Long-time-no-post!

I couldn't believe it was the 14th of June when I last updated my blog! I do plead mitigating circumstances: firstly there were the wedding preparations for my daughter, then her wedding in Canada, then her UK reception... then our holiday to recover - I think you get the picture.

The Corporate Governance front has been equally busy: working on the on-line questionairre, developing the marketing material, shooting and editing a corporate video, developing the web presence, arranging speaking events...

Oh, and there's always the day job.

Enough of the excuses. I hope soon to have some great news about web availablity and feedback from speaking engagements - it won't be another three months...promise!

NED Wanted - no crooks, cronies or cowards need apply!

You are recruiting a NED, what should you be looking for?

1. Relevant experience
2. Adequate knowledge of the company (can be gained through induction and in-post)
3. Integrity and high ethical standards
4. Sound judgement
5. Strong interpersonal skills
6. High levels of engagement
7. Independance of mind

It's not a new list (see the Tyson reprt on the Recruitment and Development of Non-Executive Directors 2003), so why do we still seem to be struggling? Is it that these people are just not there, or is it more likely that we are not casting the net widely enough? Do we in many cases have too narrow a definition of "relevant experience"?

The barriers to entry for NED postions, especially in listed companies, are artificially high. You can trawl through the annual reports on line and the "old boys network" still screams at you with deafening veracity.

"The best boards are composed of individuals with different skills, knowledge, information, power..." (Conger and Lawler, 2001)

Cast the net wider, seek out diversity but stick to Pehr Gyllenhammar's suggested guidelines for the selection of NEDs: no crooks, no cronies, no cowards.

They are out there!

Risk Management and the KISS principle

A chart from some research RBS commissioned from the Econimic Intelligence Unit. (Management Today "In Focus").

There was not much detail from this "global" survey, but the chart is never the less interesting.

How would you align your risk management strategy against this basket of "Big Issues"? Are they really all that different to the normal cycle of problems that face business regularly?

Paul Howard (former head of group insurance and risk management, J Sainsbury) is quoted as saying "You can take away the risk from risk management and say it is just good management"

I agree with Paul, however, the discipline of risk management does give us a framework and a methodology for identifying; managing, mitigating and monitoring risk in a structured way that was not previously the case. It also affords us a way of setting our risk appetite and boundaries.

The Executive and senior management still have to "walk the talk", set the example, model the behaviour; but risk management systems allow us to draw on knowledge throughout the organisation, capture and analyse those thoughts, set the agenda, develop the action plans and responsibilities and then cascade that back through the whole management structure.

Too many I have worked with in organisations see risk management as just a "pain in the neck" that gets in the way of doing the job. It's not, as Paul Howard says "it is good management" - it is the job!

Where it can be a pain in the neck and get in the way of the job, is when it is over complicated, shrouded in jargon and seen as the domian of some pedantic experts. You could read endless books on risk management, go on courses and seminars, pay consultants a fortune - or, you could run it back to the principles of good management and have a simple, understandable, jargon-free system that integrates with the organisation's current management and reporting cycles and systems.

Let's apply the KISS principle to risk management and help CEOs sleep at night, rather than give them something else to keep them awake.

Who undertakes the External Board Performance Evaluation at the Bank of England?

"Fears over governance at the Bank of England"

"Banks corporate governance under scrutiny"

(FT 23/05/11)

It seems that the Bank of England, the FSA, the Government, are all insistant that UK companies comply with the UK's Corporate Governance Code 2010 but do they comply with it themselves?

In my last blog I reflected on good governance in Government but now we turn to the Bank of England.

The question being posed by commentators is "are the non-executive directors robust enough to hold it's executives to account for the central bank's greatly expanded functions?"

The UK Code clearly states in section B.1:

"The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively"

The Code also states in section B.6:

"The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors"

And in section B.6.2:

"Evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years"

Interesting then that the the Bank "declined to discuss its corporate governance".

The Bank clearly operates in a complex environment with a role to protect and enhance the stability of the financial system of the UK. It is pulled in one direction by the Government and in another by the Banks, tugging at its middle are the Corporates and Joe Public. Not an envious position. However, it can't be allowed to ignore any of these constituents. The Court of Directors needs to be made up of a mixture of these constutuents and not just from the pretty incestuous world of financial services.

Even a cursory reading of the history of banking will show how it has always sought to shroud itself in mystery and operate with terminology that effectively allows it to operate in a kind of shadowland with its own rules.

It is time for banking and financial services to come out in the full light of day and to stop hiding under the lie that "the ordinary man in the street just wouldn't understand" - well, let's give them a chance and see. I think they will understand a lot more than they are given credit for. Or is it more that the industry doesn't want them to understand? Are they being allowed to operate under some kind "super injunction" of secrecy???

Let's insist that they operate with the same transparency and accountability that they demand of the rest of us?

Time for Good Governance in Government?!?

An article in the FT yesterday reminded me of an experience I had with civil servants a few years ago.

The article starts "The poor quality of Westminster policy-making comes under fire in a report that will sound all too chillingly familiar.......and goes on.... a former secretary of state said he was stunned when he actually went round the room and asked civil servants for their thoughts on a policy he himself had some doubts over - only to discover that every single one of agreed that it was the wrong policy. A civil servant added that some ministers have been so scary and so unwilling to consider actual evidence that stuff has been withheld from them. Policies have sailed on without the benefit of that evidence."

Well I suppose we had always guessed as much!

