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    Poor company performance: Boards need to be held accountable

    Governance Management Performance Research
    Can shareholders and other stakeholders "blame" Boards for poor company performance? Should they? What is reasonable? If we accept that the Board is the ultimate authority in any organisation (and we should, because the legislation in most western jurisdictions supports this position), then the Board should be accountable for company performance.

    This seemingly straightforward answer is not nearly so straightforward in practice however. Companies are open systems, and company performance is affected by many factors, some of which are external to, and beyond the direct control of, the Board. David Walker discussed this point in a helpful opinion piece which appeared in the Guardian this week. Notwithstanding the complexities discussed by Walker, the Board should never be excused from taking its responsibilities seriously; from being engaged; from understanding the company's business; from regularly considering strategic options and making strategic decisions; from actively monitoring performance; from making adjustments as necessary; and, from standing by its decisions.

    The Board needs to understand how the company is performing at any time. If company performance fails for some reason, the Board should know about it and act decisively. This is what shareholders expect. If a Board cannot or will not act, or if it does not understand actual performance, it should be replaced. Ultimately, the buck has to stop somewhere. This is accountability.
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    Integrated Reporting: the new normal?

    Governance Management Performance Strategy
    I was privileged to receive a preview (under the Chatham House Rule) of the proposed Integrated Reporting framework at a Business Leaders Forum hosted by Grant Thornton yesterday. Integrated reporting (or <IR> as I discovered) has the potential to become the "new normal" in terms of reporting company performance and prospects. 

    <IR> is an initiative aimed at improving how companies communicate with shareholders, stakeholders and the wider community. Essentially, <IR> is about moving from compliance-based reporting, to "a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term" (direct quote from the IIRC website).

    This business-led initiative was music to my ears. While I can work my way through a set of financial reports, I am no accountant. The trend in recent years towards longer, and more complex, reports has made understanding increasingly difficult.  Any move towards a more straightforward explanation of performance (not to mention a more sustainable model of capitalism) can only be helpful.

    The initiative has garnered the support of many global brands and investor groups scattered all around the globe. If you are a business leader (particularly a Board Chair, Finance Committee Chair, CEO or CFO), I recommend you take the time to familiarise yourself with the proposal, and make comment during the upcoming consultation period.
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    Women on Boards: what is the real goal?

    Governance Management Performance Phd Research Strategy
    Interest in gender diversity in boardrooms and C-suites has been increasing over the last 12-18 months. In that time, many commentators have expounded the virtues of having women alongside men on Boards and in C-suites, in both the academic and practitioner literature. Lobby groups have been established and conferences convened, with good effect.

    While such efforts are laudable, the suggestion that the presence of women (on Boards) leads to increased company performance—as has been asserted in the rhetoric—is a big call. I agree that a relationship appears to exist, however I am yet to see any robust evidence that supports the assertion that the presence of women on boards per se improves company performance.

    Before you launch volleys in my direction, please read on. Governance is a complex, open system, and many inputs affect the operation of Boards and the outputs they produce. A single-minded focus on one structural variable—as has been the case with gender—is far too simplistic. Rather, attention needs to move away from bidding up the percentage of seats occupied by women (and expecting performance will reliably improve as a result), towards the holistic consideration of governance as a system, and to the causative factors that affect performance. Preliminary research efforts suggest that behavioural factors; high levels of engagement; vigorous debate; an involvement in the development of strategy; and, the making of strategic decisions, are far more likely casual mechanisms than gender or any other structural variable.

    So, to my question. What is the real objective of placing women on Boards? Participation or performance? If it's the latter (and I hope it is), then the focus needs to move beyond counting the number of women around the table, to discovering what Boards actually do as they go about their work, and to how that contributes to performance (or not). 
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    Twelve months on: living the dream

    Governance Management Performance Phd Readings Societal Wellbeing Strategy
    Today is an auspicious day (well for me anyway). Musings was created twelve months ago today. At that time, I wanted (needed?) an outlet through which new ideas, thoughts and reflections could be expressed as I began to grapple with the demands of a PhD. 

