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    Martin Wolf at ICGN'15: "Let a hundred flowers bloom"

    Accountability Ethics Governance Leadership Management Performance Societal Wellbeing
    Martin Wolf CBE, Associate Editor and Chief Economics Commentator at the Financial Times, delivered a rousing keynote talk to wrap up the final day of the ICGN annual conference. After observing that the limited liability, joint-owned corporation had been the cause and consequence of almost all economic activity over the last two hundred years, Wolf posed and commented on four questions. He qualified his comments by saying that he expected they might raise some profound questions. Indeed, some of Wolf's comments were controversial—the evidence being the questions asked by some members of the audience after he finished speaking.
    What is a limited liability corporation? They are a semi-permanent entity designed to outlast small-medium enterprises (because founders retire—the corner store conundrum) and markets, and they are a construct for the consolidation of relational and implicit contracts. Their genius is the importation of older hierarchical forms (to get things done) into the market system. With scale comes efficiency, endurance and effectiveness (but not always!).
    What is their purpose? The apparent purpose of the LLC is to generate economic value. However, this is insufficient. Wolf asserted that LLCs should also pursue a wider remit, by seeking to 'add value' in social terms (through the provision of payments for services rendered—wages and salaries—for example).
    What is their operational goal? The oft-quoted goal, of maximising shareholder returns, is far too simplistic, according to Wolf. It is selfish and can only lead to failure elsewhere in society. Rather, the operational goal of LLCs needs to include ethical constraints to protect all participants and in so doing ensure the good of society (at no point did Wolf pursue or even imply any form of Marxist agenda).
    Who should control them? Economically, shareholders bear residual risks following corporate activity and, therefore, shareholders should possess control rights. Wolf challenged this commonly-held view as folly because shareholders are unable to exert full control over the affairs of the corporation. Managers may manipulate the affairs of the company, sometimes to the detriment of shareholders and other stakeholders. Short-term incentives, implemented to motivate managers towards the maximisation of shareholder returns, rarely position the company for longer-term success.
    Wolf concluded by saying that LLCs are a wonderful construct. However, he went on to say that the two associated doctrines (of shareholder control and value maximisation) are unhelpful because they are too short-sighted. He told the shareholders in the room that "it is in your interest not to control the corporation completely". Other parties—large bondholders, for example—also bear residual risks. Why would they not have decision rights?
    Wolf's comments were demonstrably controversial (amongst some of the audience at least). However, the poor reputation of big business amongst the general populace suggest Wolf's comments might be closer to the 'truth' than what many in the audience might care to admit. 
    Wolf closed with this demanding challenge: A better approach might be "to let a hundred flowers bloom", so that the best [control] model might rise up and be applied for a given situation—the beneficiary being society at large.
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    Diversity: what is the endgame?

    Governance Leadership Performance Societal Wellbeing
    Diversity is a topic that has gotten under people's skin, and rightly so. Much has been written, spoken and argued in recent times. Many blog rolls and column-inches have been expended by people arguing for or against various physical incarnations of diversity in the executive suite and boardroom. Clearly, the 'diversity' seed has sprouted. But for what purpose? What is the endgame? And, what should the endgame be?
    Many have argued that that the presence of women on boards is causative to increased business performance; others have argued that no such causation exists. Actually, the academic research is mixed: it shows positive, neutral and negative correlations. This should be of no surprise. That such a blunt stick (a single observable attribute: gender) might make a consistent difference in a complex, socially-dynamic system defies belief. I have mused on this in the past. 
    Thankfully, the argument is now starting to mature, beyond the physical aspects of diversity (gender, race, ethnicity, age, etc.) to the identification of underlying attributes and qualities of capable executives and directors, to understand how directors contribute and work together. However, another question lies in wait: the 'so what?' question. What is the purpose of appointing women onto boards and increasing the apparent diversity in executive suites? Is the motivation political (equality)? Or to maximise profit for shareholders? Or is there some other sustainable driver that needs to be brought into focus?
    Businesses exist to provide a product or service and, in so doing, provide a (hopefully!) healthy return to those who invested in the business in the first place. Is this the endgame? It might be for some. However, as diversity for diversity's sake is not sustainable, neither is profit for profit's sake. Shareholders do not live in isolation from others in the community. If shareholders 'win' (through the accumulation of profits), it stands to reason that losers will emerge elsewhere.
    The challenge for all of us to to lift our gaze beyond simple measures like the number of women on boards or quotas and, if we dare, beyond profit as the primary measure of business performance, to think about the endgame. Phil O'Reilly, CEO of Business New Zealand, recently said that the purpose of capitalism is greater than profit (although that is a reasonable and necessary output). He said that the objective was strong communities. Could that be the endgame we need to focus our attention on?
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    Might the potential liabilities of cyber risk change the face of business as we know it?