A few years ago we were asked to bid for the continuation of some research for a Government Dept. We presented our proposal to a group of senior civil servants, showing them that the research that had been undertaken previously was flawed and what we would do in its place. Summing up at the end the most senior civil servant presents said "We can clearly see from your presentation that the previous research was flawed and I agree that what you are now proposing is the correct way to approch this. However, am I right in assuming that if we make these changes, the downward trend line would be reversed? To which we answered "yes". The civil servant then said "well in that case we can't do this because the Prime Minister has said this trend will go down".

So my experience certainly confirms the findings of this study in which a senior civil servant said of Whitehall "if we built aeroplanes the way we build policy, none of them would ever fly". This is stunning...isn't it? Is it any wonder our Country is not "flying"?

The Government is insisting on levels of good governance for UK businesses, how can UK businesses effectively insist on the same for the UK Government. The ballot box certainly seems to make little difference.

It is said that power corrupts and when you marry that with incompetence it is an unholy affair!

Zero women on over 40% of the World's largest Public Company Boards!

A new report from GovernanceMetrics International has found that more than 40 percent of the world’s largest publicly listed companies have not appointed even one woman to their boards. Even in major markets like Japan, Italy, the United Kingdom, and the United States women continue to be grossly under-represented on corporate boards.

What can be done? Quotas are almost certainly not the way. Personally, I believe the answer to be much more emphasis on Board Performance Evaluation measured against the Corporate Governance Code 2010. The Code does, in my view, provide a template for best practice and an external board evaluation done well will highlight the requirement for diversity on the board. Organisations are short changing themselves if they exclude women from the board - either purposefully or because of poor legacy practices. It is almost certain that many of the excessive risks taken by all-male boards would not be have got through an appropriately diverse board.

Director Development - Strategy

I am in the process of developing some on-line strategy development workshops for Board Directors. I would welcome your views on the approach I am taking and perhaps even your help.

To deliver the content in a vibrant and interesting way much of it will be video and I am thinking of:

• videoing the "talking bit" from various boardrooms around the Country
• showing some footage of real strategic facilitation days
• interviewing Chairmen, CEOs, Executive and Non-Executive Directors

If you are a Board Director: -

1. Is this something you would find helpful?
2. Does the approach generally seem right?
3. Would you allow filming in your board room
4. Would you allow filming of a strategy facilitation day (if the day was free!)?
5. Would your board be prepared to be interviewed?

If you are not a Board Director, do you know any that you could pass these questions on to?

Bank of England MUST raise interest rates!

Now if you borrow money you may not think this is good news, but it probably is! The whole financial system struggles with rates so low. If like me you don't borrow money, it is of course excellent news.

FT Exclusive comment:

The UK’s high inflation rate is not simply the result of “one-off” factors but reflects an overly-loose monetary policy stance that has resulted in rapid growth in nominal spending. An early rise in interest rates is necessary to prevent the overshoot being built into inflationary expectations, which would make an eventual return to target more painful to achieve.

Doves argue that inflation would be close to the target but for indirect tax increases over the past year. This is wrong. January’s figures show that consumer price inflation, excluding indirect taxes, was 2.4 per cent in January. This, moreover, is an underestimate of where inflation would be if tax rates had stayed constant, since it assumes that increases are passed on in full to consumers. A more realistic estimate of tax-adjusted inflation is 2.75 per cent.
http://link.ft.com/r/8P1R88/D40Y1A/11EP1/WL9OWI/18J6I1/E4/h?a1=2011&a2=2&a3=15

"Russian Dolls", "Alphabet Soup" and...Shadow Banking!?!

Great article in the FT 03/02/11. New to me, is the term "shadow banking", a practice apparently not new! A seemingly unregulated billion dollar business. The FT article picks up on this shadow banking, refering to "collateralised debt obligations" and "structured investment vehicles". Shadow banking previously refered to as "Russion doll financing" or "alphabet soup". I don't think anybody outside of the system would comprehend the complexities of what is going on, but it is worth (apparently) an eye watering $15,000bn, yes that's $15,000,000,000,000!!! It would seem that the regulators (like the rest of us - but then they shouldn't be...should they?) had assumed that banks are the only really important parts of the financial system. Some of these funds are said to have bigger loan books than Wall St banks.

For me at least this is raising the lid on another fascinating can of worms...is there no end...probably not!

What are the governance issues..........................

Straw Poll on Corporate Governance

I recently commissioned some market research, and whilst the sample was far too small to validate any specific conclusion, it would be fair to say that the following comments typified something like 50% of respondents' attitude to corporate governance and specifically the UK Code:

"We are reluctant converts"

"We tick all the boxes"

"They wouldn't opt in"

"A lot of it is frankly gobbledegook"

What use is UK's Corporate Governance Code?

I have been working with the application of business models for some 20 years now: TQM, BPR, TOC, BEM, EFQM, Lean, etc; all of which have been readily accepted by business and have enjoyed wide use in their time - all are generally seen as effective tools. In developing strategy I have worked with many widely accepted methodologies and tools: Boston matrices, Porter's work, Peter's, Handy, Cole, etc. etc., - all good and accepted with little argument.

"But these are all practical" I hear you cry - well to me, so it the Corporate Governance Code.

For me the Code is both a plumbline and a pathway for improvement. A board can use it to measure where it is, and to shine a light on where it could be - even outlining how! It is a board tool as opposed to a management tool and yet it is often passed to management to "deal with it".

What would it take to get boards to embrace the Code rather than just tick the boxes or shun it altogether? Answers on a post card...

No one is beyond improving their game and when we stop learning and developing we start dying. Even FTSE 100 board directors!

The results of poor governance?!?

Whilst most headline economic indicators might be positive, the above (FT 11/01/12) is definitely not!