At our recent “Chatham House” meeting (graduates of the AICD course in Perth) we discussed the issues of:
1. Some of the great practical advice that graduates of the AICD Company Directors course had been able to apply; and
2. The legal issues and risks of being a director, particularly non-executive
The course is very good at outlining responsibilities and legal issues for directors - highly recommended if you are considering or are a director. Interesting, a number of participants indicated it is significant enough for them to never consider being a director. I have asked many people including various directors as well as Professor Bob Garrett who wrote The Fish Rots from the Head, amongst other books (signed copies proudly on my bookshelf) whether they shared the view that the legal position against directors is too onerous. No one seems to share the view.
In some respects, the purpose of a limited liability company is to encourage considered risk taking. However in recent times a great deal of that risk has been transferred to the board.
I was very pleased to see a great article by John M Green in this month’s Company Director magazine that succinctly gets to the heart of the issue. He also proposes a better way.
As John describes it, the key issue is that non-exec directors fees may be (depending upon the size of the company) from $30k to $200k per year. If the company faces a significant claim, directors can face unlimited liability, a weak business judgement rule and a newly burgeoning litigation industry? So, small amount of fees against potentially catastrophic risk. He makes a very good point.
Non executive directors are always going to be disadvantaged in business knowledge as compared to company management. Those people who have the talent to be non-executives also potentially can add value to companies by consulting - without the legal liability, and with the ability to involve their own consulting firm to deliver on other projects to the company without conflict of interest becoming an issue.
Non execs play an important role however in the governance of companies - and the role is required as more companies take the path of listing to expand their capital base.
John M Green’s suggestions (to apply only if fraud hasn’t occured):
1. Cap NED’s liability in proportion to their fees
2. Consider Charity NED’s and cap a fixed flat amount
3. Consider NED’s shares as part of settlement.
In summary, the reason why many people I have asked indicate that nothing is wrong with the current system is that the penalties are necessary to have big deterrents to avoid situations like HIH. I agree wholeheartedly. The area of reasonable concern is where directors act in good faith, being diligent and genuinely acting in the company’s best interests. Potential consequences are catastrophic but the rate of prosecution is low. John’s suggestions leave the big stick against fraud, but provide a more sensible position for NEDs. I look forward to the outcome of the government review in this area.
What do you think? Please leave your comments on your experience and views.
Check out http://www.resilientfutures.org/2008/06/what-can-we-learn-from-the-wa-gas-crisis/
From that post:
On June 3 a massive gas explosion happened sparking a gas crisis in the state at Varanus – a small island off the North West coast of Western Australia.
About 30% of WA’s energy supply was dependent on the pipeline from Varanus for their energy needs.
Perth is now on energy rations, with large business told each evening how much energy they have for the following day. Casuals are being placed on standby and large mineral processing plants have been shut down – which are the powerhouse for the national economy.
Alan Carpenter, WA’s Premier went on television this week in an unprecedented call for people to reduce their energy consumption – heating, appliances and shorter showers to keep the state’s economy going. The WA Chamber of Commerce has said that as many as 10% of Perth businesses could go out of business as a result of this.
The author, Todd Davies, goes on to discuss in detail the importance of building resilience into organisations so that they can resist shocks more easily.
Whether you call it resilient thinking or plain old fashioned disaster recovery planning, there is a whole area in which online reputation management comes into play. Resilience in reputation is dependent upon the appropriate role that companies play within the communities they work within. Companies that give back generally have stronger brands, attract more staff, are much more highly respected - and tend to be more profitable, and no doubt resilient. One of the things I will be talking on soon is PR 2.0 (See my speaking page for when).
A recent email that has been doing the rounds indicates very strongly that a reckless lack of maintenance by Apache created the disaster, and with a number of photos from the site, would make some - maybe many - people think it is credible. I do not have the facts to form a view - but from a reputation management viewpoint, neither do the general public. Coupled with some recent press from The West Australian indicated that this disaster was predicted 4 years ago, the view is that a bunch of people must have let their eyes come off the ball in a way that is simply unacceptable given the knock on effect.
Back to the point of the post - PR 2.0 effectively is the approach to managing issues online. How do social media come into play? How resilient will your reputation be should an event happen? How do you react particularly when reaction to an event gets near tipping point?
