The CEO/Chairman debate continues

Corporate France is bucking the global trend of splitting the roles of chairman and CEO, with Thomson Reuters data showing a steady growth in the number of French companies that have merged the posts in the past 15 years.

Almost three quarters of listed French companies tracked by Thomson Reuters now have or have had one person holding both positions, compared to 60 percent in the United States and fewer than 20 percent in Britain, Germany and Japan, according to an analysis of more than 6,500 companies. [MORE]

Corporate governance depends on shareholder oversight

The concept of corporate governance accountability unravels if shareholders sacrifice control. Read this article from the Financial Times.

Today’s quotation:

“If grass can grow through concrete, then love can find you at any time in your life.” Cher

Future trends that we should already be planning for

As a systems thinker I have long had an interest in the future. I notice what is going on and integrate observations with different trends, and draw conclusions.

It is amazing how many major developments I have been able to foresee, or at least wonder about before they happened.

Some years ago I was on the board of the South African Business Club in London. If there was an important visitor from South Africa, there was a good chance that they would address one of our meetings. One was Clem Sunter, who introduced us to his scenario planning model. It is very simple, yet very powerful, and we use it as one of our core processes in Brefi Group.

As a result, I am always delighted to learn about other people’s analysis of trends into the future.

Here are some trends I learned from Judy Piatkus:

1. Demographics

The world’s population is getting older. It is rapidly becoming urbanised, people are having smaller families. The new generation of baby boomers are wealthy and have a significant disposable income.

2. Technology

Medical developments are allowing people to live longer. In future people will have 50 year careers. Look out for the long term impact of nanotechnology and IT in general. Facebook and YouTube have been with us only since 2005. New energy resources or the use of different energy resources will impact on the environment, global politics and distribution of power.

3. Connectivity

4 billion people have phones. Connectivity allows learning about other people’s lives. Private lives become public. iPad and tablets to be a major new learning tool.

4. Companies getting smaller

More people becoming part time or freelance, huge growth in networking. A move towards project working based on the Internet. Multiple streams of income. No need for fixed overheads or staff.

5. Everybody is powerful

Customers will tweet or write on Facebook. Importance of transparency. Activists and lobbying movements operating through social networking and use of the Internet.

6. Power shift west to east

USA in debt/individual states on verge of bankruptcy. Massive migration. Cultures mixing and connecting.

7. Environment

Looking for new ways to do things. Everybody thinking about the planet/environment – all in the last five years. Sustainability.

You can find out more about scenario planning at www.brefigroup.co.uk/facilitation/scenario_planning.html

Manage relations with stakeholders

In the last article we considered the increasing need to take account of the interests of stakeholders.

In many cases this requires a relationship, and relationships require communication.

The first stage is to establish processes to ensure that the organisation and the board are able to monitor relations with shareholders and other interested parties.

The second is to ensure that communications with shareholders and other interested parties are effective.

Companies should have some form of formal or informal market and competitive intelligence system by which they collect, collate and interpet information. Directors should ensure that this includes information about their key stakeholders.

The purpose of collecting information about stakeholders is to improve decision-making and to evaluate problems and opportunities to allow early action. It should also be capable of evaluating the cost and benefit of managing or mismanaging such relations.

Since stakeholders are mainly closely involved with the organisation some information can be collected through good personal relations, though it is also desirable to obtain information from independent third parties, including by monitoring the media.

As with all information collection, the board needs to monitor both its effectiveness and its cost-effectiveness.

Communication from the organisation to shareholders and stakehloders can be more formal, with particular emphasis on the content of the annual report and statements to the press and stock market. In some cases this needs to be carefully managed to ensure that some shareholders are not given privileged information; directors should make sure they are familiar with Stock Exchange rules on such matters.

It is in the interest of an organisation to maintain a pro-active and positive public relations strategy. In addition to the specific needs of shareholders and stakeholders, it should promote its vision, mission, values and policies, together with good (and bad) news about new investments, best practice, significant orders, corporate social responsibility, etc.

The chairman and chief executive will play a significant role here, but it is a responsibility of all directors to act as ambassadors for their organisation.

