Is the Executive Remuneration debate clouding all judgement on director liability?

I attended a briefing held by the Australian Institute of Company Directors (AICD) called Directing Tomorrow Today: The Essential Director’s Update. For me this is a must attend event, as there is a wealth of quality information provided on current issues relating to the essential process of quality company directorship.

There is an enormous amount of work that AICD undertakes on the members’ behalf to advocate for appropriate legal frameworks and legislation changes. One particular area of the debate which has taken an extraordinary turn for the worse is the expectations around personal liability for company directors.

Let us not forget why the formation of limited liability companies were created in the first place – to limit liability to shareholders in order to raise capital to grow. However the overwhelming and I think highly disturbing trend is that the liability is certainly transferred away from shareholders and directly and personally placed onto the shoulders of company directors. A recent survey conducted by Australian Federal Treasury has clearly shown that it is affecting decisions to take on directorships. Here are a couple of key points quoted from that survey by Gabrielle Upton, Legal Counsel AICD,  in the February issue of Company Director magazine:

  • 71 per cent of respondents had declined the offer of a company directorship because fo the risk of personal liability
  • 62 per cent of respondents believed their boards had lost a potential or suitable board member because of that person’s concern about the risk of personal liability
  • 87 per cent knew of other people who had declined an offer of company directorship because of the risk of personal liability; and
  • 75 per cent knew of other people who had resigned from a company directorship because of the risk of personal liability

Why is this occurring?

The fallout from the Global Financial Crisis, some large scale corporate collapses created a real change in regime and compliance activities.

In addition the continued greedy behavior by a small number of directors in top companies has led to rewards for this small percentage completely out of alignment with corporate performance. In short pay has gone up, performance has gone down. In addition, the pay packets for these individuals are way out of kilter with the expectations of most of the population. Those people who act in the interest of personal greed, instead of the interests of the shareholders, deserve every bit of the criticism they get.

Unintended Ramifications of this Activity

There is a high calibre of corporate governance in Australia. Part of this is due to the separation of the powers of the Chairman of the Board, and the CEO that applies in Australia. Another big part is the emphasis on non executive directors being part of boards.

However the risk / reward trade-off has become so significant that mighty steps need to be taken in order to ensure that the director pool continues to grow AND that directors don’t become obsessed with risk to the detriment of company performance. You could understand this too if your career and everything you own and have worked for was at stake too.

Yet, the issue of the greed of a few is desensitizing those involved to the potential plight of the genuine director – and they receive little sympathy.

There are more than 660 state and territory laws that impose personal liability on individual directors and officers.

660 laws that impose personal liability on the people that are directing a company. That is outrageous. The most damning thing is that some of these laws come from a context of providing proof of innocence rather than proof of guilt. Imagine that being applied in any other setting? I don’t know the details of the bill of human rights, however the right of innocence until proven guilty is something we all take for granted.

The counter argument is that we must have suitable deterrents for those earning the big dollars that are a sufficient penalty. I have no issue with that. Let’s however be clear on the principal at play: the director that has acted honestly, in the best interests of the shareholders, that has sought advice when appropriate, has inspected and checked that risk is being managed effectively and making reasonable decisions based upon the facts presented SHOULD be protected by law. Those that act dishonestly deserve to be punished mightily.

The Unintended Affected

It is vital to understand that the liabilities and responsibilities of being a director remain the same (other than specific rules applying to listed companies, such as continuous disclosure) if someone is working in a small company, or contributing their time as a director for a not for profit board.

There is a huge amount to consider as a company director to discharge responsibilities properly and effectively. The reward should be commensurate with the risk. If the risk is inordinate, then rewards to match will be demanded – and many of the best and brightest minds will pursue other opportunities.

Put this in comparison with the standards expected and the respective pay packets of Australian Rules Football players, many of whom earn many multiples of the salary of the prime minister of our country.

As with the global financial crisis… never in the field of business governance should so many be angry at so few.