Like all disaster recovery planning, you need the scenarios and responses determined and practised well ahead of time. Communication planning is the same deal. We have seen remarkable little from the company in terms of hands on response. Again without facts, can an audience be blamed for assuming the company may not care?
Last week I attended, along with around 1100 other people, a presentation given by Kerry Stokes as part of the Business News Success and Leadership breakfast series.
Kerry and Peter Gammel approached Business News to hold the breakfast with a key aim in mind - to attract solid support from Perth’s business community for his bid to obtain two board seats on the West Australian Newspapers’ board. Judging from the support and response that I heard from the room, I got only the view that his approach had worked.
He made some interesting points, which I quote here from memory:
- The West Australian Saturday edition is likely to be outsold by The Sunday Times very soon - something I never would have dreamed would ever happen when I was involved in buying significant press for clients in my advertising days pre-2000
- Distribution to regional centres is solidly falling due to deliveries arriving far too late
- The supply chain is just not getting a fair share of the revenue slice, with no increase in payment in many years
His personal contributions and business success have been very positive for Western Australia, and innovations, such as giving media training to apprentices working at Westrac so that they could effectively communicate with customers, are simple and clever.
So, what of the strategy - effectively attacking the board for not driving better performance with the underlying message that management isn’t innovative enough, customer focussed enough, nor is the content interesting enough.
Much of the criticism can be laid at the feet of editorial direction, which has taken a real issues driven approach. The Sunday Times has made leaps and bounds in improving its product (which frankly used to be terrible) and deserves the success of improved readership.
However, some of the issue is the changing demographics of the readership audience. The West used to be compulsory reading for me daily - but my readership habits have changed.
I now getting my morning fix of news from:
- A news site such as www.news.com.au or www.smh.com.au
- Snippets off my 3 mobile phone if I am out using Planet 3 business or m.businessday.com.au - but mainly sport related news
- The excellent Business News email service
- The Financial Review - which I do read cover to cover
- And for more in depth stuff, well good periodicals like the Company Director magazine
As you can see it is the business stuff that I prefer to read and need to be across. I lost my faith in The West when I heard a journalist ask the CEO of Coca-cola Amatil if they were looking at the then Peters and Brownes milk assets. The CEO responded, “we are not particularly looking at them, but if something were presented to us, and we felt it was a fit we would consider it”. Guess the headline, “Coca Cola Amatil eyes Peters and Brownes milk assets”…
Having had my shot there (bearing in mind that in dealing with the advertising folk at The West, I found them very helpful, very customer focussed and keen to ensure results - I didn’t have a negative experience with anyone there at all), perhaps it is worth looking at the other side of the argument.
Copied directly from the West Australian site:
- There is a significant risk that Mr Stokes and Seven Network may gain effective control of WAN without paying a control premium
- Seven Network is a direct competitor of WAN, creating potential for recurring and systemic conflicts of interest
- The criticism of the board and the company by Seven Network and Mr Stokes ignores WAN’s strong underlying performance and profitability
- The focus by Seven Network and Mr Stokes on recent results ignores the fact that WAN’s recent dividend payment was affected by abnormal events and that the final dividend for the 07/08 year is expected to be significantly higher than the interim dividend
- The company has a clear strategy in place to generate significant value for all WAN shareholders
The above points are explained in more detail here and worth a read, particularly given the similar approach taken by Kerry Stokes to secure his place into Seven would appear almost identical, and that there is absolutely no question that Seven and WA News compete for media dollars and increasingly will be competing more and more online.
Whatever the outcome, there will be plenty of pressure on the board and management to improve results.
The author does not have shares in either The West or WAN, nor Business News.
This week I had the great pleasure of meeting Professor Bob Garratt, author of the above book amongst others. He was in Perth to present on “Directors and their homework: developing strategic thought”.
The presentation was interesting and through provoking and particularly highlighted the ever growing demands on directors, as the scope of what is considered to be doing an appropriately thorough job continues to grow and the essence of what constitutes good governance becomes clearer.
One of the many things covered that I found refreshing was his bias to jargon free simple statements of strategic direction and intent, and using tools such as PPESTT analysis as a board developmental tool.
PPESTT is:
- Political environment
- Physical environment
- Economic Environment
- Social environment
- Technological environment
- Trade environment
His suggestion was to work in buddy pairs with a director and senior executive and address one of each of the above in real detail with quarterly feedback sessions to the board to constitute no more than 4 sides of A4 paper, thereby covering all of the above over 18 months.
