Tags

  • 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

    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

    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?
  • Published on

    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.
  • Published on

    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.
  • Published on

    ICMLG'14: Visit to Cambridge Innovation Center

    Conferences Leadership Performance Research
    The organisers of ICMLG'14 provided delegates with a treat to cap of the first day of the conference—a guided visit to the Cambridge Innovation Center (CIC). After a somewhat circuitous transfer from Babson to CIC—in a yellow grade school bus no less—we were provided with a guided tour of the facility, after which we were given the opportunity to interact with many of the people that work there. The CIC is a huge facility. It's quite unlike anything I had seen before. Some notable points about the CIC (for me at least) included:
    • Adjacent to MIT, CIC is a serviced office facility on steroids. It is designed to bring entrepreneurs, startups and ambitious people and the companies together, into a community where they can work on their ideas, grow (if they are any good) and maybe even secure investment to really take off.
    • It claims to be the largest facility of its type in the world, with more startups clustered in one place than anywhere else in the planet
    • Approximately 700 companies, from one-person hot-desk type operations, through to larger established companies (including Apple and Google, we were told) are located there. Five hundred of them are startups, all of whom are ambitiously hoping to become scale-ups (a new term I learnt: it's the next level beyond a startup, once the company is underway).
    • Companies resident at the CIC have attracted over US$1.8bn of investment and venture capital (wow, that's a serious number, and is indicative of the calibre of the ideas and the people behind them).

    The concept of providing a large-scale facility for startups to come together, rub shoulders with each other and with supporting enterprises (from food, gym and back-office support, to funders, lawyers and other large-scale firms) makes sense. My early view is that this type of facility runs rings around incubators and small-scale clusters that you see elsewhere. The vital difference is the support of the large firms and the resources they bring. 

    We spent a couple of hours on the site, including receiving a briefing on the Smart Cities concept, before moving off to dinner at the Charthouse—a relaxing cap to a busy day.