully, delegates are able take away something from the course to ponder and challenge their status quo and some of the accepted maxims of governance. Boards cannot afford to remain as "parsley on fish—decorative but useless" (Irving Olds, Chairman, US Steel 1940–1952). If the behaviours and comments of the CDC delegates this week are any indication, curiosity and courage may be about to re-enter our boardrooms.
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    NACD Commission on strategy: An increased role for the board?

    Governance Leadership Performance Strategy
    The National Association of Corporate Directors (NACD) has announced the establishment of a commission to make recommendations about the "board's role in recalibrating the enterprise's corporate strategy in response to market forces". The decision, to consider the topic and present guidance, is a positive step towards more effective governance in the USA.

    For some time now, researchers have suggested that strategy needs to be part of the board's remit, although a consistent interpretation of what that means remains unclear. Some directors and consultants think boards should be actively involved in the process. Others disagree. Clearly, there are several options to be considered, along a spectrum:
    • Management drives the entire strategy development process, and the board, at best,  rubber-stamps the result.
    • The board simply approves strategy developed by management. This is the default option for many companies today.
    • The board speaks into the strategy development process, but it remains largely controlled by management.
    • The board is an active participant in the development of strategy, together with management.
    • The board drives the strategy development process, albeit with considerable input from management.
    • The board imposes strategy on management.

    Irrespective of the recommendations that Commission presents later in the year, boards are responsible and accountable for business performance, and board contributions need to be recalibrated accordingly. I await the outcome of the NACD process with interest.
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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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    Crowdsourcing my doctoral research: can you help?

    Governance Phd Research Strategy
    My doctoral research, to discover how boards can influence company performance outcomes, is continuing a pace. Currently, I have one more board meeting to observe, after which the twelve month cycle of boardroom observations will be complete. This major milestone signals a change in emphasis, towards data analysis, the testing of ideas and the drawing of conclusions—oh, and writing the thesis document! Although it'll be tight, I hope to complete the thesis and submit it for examination by Christmas.

    The purpose of this post is to request some feedback please, to help me make sense of some emerging ideas. I'm mulling over a new conceptualisation of governance, one that challenges the widely-held view that governance and management should be kept separate. As alluded to in the paper I presented at ICMLG recently, the concept has the board fully engaged in the development of strategy.

    The question that I would like some feedback on is: What underlying powers, behaviours and concepts do you think are necessary for such a conceptualisation of governance to work well? Five are mentioned in the paper, but you may have some other suggestions based on your experience. If you would like to share your ideas (supported with examples if you can), please contact me!