The real purpose in doing so is to get quite a different macro view of the world and really lift up to another helicopter level. Further it will make board members consider the daily news intake in a different light in relation to the critical job of setting and guiding strategy.
A good idea - and also a book worth reading.
I asked him at the close of his presentation about how the nature of board relationships had changed since he published “The Fish Rots From the Head”. Interestingly there are now organisations that are monitoring board interrelationships, which is important in assessing independence. He went on to say that whilst there was a big improvement in this area, nurturing new talent is an important and ongoing job. In addition, the evolution of corporate governance is far from complete with financial market players, their machinations and their impact on share price being a key issue needing addressing by market regulators.
I’d go one further and ask how the role of independent audit by the top tier firms still leaves only the directors exposed in a meltdown, even if the auditors should have uncovered the issues.
I recently attended a workshop held by the Australian Institute of Company Directors that was discussing the challenges of compliance, particularly related to the continuous disclosure legal requirements of Australian companies. The intent of the requirement is to ensure continuous disclosure to ensure an equally and adequately informed stock market.
A case study was presented of various situations in which a company might have disclosure issues and when to disclose. For example, a heads of agreement is at a draft stage - but commercially sensitive. Any information made public about the deal may actually kill the deal - but legally the company is required to release a disclosure statement to the share market. How do you do that appropriately?
In speaking to various directors after the event, I posed the question that the very high bar set in meeting compliance requirements might be distracting directors from the core job of creating value for shareholders and continuing to innovate. One of Perth’s leading directors agreed, and also expressed concern that high caliber people will be less likely to pursue directorships. Another indicated that it was his view that most boards worked out how to deal with compliance quickly, and were then able to get on with the job.
Unfortunately the minority of companies that perform poorly and unethically tend to create problems for everyone else. I sense that compliance is imposing too much - however, perhaps it is a necessary evil to protect the interests of shareholders and business partners.
Richard Koch and Peter Nieruwenhuizen have written an enjoyable and practical read on strategy as it applies to business. It asks 10 key questions that are the useful questions that need to be answered when taking over or trying to get the better out of a business.
The questions are:
- What business are you in?
- Where do you make the money?
- How good are your competitive positions?
- What skills and capabilities underpin your success?
- Is this a good business to be in?
- What do the customers think?
- What about the competitors?
- Should you do something else?
- Who are we? What will we do?
- How to raise profits quickly?
Each of the chapters looks at a question, and then details how to answer it, with two case study examples.
One of the neat ideas that they have applied to this is that they have developed their own software - which is a neat way of extending the capability of the book, and to get people to visit the www.simplystrategy.com site. In my view I confess I didn’t find the look of the software compelling, and the site left me a bit flat - but the book is an excellent read and I heartily recommend it. The way to use the software is described throughout the book, however it is not pushed on the reader. It is clear that the authors have used the tool as a part of the strategic engagements they have led.
As an alternative, you might like to take a look at www.planhq.com
Obviously derived from BaseCampHQ heritage, it provides an approach to developing a traditional business plan. Like so many Web 2.0 sites, free trial for a month is available.
Happy strategizing!
I’ve got to say I have an interesting concern - but a sense of delight at the possibilities - about the speed and capacity of change of Enterprise 2.0. Let me explain…
In the world of application development, there is a serious and mounting argument from the rapid development / iterative prototyping camp versus the waterfall (requirements, design, build, test, deploy, support) purists. When it comes to applications that affect corporations - that is, across the enterprise - I am a firm believer in the latter.
Iterative development is great when there are only a few people involved - or a small point solution that only affects a few people. When you start getting more people involved, the challenges go up.
The challenges include:
- People - commitment to using a new process and a new underpinning system - and a common way of doing so
- Process - is the process we are using common to all? Do we all do our own thing?)
- Technology - solid analysis of the problems and a clear view of how to resolve them with technology
Now with Web 2.0 / Enterprise 2.0, the beauty is that these applications are breaking new ground in making the process neatly tied up in the applications and making it really simple for people to follow the process without having to think too much about it - or having to refer to training manuals or help guides. However, the ease of picking one up, configuring them differently according to different needs - but at the same time missing the opportunity to apply them consistently is the challenge.