Google Wave – better collaboration is coming

This Youtube video preview of Wave by the Google development team runs for around 80 minutes

Google has made no secret that it has been pursuing the highly defended corporate end of town for email communications.  Google has yet to succeed into the corporate sector, despite the widespread use of gmail and Google Docs by many individuals within companies.

The stronghold is of course Microsoft, whose strategy is to continue to integrate their products more and more tightly so that decoupling those products becomes increasingly difficult and harder for companies to justify. The strategy is to try to protect Office by extending its functionality Sharepoint for collaboration. Like any enterprise vendor, the stack of products create value for customers by creating more value for the investments previously made. The best part for the vendor is what is known in the industry as “lock in”. That is, you have spent a lot buying the product, you have spent a lot configuring the product, therefore you are highly likely to continue doing so.

Other products have offered different collaborative benefits attacking the same market space, like Sametime from IBM. However whilst software licence savings may be demonstrated and collaborative value may be present, the decoupling / recoupling effort is generally so significant that Microsoft’s virtual monopoly is holding up.

Building to a Better Platform

Part of the challenge with the way we communicate is that voice, text, instant messaging and email are currently separate spaces. And in many corporates this mix isn’t possible due to corporate restrictions on certain products.

So,  I  use Skype to talk with someone. I can instant message that person during the call to send files and hyperlinks. It also keeps a copy of the chat for future reference. I can use Twitter for mass instant messaging, or to catch up on conversations and activities of the people I follow, and an update of what I am up to. Then email for, well, email.

Google Wave offers the promise of actually putting all of this together into one web based application.

One of the neat features in Wave is the ability to to create an email conversation and thread which you can turn into an instant message – where both the recipient and the receiver can see character by character what the other is typing prior to hitting submit. If there is one thing that is frustrating about instant messaging it is precisely this – it doesn’t feel instant whilst you are waiting for the typing to finish…. the collaboration is much more real time. Images and videos can be embedded, providing a much richer  communication experience.

It is like a tree structure of messages, where messages can be selectively shared with participants, and viewed by history.

One of the things I love about this is the way it keeps a thread together. It reduces the volume and makes it so much easier to keep abreast of each communication.

Even better is the ability to add people in and out of the collaboration to. Suddenly need to invite a colleague in to the discussion? It is as simple as dragging their icon to the snapshots panel top right, and they can then see everything that has been covered before. No more trying to get together a bunch of emails or prepare a summary document.

Google Wave
Google Wave

Another of really neat features is the ability to embed Waves into any webpage, instantly providing a bloglike ability to add comments, track comments, add images and more. If the commenter and the web page author happen to be online and using Wave at the same time, they can instant chat and have it immediately publish. Each person can track future comments via their own  Wave client.

This will create a really changed way of thinking about creating agendas for meetings, for collaborating on tools like wikis and so on.

Further innovation that is coming which is a game changer is the automatic language translation. This is a really bit innovation for those companies that are global operaters and need to collaborate internationally with those colleagues that are not English native speakers, the traditional language of the web.

This product is another innovation being developed in Australia by the team that developed Google Maps. There will be plenty more to see when this goes live. Like iphone has created a environment for developers to thrive, my view is that the open protocol that will be available will also create a lots of innovation that will start to make its way into the enterprise.

Stay tuned… and please do comment on your thoughts on Google Wave.

Cebit Webforward Roundup

WebForward-4284, originally uploaded by CeBIT Australia.

Cebit 2009 Webforward was a great conference covering the future of the web, search, mobility, usability and much more. It was a delight to have the opportunity to chair the conference, and in particular Stream 2.

For those that attended and want a recap of Stream 2, please take a look at Neerav Bhatt’s blog where he prepared a great high level summary. You can also check out the Flickr photos at Cebit Australia.

For those interested in the slide decks, they are available to all attendees and you should have received your email invite to access them. If not, please contact Cebit Australia

Excessive Executive Remuneration

There has been a lot of comment in recent times about the levels of executive remuneration particularly in relation to companies that are underperforming. 

Taking a step back, we should understand the origins of the nature of directorship and ask a good simple clean and hard question: is this in line with the original intent?

