Cutting Through The Grey

Sentiment

In difficult trading times we are advised to track both the tangible and intangible aspects of our businesses. In tangible terms, a real understanding of money flows is essential. In intangible terms, we follow sentiment. What is the quality of our relationships along our value chains? Are we delivering value to all our stakeholders? Do they want to travel further with us?

Sentiment is viral. It spreads quickly across boundaries. Sentiment impacts our reputation and bottom line. Sentiment is often driven by interest not logic. Sentiment is not static.

How much time is your business devoting to tracking and analysing the impact of stakeholder sentiment on the formulation and delivery of your strategy?

Who is bringing insights on stakeholder sentiment for debate in the boardroom?

Are the messages being filtered or distorted?

Which image do you see?

 

How to develop Board effectiveness

The business press is full of stories of Boards that have failed in the governance of the organisations they lead. Less space is devoted to the many Boards that believe they are on a continuous path to improve effectiveness and invest in building their capability.

Recently working with a large audience of lawyers and company secretaries, we explored their experiences of building Board development agendas, identifying initiatives that really create director capability and establishing the measures that establish return on investment.

The discussions highlighted three key lessons:

1. Annual Board reviews can build Board development agendas but need to go beyond structure and process to explore capability and dynamics. Board development needs to be pragmatic and produce real change, recognising that the starting point for each Board differs.
2. The commitment of all Board members is critical before embarking on the Board development journey. This takes time to build and the active engagement and sponsorship of the Chairman is essential. Preparing the ground properly was a precursor to most successful initiatives.
3. The insights provided by Company Secretariats are invaluable in building the Board development agenda in that they are in the unique position to see the Boards they support in operation, during formal and informal proceedings.

See Anna Bateson - Articles and Testimonials for the full article 'A positive direction' which is available to download.

Speak TRUTH to POWER

'Speak TRUTH to POWER' - Recently, this simple message has been promoted from the platforms of the Annual Conferences of both the UK's Conservative Party and ICSA. Originally a phrase coined by The Quakers, most business leaders agree with the principle but recognise that factors intervene to make it difficult to execute.

The principle relies on the bravery of those transmitting 'TRUTH' and the inclination of 'POWER' to listen.

If an organisation creates a learning culture in which there are free flows of information and knowledge, experimentation and considered risk taking are rewarded and feedback processes recognise that  mistakes will occur and should be learned from, then bravery will increase.

If 'POWER' is accessible and engages in dialogue with stakeholders, an atmosphere of trust emerges and 'TRUTH' is more likely to be spoken.

If 'POWER' recognises personal strengths and the implications of being single minded and decisive, then insights and 'TRUTH' which do not fit with the preferred world view are less likely to be filtered out.

But it is worth noting that 'POWER' in the shape of the late Steve Jobs, widely admired for his passion and ability to impact the lives of whole populations, shared the message '...don't let the noise of others' opinions drown out your own inner voice...'

Our emerging governance and stewardship codes contain principles which discourage the concentration of 'POWER' in the hands of an individual or sub-group of the Board. We can point to high profile examples where such concentration has damaged the value of organisations and whole economies but also examples where concentration has been explained and has not had this impact.

Perhaps the key question to ask is whether 'POWER' is self serving or altruistic?

Strategic Decision Making

Beyond the purely academic study of strategic decision making, there is a pragmatic realisation in many Boardrooms, that processes must change.

Impacted by an increasingly turbulent business environment, decision longevity has shortened. Decison making bodies generally meet more frequently as they seek to develop a collective understanding of what Dr Laurence Lyons and I term 'The Rich Picture' of the context in which their organisations must perform. At London Business School, Prof. Don Sull characterises 'The New Normal' as like peering into fog and suggests that strategic timeframes need to recognise this uncertainty. Prof. Zeger Degraeve highlights the need to focus on the quality and process of decision making rather than just the results achieved.

Many business leaders, including Jack Welch, ex CEO of GE, highight geo-political, socio-economic and competitive dynamics as key trends to track in creating a better understanding of the context in which strategic decisions must be made and executed. They point to the emergence of new markets and the convergence of technologies as providing ethical challenges, which regulation and legislation regimes are seeking to address.

As Boards review their structures, processes and dynamics, three key questions arise:

Who can make strategic decisions? or How far along the control - empowerment continuum are we prepared to travel?

How can we ensure that alternatives and their consequences are explored? or How do we determine and revisit our risk appetite?

What criteria will be use to choose between alternatives? or How can we best use our capability to produce value?