  • Shareholders will mainly want to know if the company is making a profit in order to be confident that they can get returns on their investment.
  • Customers will wish to know when what they want is available, what the price will be, whether the quality of the good or service meets their expectations and what they can do if it does not.
  • Suppliers will wish to know when their supplies are required and where, and in what format, they should be delivered. They may also want to know that their contracts are being honoured and that they will be paid on time.
  • Employees will want information on things like what they must do and how they are performing; any changes and how they may be implemented; human resource issues such as contracts, health and safety, grievance and discipline; meetings and actions from these meetings.
  • The local community may also wish to know how they will be affected by actions that the organisation and its managers may take.

Although much of this information relates to organisation and management matters and the detail is of no direct interest to the board, the board should ensure that communications, and thus relations with stakeholders, are adequate.

Corporate governance

Does the board monitor relations with shareholders and other interested parties and ensure that communications are effective?

  • Relations are reliable, efficient and ethical?
  • Relations are relevant for decision-making?
  • Communications are relevant, consistent, accurate and cost-effective?
  • Communications are likely to meet legitimate expectations in terms of their quantity, quality and timing?
  • Communications are unbiased with regard to particular parties and in accordance with the the needs of commercial security and Stock Exchange compliance requirements, where appropriate?

Richard Winfield is the independent authority on director development. He helps directors and boards become more effective by clarifying goals, improving communication and applying good corporate governance.

This article is part of a free e-course for directors at http://www.brefigroup.co.uk/directors/director_development_and_training_e-course.html

Today’s quotation:

“No man ever listened himself out of a job.” Calvin Coolidge

How do you value your time?

When I am not presenting or facilitating, or meeting clients, I mainly work on my own.

Increasingly I have been concerned about my effectiveness. It seems to take a very long time to get things done – particularly writing proposals.

But time does seem to just drift away, so easily.

The interesting experience has been that in the last week or so I have spent an intensive seven days writing a proposal for a large UK government grant. In fact, I did not even write it. I edited it. This work was done pro bono for a social enterprise that I am associated with.

What was so interesting was that working with the founder of the organisation it was as if I was employed again. Suddenly, it was not that time was disappearing, but that I was working really hard.

Because I was working with someone else, I was reminded how much work goes into a proposal. And I now value work on our own proposals much more highly.

In my early days as an entrepreneur, I established several publications in partnership with an editor. We learned that it could take two days for two of us to write an important letter.

Who was it who is reputed to have sent a letter with this comment “I am sorry that this is a long letter; I did not have time to write a short one.”?

Our first publication was a transport policy newsletter that we produced over very long weekends once a month. This was before the invention of the PC personal computer and the laser printer. We had a Tandy computer, 64k memory, original very floppy floppy disc and no hard drive. We printed out with a daisy wheel printer, then photo reduced the galleys, cut them up and laid out the newsletter with Pritt Stick. Then I printed the newsletters on an A3 photocopier, which was not designed for long runs of airmail paper printed on a second side, and frequently jammed.

It was a real kitchen table business. But it was sent internationally.

Once we were established, people would come up to us at conferences, congratulate us on the newsletter and ask us how many people we had working in our editorial and production teams.

Their perception was quite different from our reality. Or was our perception actually out of line with the success that we had created?

The pity was that we had set the pricing to match our perception – not the market’s.

A coach’s role is to help our clients raise their awareness. Often this involves us in helping people recognise the reality of their success and to appreciate their talent.

Then they are more likely to concentrate their efforts in the most productive ways.

Perhaps we also need to do the same for ourselves. My filters are now much more attuned to hearing people complimenting me on my ability to help them structure and clarify their thinking.

Were they always saying this? Or have I helped them recognise it now that I have clarified it in my own thinking.

Today’s quotation:

“There are two mistakes you can make along the road to truth — not going all the way, and not starting.” Buddha

The Ford Pinto and corporate culture

At the turn of the 1970s, the top brass at Ford set out to come up with a car that weighed less than 2,000 pounds and cost less than $2,000. Their answer turned out to be the Pinto, a sporty little thing with just one problem: in rear-end collisions, its gas tank had an unfortunate habit of exploding.