The takeaway points to consider:
- If you are going to go for a Web 2.0 application, do document your processes and make sure people apply it consistently within the organisation
- Software developers can learn from the myriad of Web 2.0 projects smart ways of developing inviting interfaces and very simple and fast sign up and use approaches
- The next raft of successful enterprise scale applications from the Web 2.0 environment will make a dent on traditional software only when sold, implemented and supported like enterprise software
All comments welcome!
The interesting change with Web 2.0 has created a sense that the internet is all new again. There are some truly amazing success stories - witness www.utube.com as the largest, most recent couple of guys and an idea turned into millions. And may similar success fall to www.wordpress.com - this is truly a great offering.
But there is something in the air that smells funny…. and it seems we have a new generation of people coming through who have:
- Never witnessed a recession
- Never seen businesses lose a f…ing frightening amount of money
- Never been paid so much for so little experience
- Starting discussing “eyeballs” as inherently adding value
Am I cynical (or jaded as it didn’t work out last time - I was supposed to be driving a Ferrari to my own private golf course right now!) or does something smell funny?
Today, as it did at the time of the crash, it stills comes down to “show me the money”. At least now, advertising models are well established and easily quantified.
What piqued me to write this was a pic of Malcolm Gladwell on the front of the Australian Financial Review with him saying that business needs to get over itself and recognise the power of snap judgements.
I have read the Tipping Point, and did find it an interesting read. Gladwell may well be onto something - and I share a view that making snap decisions in the heat of business is often very sensible. You are closest to the action, best in the position to make the decision - so you should be able to make it without having to engage in endless email / other approvals - and analysing it may make you change your mind against something that makes sense.
However I also remember vividly hearing similar tones around the time of the dot com crash along the lines of, “if you are looking for a standard business model, you just don’t get it…”. You should be very concerned if anyone wont be specific on:
- Who wants it?
- How much for?
- Who says so?
At the end of the day business is about the exchange of value. Part of value creation is really thinking about things.
For more about thinking, please see my posts Talk to me in numbers and 3 Reasons why smart people in organisations do stupid things
So, what do you think? I look forward to any feedback….
If you have ever found peformance issues and the reasons being given seemingly incredibly complicated, then perhaps distilling the essence back to the number only may be the answer you are looking for.
For example, let’s say sales performance is down. A person can provide any number of reasons, incredibly well argued, as to why their sales performance is off. Or why they missed their last deal. And if they are any sort of sales person, they should be able to be pretty persuasive in their argument as they probably have been constructing in their minds for some time!
So how do you reshape the nexus of this? Well, get back to the numbers and the causal factors of success.
Step 1: Fishbone the profit and loss statement to look at where the revenue comes from
Step 2: Drill into the customers spend to determine which customers, what product lines, and which sales when.
Step 3: Determine the causal steps ie activity, necessary to get the success you need. For example, to sell $10 million of a service, you may need to have generated a sales pipeline of $30 million if you close 1 in 3.
Step 4: Determine the metrics that make sense around the steps to get to the target. For example, to get to $30million pipeline, you may need to have qualified $60 million of opportunities. If each deal is $10 million, it is 6 deals. You then track activity to create deals - number of presentations, meetings, sales calls, product demonstrations, roadshows and events.
Step 5: Turn the above into simple numbers next to boxes and track that against performance. This will in turn drive activity that leads to success and also may provide some focus to improve success rates on each successive step.
Used correctly, the above approach can move to an empirical analysis of activity that reinforces the right behaviours, and also how you can help along the way, and quickly ends long and unfruitful discussions.
If you have had a good experience - or a not so good experience - in applying metrics to your business, please leave a comment, I’d appreciate your feedback.
Have you ever experienced the debilitating situation of not knowing what decision to make in a difficult circumstance? Or found yourself overwhelmed by the sheer volume of email and interruptions within your workday?
In case of the former it is caused by uncertainty (not enough facts) and a less than comfortable risk of decision failure.
In case of the latter, in many cases the day to day interruptions really get in the way of the big picture and most important jobs to be done. That type of continual interruption will make you highly ineffective - so you’ve either got to live with it, or change the environment.
I’m a big fan of getting time management in order, and my continual reference book here is by Alan McKenzie called The Time Trap. In this book he identifies the top 20 time wasters, and specifically how to deal with them.
My father would always say “Don’ta worry - what’s the worst that can happen?”. He isn’t Italian, but for some reason this simple sentence would provide some perspective and give the mind some necessary breathing space (distraction if you like) that allows the subconcious to trigger a logical decision.