The disciplines of strategic decision making are clearly under review.

UK Bribery Act 1 July 2011

The UK Bribery Act came into force on 1 July 2011. The coalition government has said that it wants the UK to take a leading role in the global fight against bribery and business corruption. Bribery is defined by the Ministry of Justice (MOJ) as "giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for having already done so."

The Act applies to all incorporated bodies in the UK, but not all foreign companies who are listed on the London Stock Exchange are automatically covered by the Act. Compliance requirements will depend on the operations carried out in UK. The Serious Fraud Office (SFO) with prosecute both individuals and companies for the criminal offence of giving or receiving a bribe and the corporate offence of failing to prevent bribery. Penalties are severe. Individuals can face up to 10 years in prison and an unlimited fine and companies can face unlimited fines.

And as with all legislation and regulation, there are grey areas which will preoccupy business leaders.

Hospitality should be 'reasonable' and 'proportionate.' 'Adequate procedures' should be in place to prevent bribery. Judgement will be called for in every Boardroom to establish some common view of 'reasonable' 'proportionate' and 'adequate.'

Other key questions will preoccupy Directors and their expert advisors. With new organisation structures which involve complex, global value chains, just how liable are you for the activities of other organisations you collaborate with and those of the subsidiaries you parent? What level of due diligence will be necessary in a World where 'Fractional Work' may be provided to your organisation by a multitude of individuals?

These Boardroom discussions need to establish some common ethical framework of operations; agreement on what good behaviour looks like. There has been an increased focus on the importance of aligned ethics and values in leading the delivery of business performance but equally there has been an increased focus on the importance of diversity and respecting difference.

In recruiting for diverse and balanced Boards, Nominations and Appointments Committees and their expert advisors will increasingly be exploring candidates' past behaviour in winning and doing business, in order to establish their attitudes to 'incentivising' business transactions. 

Many Board agendas will have an item entitled 'Bribery Act compliance.' Does yours also have 'Board development of ethical alignment?'

Sharing insights from Gen Y

24/7/365 available and global connectivity, have increased the ‘noise’ which business leaders have to filter. The time available to think strategically is also under threat by what Rod Eddington characterised as 'the tyranny of the urgent.'  The challenge is to develop a clear and continuously emerging line of sight through the boardroom to the organisation, the market place and beyond to the wider world.

The search is for aggregated information expressed in simple language and the trend is for board members to access interactive, multimedia rather than print. Forums such as TED allow politicians, academics and business leaders to rub shoulders. You Tube provides authors with a dynamic way to share their insights. 

Brave business leaders are inviting the new ‘Generation Y’ into the boardroom. Raised in the digital era, ‘Gen. Y’ help them to navigate and interrogate this rich and living library. The insights shared, provide value to all parties. Boards are challenged to think in different ways and their young talent is provided with real insights into the way in which strategic decision making and implementation happen. Whether these opportunties are called 'internships', 'reverse mentoring' or 'shadow boards' the benefits are significant.

Diversity is........

Diversity is a 'State of Mind'

The logic goes something like this:

Diverse boards are more likely to recognise and understand the diverse needs of their customers and the communities they operate in.

By structuring boards to be diverse and creating an environment in which alternative insights are expressed and listened to, these boards are more likely to make better strategic decisions.

Better strategic decisions, well executed are more likely to lead to improved business performance and deliver the value which the board is responsible for creating.

Given this compelling argument, why is the reality often different?

Diverse boards means having to listen to people who don't think like you, which may be exciting but is also challenging and often uncomfortable.

'Because I say so' may work for small children but not for those approaching adulthood and certainly not in a boardroom of highly talented individuals.

The goalposts are moving daily. The rapidly changing business environment is shortening strategic planning timescales and requiring business leaders to engage across a complex web of geographical, gender and generational boundaries. The language (vocabulary and idiom) for dialogue is continuously developing and it is easy to be left behind.

What does this mean for boards?

The challenge is to create a board with a shared vision but different perspectives.

Board recruitment and succession planning need to be imaginative, seeking to complement rather than replicate existing knowledge, skills and experience.

Board development needs to recognise the merits of creative tension and create a respect for difference. When evidencing diversity, the use of age and gender are simplifications.

Facilitation - To make easy or easier

The 2010 business year might be characterised as one of review, reorganisation and in some cases of retrenchment. The focus was often internal. The question for many was 'How can we do more with less in order to survive?'