As companies grew in the 1800’s it became apparent that a different style of manager was required to look after the interest of shareholders – those people were not active managers within the company. People appointed in this role of looking after the shareholders interests became known as company directors.

Today the same remains true – directors manage on behalf of shareholders, and they must put the shareholders first, with the obvious caveats of acting ethically and legally.

Executive remuneration is a touchy issue. Should the board not have the right to determine the correct market rate for a potential candidate? Is this not within the realm of directorship and corporate governance?

Unfortunately, reason has been lost sight of in some cases. Transparency of reporting has made it more difficult for boards to negotiate downwards. There is a frankly uncomfortable scenario in which boards end up determining their own remuneration and that of the executives – and frankly the higher the earnings of the executives, the greater that substantiates a higher remuneration for directors. There has been enormous criticism of audit companies with consulting divisions working with the same firm, yet isn’t the scenario very similar? Frankly the community and government in Australia have had enough of the sensationalist headlines with no action and have had enough. And so they should.

Whilst I fundamentally believe in free market economies and ensuring decision makers are free to make the decisions they need to with delegation from an accountable board, I cannot reconcile remuneration packages that are equivalent to the full profit figures of mid sized companies. A simpler model and principle that was shared with me at a discussion last night suggested that no person will receive remuneration in excess of 30 times the most junior employee. Some will argue it should be higher or lower, but either way it is a more modest, albeit simple principle at play.

AICD, an organisation I have a great deal of respect for, have lost the opportunity to lead the issue. By refusing to criticise the practice, they are being seen to endorse it. I understand the difficulty of their position, however, falling back to a stance of more education – when clear greed is at play – is proven through history to be unsuccessful. As a result, I have no doubt legislation will be brought it much more extensive and onerous than could have been negotiated – and potentially interfering in areas outside of remuneration. Being a company director is a very difficult exercise, more red tape isn’t the answer. But perhaps by more shareholders taking an active part, they will put an effective brake on these practices.

Have I got this right or wrong? Your comments are welcomed….

Cebit 2009

 

Webforward Cebit promotional banner
Webforward at Cebit 2009 Sydney Australia

Cebit 2009 in Sydney is shaping up to be the best yet, with a fantastic program of events, and excellent speakers.

I am delighted to be attending again, and in particular to be chairing the two days of Webforward. The agenda for Webforward ensures that everyone with an interest in the web is covered. There is a wide range of speakers that are thought leaders in the space.

I do hope to see you there….

Twitter for business – 11 ways you can use it

There are many ways you can use Twitter for business advantage (as opposed to just interest). There is a right way and wrong way to do this – blatant self promotion isn’t entertaining or interesting for followers, so you need to add value with your tweets. 

  1. Research – to keep up to date with new information, views and ideas in your industry. Twitter users often share links to presentations they deliver
  2. Promote your knowledge – share IP and information you have created by posting links to your own presentations (an easy way to share the presentation is using Slideshare) and announce to followers
  3. To rapidly get news in your  industry and stay up to date – most of the current events happening now, including Oracle’s acquisition of Sun, I heard first via Twitter
  4. To get access to thought leaders in your industry. For example, one of my favourite writers in the Web 2.0 space is Dion Hinchcliffe whom I follow on Twitter at twitter.com/dhinchcliffe. I can find out not only what he is writing about, but information he is coming across that he finds interesting.
  5. To build a personal profile in your industry as knowledgeable
  6. To keep up to date with what your colleagues are up to – without having to email them or ring them
  7. To win business. The way to do this is to find people who are tweeting about issues they have that you can help with. You then provide help. In many cases I have found these people then either want to promote you as someone that is helpful and adds value, or engage you to solve the next problem
  8. To promote posts on your blog
  9. To provide real time updates on crisis issues within a company
  10. To offer clearing stock deals (Dell did this very successfully)
  11. To get insight into potential staff

There are many more ways of using Twitter to add value to a business. So, what works for you? Please add your comments, I look forward to your input.