That fault would eventually make the Pinto one of the most notorious cars in history but no-one at the time dared report it to the company’s formidable CEO. “Hell, no” claimed one Ford engineer. “That person would have been fired.” As the cigar chomping boss Lee Iacocca was fond of declaring: “Safety doesn’t sell.”

Rather than repair the flaw, at the likely cost of about $11 a vehicle and probable heap of damning publicity, executives reportedly decided it would be cheaper simply to pay off any lawsuits. But in time, 27 people died in Pinto fires and by 1978 Ford had recalled 1.5m cars.

Think of the ingredients that went into the Pinto debacle. Fearsome management. A workforce who, it is claimed, understood that safety took lower priority. Among Ford’s managers, lawyers, designers and engineers there might have been some rotten people. But for this completely avoidable disaster to have reached such huge dimensions, there had to be more: a blinkered corporate culture that apparently encouraged staff to behave unethically and to turn a blind eye to the tragic consequences.

The cases involving the explosion of Ford Pintos due to a defective fuel system design led to the debate of many issues, most centring around the use by Ford of a cost-benefit analysis and the ethics surrounding its decision not to upgrade the fuel system based on this analysis.

Should a risk/benefit analysis be used in situations where a defect in design or manufacturing could lead to death or seriously bodily harm, such as in the Ford Pinto situation?

Although Ford had access to a new design which would decrease the possibility of the Ford Pinto from exploding, the company chose not to implement the design, at a cost of $11 per car, even though it had done an analysis showing that the new design would result in 180 less deaths. The company defended itself on the grounds that it used the accepted risk/benefit analysis to determine if the monetary costs of making the change were greater than the societal benefit.

Based on the numbers Ford used, the cost would have been $137 million versus the $49.5million price tag put on the deaths, injuries, and car damages, and thus Ford felt justified not implementing the design change.

There are several reasons why such a strictly economic theory should not be used. Simple public relations examples such as Perrier and Toyota have demonstrated the damage of not responding quickly. Eventually, Ford suffered significantly from negative publicity and the judgements and settlements resulting from the lawsuits

More importantly, it seems unethical to determine that people should be allowed to die or be seriously injured because it would cost too much to prevent it. Secondly, such analysis does not take into all the consequences. Also, some things just can’t be measured in terms of dollars, and that includes human life.

In a new book called “Blind Spots”, authors Max Bazerman and Ann Tenbrunsel look at how businesses from Ford to Enron to subprime mortgages can end up in ethical disaster.

They describe a process of “ethical fading” in businesses where maximising returns is encouraged over fairness to fellow employees and customers. The result is that right and wrong go out of the window.

How does this come about and how can it be prevented?

Leadership is a key responsibility of the board of directors, and also senior management. They set the standards by their own behaviour.

First thing is to adopt and promote a set of values; next to interpret them into behaviours and ensure that good behaviours are supported and bad ones are discouraged.

I tell my clients that a values statement is not worthwhile unless it is, or at least could be, used against management.

Values statements should be so ingrained that when an instruction or a decision appears to be inconsistent with the promulgated values, an employee should feel able to challenge it.

Next, is needed a formal and accepted complaints or whistle blowing system. So often, we hear of whistle blowers who are not only hounded out of their organisation but often also blacklisted within their industry.

And yet, they should be the safety valve that protects an organisation from internal rot. In a healthy culture whistle blowing would be welcomed, and would then become unnecessary. A means of ensuring this is to have a formal system by which individuals can contact a senior officer in confidence and independent of their line management structure.

What is the role of a coach in this context?

When coaching directors or senior executives, to challenge them on their attitude to corporate values and individuals who challenge them. When coaching individuals who are concerned about inappropriate behaviour, to coach them in assertiveness and to help them to consider their options and risks; then to develop a strategy.

Corporate rot starts with small actions that are tolerated, and like any other form of rot, clearing it up once it has become established is more expensive than attacking it immediately. It is in everybody’s interests to ensure that organisations have processes for both prevention and early action..

Today’s quotation:

“The minute you begin to do what you want to do, it’s a different kind of life.” Buckminster Fuller

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