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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.
  • 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. 
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    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.
  • 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.
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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.