By contrast, 2011 is bringing many requests to 'facilitate' boards as they shift their focus a little further ahead and seek to identify and choose between alternative paths to that future.

These requests are often for a magic process 'Which will enable us to create our strategy in the four - six hours which we have set aside for that purpose.' The assumption is that it is merely a matter of bringing together the key decision makers in the same place with a 'facilitator' and the right answer will emerge.

There are many organisations and individuals providing this 'service' at a variety of price points. When selecting a 'facilitator,' experience shows that the critical due diligence questions need to include:

What experience has the facilitator of working with boards?

Who can you talk to who has already worked with this facilitator?

Who will the facilitator need to meet to establish the rapport necessary to maximise the effectiveness of the relationship?

What questions do you want to answer together?

What analysis is already available in relation to those questions?

How can you build a tailored process together with the facilitator, which recognises the need for preparation, discussion, reflection and strategic decision making?

A great deal of time, energy and money is wasted going through the motions of a blind process provided by a transaction based supplier. Those boards which have invested in building a relationship and have undertaken the rational and emotional journey of strategic thinking with a skilled 'facilitator' will describe a very different and valuable experience.

Values alignment

The accepted wisdom is that supply chains with values alignment are more productive. Clearly achieving that alignment calls for transparency in both processes and behaviour.

The values articulated and evidenced so compellingly by Body Shop founder, Anita Roddick, are now being emulated by organisations across a variety of sectors. When Body Shop was taken over by L'Oreal, many waited for the values to be watered down by commerical imperatives and stories exist to support and counter this expectation.

More recently, the sale of 200 year old British firm Cadbury to US Multinational Kraft for £11bn has excited much discussion about compromised values. Cadbury's ex CEO, American Todd Stitzer, was a firm advocate of leading through shared values, coining the phrase 'Performance Driven, Values Led.' The deal with Kraft was welcomed by hedge fund shareholders and has been followed by pre deal promises broken, the relocation of the head office from UK to Switzerland, a fine on Kraft levied by the City Takeover Panel for their conduct, a knighthood for former Cadbury Chairman, Sir Roger Carr for brokering the deal and on Friday the report that the Dairy Milk bar is going to be reduced in size so that customers do not have to pay more.

Perhaps it is not surprising that the operating environment is becoming increasingly uncomfortable for the entrepreneurial team who lead organic chocolate maker Green and Black's. Having been part of the Cadbury family for six years and experienced one style of parent, media stories point to their spirit being crushed by their new parents at Kraft. Since late in 2010, there has been talk of Green and Black's leadership team lobbying Kraft to entertain an MBO. It must seem a far cry from the ethical and organic origins of the business founded in 1991 by husband and wife team Craig Sams and Josephine Fairley of Whole Earth Foods.

Once again we are reminded that one of the main reasons for failing to realise value post acquisition is values misalignment.

'How did you decide that?'

'Well, we identified a whole range of options...'

'Was one of them to do nothing?'

'That wasn't an option.'

'Why?'

'Because the business would go belly up....run out of money.'

'So you decided based on some financial criteria?'

'Sort of. We decided which option would make the most money quickest.'

'Make the most money for whom?'

Leaders are increasingly being asked to defend their business decisions by a whole range of interested parties. The media are delighted to cover the post rationalisation of decisions often taken by dominant individuals or groups, based largely on personal preference. The criteria most quoted are financial and often these are presented as the only basis of choice. The commercially expedient option is the obvious winner.

Remember the recent tone of wounded indignation when the 2010 FIFA bid process awarded the World Cup for 2018 and 2022 based on a non-transparent decision making process which appeared to ignore the published criteria.

This week the OPLC will decide on the use of the London 2012 Olympic stadium after the games. Alternative bids have been provided by West Ham United FC and Tottenham Hotpur FC and the media positioning battle has raged over the weekend. Karen Brady, Vice Chairman of the Hammers and Daniel Levy, Chairman of Spurs, have both made strong cases based on different interpretations of the decision criteria. OPLC have published five criteria, some essential and some desirable. Lord Coe has reminded everyone of the promises made by the 2012 Olympic Bid Team and highlighted both the commerical and moral filters which should be applied to the OPLC decision. And the media watches and waits for the decision - due on Friday.

In an increasingly regulated business environment, the process of strategic decision making is under close scrutiny. Transparency, objectivity  and fairness must be proved as business leaders grapple with determining which option takes them in the strategic direction they have determined in the way they wish to travel. Long term stability and a moral compass balance short term commercial pressures in the search for effective corporate governance and stewardship.