    When I set out, the goal was entirely personal: Musings was a vehicle to share my thoughts and ideas about governance, strategy and societal wellbeing. I had no idea whether Musings would make it beyond a few months (or a few entries for that matter!), or whether anyone would read the entries. I wasn't really bothered either. To my surprise, my motivation to share ideas remains intact, somewhere between 50 and 200 visitors view the site each day (that number is slowly growing over time), and quite a few people have either posted comments or contacted me directly.

    Looking ahead, I plan to continue writing, because the process helps me refine my (doctoral) thoughts. The focus will probably narrow slightly (to strategy, decision-making and governance), as these topics start to dominate my thinking time (I've discovered doctoral research does that to you). One twist though: I'm going to move from writing for my sake, to trying to provide "value" to readers. To do this, I'd appreciate some feedback. Are there some topics or themes that you'd like to read about in the coming months? If so, please post a comment! In the meantime, postings will continue at the pace of 2-3 postings each fortnight.
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    The Solid Energy case: we have much to learn

    Governance Management Research Strategy
    The case of state-owned enterprise Solid Energy, the CEO of whom was a doyen of the business community, raises some interesting questions, as practitioners and researchers search for reasons for the "perfect storm" and the recent fall from grace:
    • What sequence of events and circumstances led to Solid Energy arriving in its current predicament?
    • Why did Solid Energy pursue such an aggressive diversification plan, and risk the viability of its core business in so doing?
    • Who approved the diversification plan, and what milestones and monitoring regime was put in place to ensure goals were being met?
    • Why did the Board not respond more quickly or more decisively in the face of a rapidly changing external factor (slump in coal prices)?

    Hopefully, answers to at least some of these questions will become apparent in the coming weeks, as the investigations proceed. We have much to learn from this case—both in terms of what happened, and in terms of how governance, decision-making and management could (should?) be conducted differently in the future.

    In the meantime, one thing that has been puzzling me has been the response of the Board. Why did Don Elder, the former CEO, have to endure considerable criticism from the media, the public, former employees and the government (the shareholder and regulator) in recent days? Why was attention not focussed on the Board, and why did they not come forward? Surely the Board, as the shareholder's representative, holds the ultimate accountability to ensure the satisfactory and sustainable performance of the business?

    The attendance of John Palmer, former Chair, alongside Don Elder at the Select Committee meeting yesterday provided some comfort. Helpfully, apologies were provided to affected parties amongst the conciliatory and defensive responses. However, many questions over the financial management of the company, and of how strategic decisions were made, remain. Hopefully, the various authorities and interested stakeholders will put their reputations, egos and agendas aside in order to conduct a proper investigation and learn from the findings. Here's hoping.
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    Can the domino effect be avoided?

    Management Performance Societal Wellbeing Strategy
    Every time a major company fails, smaller suppliers and associated companies are at risk of the domino effect—of becoming a statistic themselves. It's through not fault of their own, save choosing to do business in good faith with the failed company. This was highlighted in fairly stark terms in the last week, when companies either sub-contracted to, or associated with, New Zealand's third largest construction company, Mainzeal, started suffering.

    The domino effect has major implications on economic performance and the wellbeing of communities. When major companies succeed and grow strongly, many smaller and associated companies also gain considerable benefit. Sadly, the domino effect also applies when major companies struggle or, worse still, fail.

    While suppliers are generally very happy to benefit from upswings, downsides are something to be avoided. But can the downside of the domino effect be avoided? Thankfully, suppliers do have options. Here's two for starters:
    • Diversify their customer base, so that they are not reliant any one customer for a major portion of their business. 
    • Negotiate more favourable commercial terms, which may well include fortnightly invoicing and payment cycles (although this can be very difficult to achieve).

    What other "defence" mechanisms can put in place to avoid the domino effect?