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    Big ideas and goals are insufficient, strategy needs to a purpose

    Decision Making Governance Performance Strategy
    The seemingly innocuous statement, that business success is predicated on creating an effective strategy to achieve a goal, seems to have a fairly broad following amongst company leaders and directors. However, the reality (of what is needed to achieve business success) is somewhat different, as Ken Favaro points out here. Favaro's commentary is helpful, but only to a point. His suggestion that a 'big idea' is necessary to success is not particularly reassuring. What of all the other successful companies out there? How did they succeed if they didn't have a singular 'big idea', or even several 'medium ideas' for that matter? There's got to be something else that drives success.
    The consistent theme that I've observed amongst companies that have enjoyed long-term success is that they have had a clear sense of why they exist—a purpose. This is because people get behind causes, not things. Sinek's 'golden circles' thesis is the best annunciation of this that I have seen.
    Boards and management teams grappling with strategy and the future of their business should watch Sinek and use his ideas to re-think their business. Those that do so have told me it's the best 18 minutes they have invested for a long time, far better than any search for a 'big idea'.
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    An interesting twist in the Hanover Finance case

    Accountability Decision Making Governance Performance
    The demarcation between the responsibilities of directors and promoters and those of shareholders was made plain in the Hanover Finance case today. The Financial Markets Authority filed a civil suit against six named parties (five directors and one shareholder), following the collapse of the business several years ago, and a decision by the Serious Fraud Office to abandon criminal charges. The FMA has been pursuing the parties for a couple of years. Now, today, an $18M out of court settlement has been announced. However, there is a catch.
    Five of the six parties (the directors, excluding the named shareholder) were named. The sixth party, well-known businessman Eric Watson, refused to admit he was a promoter of the company (as claimed by the FMA). Consequently, he has avoided being named as a party to the settlement. Thus, the decision demonstrates the distinction between the responsibilities of directors (to make decisions and bear consequences) and those of shareholders (liability is limited to loss of equity).
    One final point. The response of the directors was interesting, to say the least. The directors continue to deny any liability for wrong-doing—even though they agreed to the settlement. Huh? A company has failed. The directors knowingly made major decisions including the issuance of prospectus documentation and they promoted the prospectus. Agreement to settle (funded by insurers, no doubt) implies culpability at some level you would think. Yet liability is denied. Doesn't that sound a bit odd?
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    Are #corpgov statutes and compliance codes detrimental to business performance?

    Accountability Decision Making Governance Performance Societal Wellbeing
    Every now and again a thought piece really sets me thinking—like this one, which arrived in a mail feed over the weekend:
    Most people like the comfort of having rules to follow. Rules give us a clear understanding of what is expected. Obey the rules and we feel safe, confident in our actions, and assured of positive outcomes. However, excessive focus on rules can make us arrogant and judgmental.
    Hard law (that is, statutes and compliance codes) seems to be the de rigueur response to major corporate indiscretion. Sarbanes–Oxley, Dodd–Frank and the UK Corporate Governance Code are but three recent examples. These measures set fairly well defined expectations in terms of how boards are supposed to operate. However, they don't ensure performance. They add cost as (most) companies seek to conform, or they lead to evasive practice). 
    Might the strong focus on regulation, statutes and compliance codes actually be bad for business performance and economic growth, especially as most directors and boards operate ethically and well within accepted social and societal norms? How might the risk–cost balance change if there were fewer rules to divert directors' attention away from value creation?
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    REDUX: Towards a 'strategic board'

    Accountability Decision Making Diversity Governance Performance Research Strategy
    Many commentators—academics and practitioners—agree that corporate governance is complex and difficult to get right. In the context of maximising business performance, boards must satisfy many demanding (and competing) priorities including shareholder expectations; legal and compliance requirements; the management of risk; the determination of future direction; and, the hiring (and sometimes firing) of the chief executive. Directing is a busy job, and it is one that takes time and commitment to do well. The steady stream of boardroom 'fails' in recent years (HSBC and Christchurch City Council amongst many others) and indiscretions (FIFA) suggests many boards are not doing their job as well as they need to. Why is this?
    • Are director's schedules too full to give each board the necessary time and effort?
    • Are boards defaulting to the arguably 'easier' task of performance monitoring, and disregarding strategy and future value?
    • Are directors simply not asking the right questions?
    • Is the safety of consensus thinking suppressing the debating of diverse options?
    Many aspects of boards and board practice have been studied in recent decades including structure, composition and boardroom behaviour in an effort to understand how boards work and how they might contribute to performance. Independent directors have been held up as being crucial to boards maintaining distance from the chief executive and to the effective oversight of performance. Gender (and other) diversity has been promoted heavily in many quarters. The forming of a strong team through high levels of engagement and desirable behaviours has also been explored. As yet, none of the research has exposed any conclusive results in terms of increased company performance and value creation.
    Imagine what board meetings might be like if the focus changed. They'd probably last longer. Directors would read their papers before meetings, and they would be actively engaged. There may be heated discussions. Necessarily, directors would sit on fewer boards. But perhaps, if boards were bold enough to change their focus, they might become more effective. Perhaps. Here's hoping.
    The original version of this muse, posted in December 2012, is available here.
    The prevailing theory of board–management interaction (agency theory) that underpins much of the current understanding of how boards work (or should work) appears to be flawed. It assumes that management is opportunistic and cannot be trusted and, therefore, needs to be closely monitored. Yet none of the structural provisions based on the theory (independence, incentives, various structures) have been causative to increased performance, despite considerable effort over many years.
    Rather than continue to dogmatically pursue a flawed model, we need to move on. The goal posts need to be shifted—from a focus on compliance, structure and composition to a focus on value creation. The notion of a strategic board suggests a focus on future performance and strategy; on high levels of engagement to understand the business and the market; on critical thinking and an independence of thought; and, on robust debates which explore a wide range of strategic options (diversity of thought being considered crucial to avoid consensus thinking). 
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    Directors: Are you paying attention?

    Accountability Decision Making Governance Performance
    This call might not be popular in some quarters. However, emerging research appears to suggest that attentiveness (by way of active engagement in board practices, and strategic management tasks in particular) is crucial if directors are to have any hope of making a difference to the future prospects of the company they are charged with governing.
    If teamwork and effectiveness in the boardroom is important to you, it is likely to be important to your colleagues as well. Does your board have an established protocol on such matters? If not, a good starting point might be to schedule a discussion at an upcoming board meeting. 
    The board is the ultimate decision-making body in every company—it holds the mandate to optimise company performance in accordance with the wishes of shareholders, and it is the shareholders to whom the board must provide an account for their actions (or inaction). This is a weighty responsibility, especially when you consider the plethora of internal and external factors that can affect company performance. 
    Yet some directors seem to be more interested in collecting appointments than in adding value. Things can change in the blink of an eye. Consequently, directors need to be attentive (by guarding against distractions, tiredness and having too many irons in the fire especially) if they hope to fulfil the responsibility delegated to them by shareholders.
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    Is it time to accelerate your company's success?

    Decision Making Governance Management Performance Speaking Engagements Strategy
    If any of these questions triggered a thought in your mind, then perhaps we should talk. I will be in the UK in 1–11 September (for speaking engagements including the results of my latest research). If you would like to learn more about board practice, corporate governance, strategy and value creation, please get in touch so we can schedule a discussion. I'd be glad to learn about your business and understand how I can help. 
    • Are you eager to realise the potential of your UK-based business?
    • Do you have a robust strategy in place to drive the future success of your business?
    • How is your board of directors performing? 
    • Would you like to see more value from your board?