    Governance Performance Societal Wellbeing Strategy
    Stephen Catlin, head of the largest Lloyd's insurer Catlin Group, delivered a stark message to the business and the insurance communities this week. He said that the potential liabilities following a cyber attack are too large for insurers to cover.
    Wow. Most company directors and executives have a general awareness of cyber risk: that attacks can have drastic impact on business. However, many directors and executives have probably felt that their insurances and risk plans have been sufficient. Until now perhaps. 
    What might Catlin's comments mean for business? Could the uber-connected world and the seemingly headlong thrust towards the Internet of Things have some nasty side-effects that we are only just becoming apparent? For example, if companies cannot secure adequate insurance cover (either outright or at a reasonable cost), might they be faced with the challenge of reviewing their business models? Progress rarely occurs without consequences. Perhaps some of the so-called old ways that many have rushed to consign to history—like walking into a store and buying groceries and other goods in person—might not be so bad after all. Is your board prepared to wrestle with this issue, or will it simply walk away?
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    HSBC: Should the directors and executives be "banished from the City"?

    Accountability Societal Wellbeing
    In issuing an apology letter and statement that HSBC has been completely overhauled, Stuart Gulliver, chief executive, has put a stake in the ground. He wants to move on. Some may argue that more needs to be done because accountability and consequence are important foils to anarchy and chaos. However, the sentiment underpinning Gulliver's message is an important foundation of civil society: that sooner or later communities need to respond to scandals, make adjustments, and then consign them to history.
    With this in mind, should the directors and executives of HSBC be "banished from the City"?
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    Google Glass: a metaphor for what's "wrong" with Silicon Valley?

    Societal Wellbeing
    Reports are starting to emerge that the euphoria that was Google Glass might be over, before it started. I'm not that surprised, actually. Try as I might, I simply could not get past the possibility that Glass was just a gimmick, a "solution" in search of a problem.
    Glass could be a metaphor for a lot of what goes on in Silicon Valley. The Valley is full of well-intentioned and well-funded engineers who spend their day drinking coffee, standing around white boards, generating ideas (lots of ideas) and writing code—because that it what they are paid to do. While many good ideas have emerged through this process (just imagine what economic productivity might be like if the personal computer and its various descendants had not been created), a reality check is probably needed. 
    We have become dependent on smart devices and uber-connectedness. Everything has the appearance of being urgent, even if it is not. But what of conversations with people, of long walks along the beach or some quiet walking trail, or of time out to relax and reflect on life? Silicon Valley has brought us to the brink of losing sight of these things that probably matter more than whether we've checked our Facebook account in the last thirty second, or viewed the latest (trivial) Snapchat picture. When I was sitting on the train in London last week, reading a book, I noticed that about 80% of the passengers around me were using their smartphones. One or two others were sleeping. One older man was also reading a book. When he looked up, he smiled at me. No one else did that.
    I'm no Luddite, but I do wonder where this Silicon Valley-led journey might be taking us.
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    ECMLG2014: Service as a required leadership competency

    Conferences Leadership Performance Research Societal Wellbeing
    Noel Pearse, of the Rhodes Business School, Grahamstown, South Africa, presented the next chapter in what is rapidly becoming his magnum opus.  I first met Noel twelve months ago, in Vienna, when he presented a paper on servant leadership. This year, he spoke on service as a specific leadership competency. 
    Thinking of leaders and followers, most people understand that an important role of the follower is to serve. In a business context, that means to serve other colleagues; managers; and, customers. The same people would probably suggest that leaders are to be followed and, by implication, to be served. However, emerging leadership trends provide an interesting juxtaposition, whereby leadership responsibility is being distributed; so-called celebrity leadership status is being rejected; and,  ethical leadership is becoming increasingly valued. Further, servant leadership is quite common in high-performance organisations.
    With this background, Pearse posed an interesting question: whether service is actually a required leadership competency. Building on the seminal work of Boyatzis (1982) which identified attributes and competencies of effective leaders, he asked whether certain underlying attributes (my phrase, not Pearse's) are necessary. I was fascinated by Pearse's work—still at a theoretical stage—because it appears to bisect my work on underlying personal qualities of effective effective directors as they seek to exert influence in the boardroom. We plan to stay on stay in touch.