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    On ego, knowledge and effective governance

    Governance Leadership Management Performance Research Societal Wellbeing Strategy
    Do people that promote themselves heavily—by describing themselves in glowing terms; providing long introductions; and, embellishing their accomplishments—annoy you? People that behave like this are relatively easy to spot. They are often quite loud, and their large egos generally signal their presence.

    Interestingly, a recently published article has suggested an inverse relationship between ego and knowledge—which suggests that those with large egos have little to contribute. This is somewhat alarming, as many corporate disasters over the last forty years can be traced back to failures of governance, fuelled by hubris and overactive egos. Just how knowledgeable were the directors in these cases? The message in the article is relevant for everyone in the business community, particularly those directors that see themselves as being above the law and beyond any form of accountability. How long will it take, and how many more lives will be lost, before someone takes a stand?
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    Achieve more by doing less

    Governance Leadership Performance Research Strategy
    Every entrepreneur and active business owner that I know dreams of building a business capable of achieving sustained profitable growth over time. However, maintaining continuous profitable growth is hard, and there seems to be a wide gulf between the dream and the reality. Just ten per cent of companies manage to do it over a continuous ten year period. I haven't found any research that explains why companies experience such difficulty achieving sustained growth, although one research report I read recently suggested those companies that do achieve it appear to have three characteristics in common:
    • They reduce the scope of their business
    • They look for profitable opportunities within their existing core business boundaries
    • They set high performance targets

    Interestingly, these three characteristics are increasingly being associated with effective governance: the determination of strategy and the setting of performance targets. While not mentioned in the report, the boards presumably implemented a structured monitoring regime as well. 

    These characteristics challenge conventional wisdom that you have to do more (diversify the product mix and/or enter new markets) to get more. They also enhance the credibility of the proposition that the board’s active involvement in strategy development and performance monitoring is crucial to a company achieving and sustaining profitable growth over time.
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    ICMLG'14: closing remarks

    Conferences Governance Leadership Management Performance Research Strategy Teaching
    Well, ICMLG is over for another year. The ACP organisation, and hosts Babson College (Phil Dover and Sam Hariharan, in particular), organised a great conference. Delegates assembled from over 20 countries from the five major continents. The theme of entrepreneurship provided a linking thread between the keynote speakers (Isenberg and Schlesinger), the paper streams and many conversations over coffee and food.

    I particularly enjoyed the provocative sessions of Isenberg and Schlesinger, and appreciated the opportunity to test some of the ideas that are emerging from my research, especially with researchers from outside the Anglosphere. That feedback will result in some adjustments to the way that my thesis is written up. To everyone who offered feedback: thank you!

    I commend this conference to all management, leadership and governance researchers, and practitioners with an interest in these and related fields. Next year, the conference venue is in the southern hemisphere, in Auckland New Zealand. The co-hosts will be AUT and Massey University. Certainly, I am looking forward returning the hospitality afforded to me in the international conferences that I've been fortunate enough to attend in the last couple of years.
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    ICMLG'14: We don't know what we don't know

    Conferences Governance Leadership Management Performance Strategy
    Peter Harrington, of Venture Simulations in the UK, presented an interesting talk on the value of simulation to enhance training and learning, particularly in entrepreneurial settings. One of the biggest challenges that managers and boards face is that they don't know what they don't know. When confronted with extreme or extremely rare situations, boards often don't know how to react or what a range of response mights might be.

    Many directors and entrepreneurs don't like being talked to or talked at. They like to do and to try. Harrington asserted that experimentation is good, and that the use of simulators is very useful for discovering what we don't know. Simulations help new pilots (for example) learn to fly without the expense or danger of using a real aircraft. They also help experienced pilots test themselves in extreme situations to practice, to make mistakes and to learn how to cope. Harrington provided a graphic example. The safe landing of US Airways 1549 in the Hudson River—the so-called "miracle on the Hudson"—can be attributed to, in part at least, the many hours Capt "Sully" Sullenberger spent in the flight simulator every six months, training himself to handle himself and the aircraft in extreme situations.

    Boards, entrepreneurs and managers may well be able to derive significant value from authentic simulation activities, to expose themselves and their company to extreme market forces, strategic options and other situations and, in so doing, improve their capability to respond well.  Such application would require greater levels of engagement in the learning and development process however, but I suspect the time spent would deliver a payoff quite quickly. If you want to to effect an introduction to Peter Harrington (he runs a commercial business developing and selling simulation systems), I'd be happy to do so. Please note I have no commercial or other interest in this offer, it is simply an offer to refer.
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    ICMLG'14: Governance in founder-controlled companies

    Conferences Governance Performance
    Maria Aluchna, of the Warsaw School of Economics, Poland, presented an interesting paper on the effectiveness of corporate governance in founder-controlled companies, using a sample of 100 listed on the Warsaw stock exchange. Some 62% of companies listed on the Warsaw exchange are controlled by founders, which was much higher than I would have guessed.

    Aluchna's analysis confirmed research that has been previously reported elsewhere: that founder-controlled companies tend to have a lower number of shareholders in total, less effective corporate governance and higher degrees of active involvement—some would say interference—in the day-to-day management and operation of the company. The "less effective" presented no real surprise, as strong-willed founders can (and often do) exert higher levels of influence (including the overriding of board decisions and CEO priorities in more extreme cases). While the research is a helpful addition to the discourse, an important question was not tackled. Are higher degrees of involvement by founders (who are not executives) good or is the bad? Aluchna's indicated that research is underway to try to answer this question. I look forward to reading the results of her work.
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    ICMLG'14: Accountability in cases of corporate failure

    Conferences Governance Leadership Management Performance Research Societal Wellbeing
    Dr James Lockhart, of Massey University, New Zealand, spoke to the highly topical issue of governance accountability in cases of corporate failure or fraud. After introducing the topic and comparing rules-based and principles-based systems of governance, Lockhart discussed several cases of corporate failure that have occurred in recent years, including:
    • Case #1: Approximately 70 finance companies went bust due to mismanagement, resulting in the loss of $850bn of investor's funds. Directors, CEOs and related parties were held accountable through the legal system, and several spent time in jail as a consequence of being found guilty.
    • Case #2: Twenty-nine employees and contractors were killed in a major industrial workplace accident. The CEO and some other parties were initially charged, however all charges were subsequently withdrawn, in effect removing any accountability.
    • Case #3: Hundreds of Asians became sick and six died as a result of contaminated milk products exported from New Zealand. No one, in either the affected country (China) or in New Zealand were charged.

    Lockhart's conclusion was telling: if boards and managers lose large sums of money they will be held accountable. However, if lives are lost different accountability rules will apply. The evidence analysed suggests that lives lost are accorded a lower standard of accountability. That seemed odd—tragic even—to Dr Lockhart, and to many members of the audience. 

    The question that lingered in my mind as I left the room? How long it will be (or how many more accidents will it take) before something is done about this glaring inconsistency?

    Disclosure: James Lockhart is my PhD supervisor. However, the paper he presented was entirely his work and I had no involvement in it.