Tags

  • Published on

    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 The CEO and some other parties were initially charged, however all charges were subsequently withdrawn, in effect removing any accountability.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.
  • Published on

    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.
  • Published on

    ICMLG'14: Opening keynote

    Conferences Leadership Management Performance Research
    The opening keynote speaker at the International Conference on Management Leadership and Governance (ICMLG) was Dr Dan Isenberg. His topic was A Critical Path to Entrepreneurial Ecosystems. Isenberg described entrepreneurship, challenged a few folklore beliefs and introduced a concept he called an entrepreneurial ecosystem.

    Many scholars, business leaders, community leaders—and much of the popular press—would have us believe that the Google, Facebook, LinkedIn perspective of entrepreneurship is somehow the normal model to be pursued. (This being the rapid growth from nothing towards an IPO event 6–8 years later.) Isenberg challenged this view, and did so very strongly. He cited many examples of successful entrepreneurial businesses that are not necessarily startups or innovative or youthful or owners of small businesses. The data shows that many startups simply don't grow. Further, entrepreneurial businesses are far more likely to come from ideas that are written off as dumb or worthless by 'experts'. In contrast, entrepreneurial businesses are more commonly found in older, basic industries, and that they achieve sporadic growth over time.

    According to Isenberg's research (and experience from several working examples), some of the critical characteristics of successful entrepreneurial ecosystems are actually quite different from those that are commonly regarded as being crucial:
    • a few local success stories which are highly visible
    • a high quality of life, such that talented people desire to stay
    • there is a plethora of usable assets (people, finance, supportive large companies)
    • an anxiety, sense of urgency and fear of the future exists in the culture

    Those characteristics that are commonly regarded as being desirable, but are actually much less important in reality include:
    • having lots of startups in an incubator or cluster context
    • the presence of economic development agencies
    • tax incentive frameworks and supportive government policies

    Isenberg's comments will unsettle many folk, particularly those with an involvement or association with incubators, clusters, angel clubs or local EDAs. However, the evidence is compelling (and not dissimilar to the thoughts on innovation that Dr Bob Brown shared at ANZAM in Dec'13). Folk associated with these groups could do far worse than to take stock, because the current approaches aren't working. 

    Isenberg's talk set an expectant tone for the conference. It challenged much conventional wisdom, and was a breath of fresh air.
  • Published on

    Feltex: A lemon with the juice squeezed out?

    Governance Leadership Management Performance
    Feltex Carpets, once a great New Zealand business went public a decade ago, in May 2004. However, the business was mismanaged and it went bust within two years. The $185m case against the board, brought by a former shareholder, is now before the High Court in Wellington. The primary defendant is the board (actually, the directors). The second and third defendants are Credit Suisse Private Equity (promoter of the sale) and Credit Suite First Boston Asian Merchant Partners (CSPE parent).

    During submissions yesterday it was revealed that the company was likened to a lemon from which most of the goodness had been squeezed out. Further, one director referred to "these lousy shares" in an email several months before the company's IPO. These startling revelations place the defendants is a rather awkward position. How material will these pieces of evidence be to the overall case?

    The case, which is expected to last nine weeks, is being watched closely by company directors, the IoD and many others, for it will more than likely set a precedent against which future cases of mismanagement and poor governance are measured.
  • Published on

    On entrepreneurial thought and action: getting the low down

    Conferences Governance Leadership Management Performance Research
    Delegates at the International Conference on Management Leadership and Governance are in for a treat next week. Dr Leonard Schlesinger, Professor of Business Administration at Harvard and leading company director (including Forbes and Demandware), is the keynote speaker on Fri March 21. He'll be talking about the entrepreneurial thought process and the conversion of thinking into action.

    Dr Schlesinger is highly regarded in the business and academic communities, and I'm looking forward to hearing what he has to say. I'll post a summary of his talk here, as part of my commitment to provide reflections and comments throughout the ICMLG'14 conference, for the benefit of those that can't attend.
  • Published on

    Major health and safety reforms (for the better) ahead

    Governance Management Performance Societal Wellbeing
    The New Zealand government has just announced the introduction of new health and safety legislation. It requires companies to keep their employees safe or face some stiff penalties. While many boards and senior management teams display responsible attitudes towards the safety of their employees, some have been been quite cavalier in their approach. The reforms include making directors personally liable for breeches—the penalties being fines of up to $3m (companies) and $600,000 (individuals).

    Some may see the proposal as being 'over the top'. However, it has been well signalled: new guidelines for directors were announced ten months ago, in May 2013. The proposal will be a helpful addition to the governance landscape if it drives directors towards taking greater responsibility for their decisions. Certainly, the move towards holding directors accountable for inaction will be welcomed by many.