Tags

  • Published on

    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.
  • Published on

    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!
  • Published on

    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.
  • Published on

    Purpose before strategy

    Governance Leadership Performance Strategy
    One of the big temptations in the strategy development process is to jump into 'answer' mode too early. Jumping quickly to conclusions is a real and understandable temptation. We live in a high-paced world and we want answers. We want plans to achieve our goals—the sooner the better. 

    Many companies start the strategic planning process by jumping to the determination of goal (what do we want to achieve?) before leaping head-long into the question of how the goal will be achieved (what is our strategy? or what is our plan?). Sometimes, this process is informed by an environmental scan. Generally, the strategies that emerge from such processes are ill-conceived and readily defeated. I've lost count of the number so-called strategic plans that follow this pattern.

    The crucial element that is often missing from the strategy development process is purpose: an answer to the 'why' question. Spending time with shareholders (or, their representatives at least), with customers and possibly with a wider group of stakeholders, to work out why the organisation exists is time well spent. A drug company needs to know it exists to defeat cancer (for example) long before any strategies to develop medications or build grand marketing plans are considered. People get onboard with causes not things. Imagine how different things might have been if Martin Luther King had uttered "I have a plan" in 1963.

    'Why' needs to come before 'what', in business and in research. Owners, boards and trustees of not-for-profit agencies need to own the 'why' question and doggedly pursue a response. To ignore this maxim is to simply do stuff without due reason or cause—and that's hardly conducive to the building of a sustainable business or to conducting effective research. 
  • Published on

    Xero: a considered approach to boardroom succession

    Governance Leadership Performance Strategy
    Xero is a young company with a clear mission: to become a global leader in on-line (read: cloud-based) accounting systems. While the company has some pretty serious competition, its stellar rise on the stock-market and ebullient CEO has seen it enter the consciousness of the general public in New Zealand, Australia and, increasingly, other countries as well.

    Part of the company's success appears to be due to its mature and considered approach to governance, and succession in the boardroom in particular. Phil Norman was appointed to the chair prior to the company being listed. Phil is a startup specialist, he got the company underway. Subsequently, Phil was replaced by Sam Knowles who established Kiwibank and grew it to become a viable player in the New Zealand market. Sam, who chaired the Xero board through the company's initial expansion beyond New Zealand, oversaw the repositioning of the company, from a great little company from Wellington New Zealand (where?) to a growing global company. Recently, Sam left the board to be replaced by Chris Liddell. Chris has had a long and successful leadership career in large companies including General Motors, Microsoft and International Paper. He lives in New York and is well connected with the movers and shakers there. Two independent directors have just been appointed—San Francisco-based Bill Veghte and Australian-based Lee Hatton. Hatton is Xero's first female director. Both will bring a fresh perspective no doubt. 

    With the benefit of hindsight, it is easy to see that these appointments have been considered and intentional. Xero has sought specific individuals with specific capabilities to provide leadership in the boardroom. As new capabilities and connections have been required, changes have been made. Xero is trying to become a world-class company. If it succeeds (and even if it falls short), I suspect a future generation of MBA researchers will identify governance quality and succession in the boardroom will have been important building blocks. Regardless of how it plays out, startups and more mature companies would be well advised to take a look at Xero. The company's approach to leadership, governance and succession is refreshing.

    Disclosure: While I am known to some current and former members of the Xero board, I do not own shares and do not have any commercial relationship with the company.
  • Published on

    Boards, have you got a CEO succession plan in place ?

    Governance Leadership Management Performance Research
    I've been reading through some research papers and magazine articles today, motivated by Xero's active approach to succession in the boardroom (see previous post). I wanted to find out how the related task of CEO succession is managed by boards. My two word conclusion from today's reading: not well.

    A recent Stanford research survey provides insight. Half of the directors surveyed by the Stanford researcher said that a CEO successor was being groomed. That sounds good, but what about the other half? Over the years, I've asked a lot of directors to list the important tasks of the board. Most say that hiring the right CEO is towards the top of the list, yet the Stanford survey reveals that half don't follow through with an adequate succession plan.

    You would think that all boards would have a solid CEO succession plan, particularly as they carry overall responsibility for company performance, and strong leadership is crucial to strategy execution and company performance outcomes. I'm not sure why some boards overlook this important task. Are they too busy with other more pressing matters? Or are they too lazy? Or have they not thought about it? Perhaps shareholders can help, by asking questions at annual meetings to encourage boards to take CEO succession more seriously than many do now. I'm sure the payback to such enquiries will be palpable.