Sterling Performance

Research by executive and non-executive recruitment specialists Directorbank has revealed what makes an outstanding director. But it also uncovers a worrying apathy among companies apparently unwilling to sack ineffective chairmen.

Surveying 430 directors, the research finds that it’s personal qualities that separate the good — who have charisma, patience, ability to listen and supportiveness from the bad — biased, arrogant and aloof chairman who can’t control their board.

Business acumen is important, too, especially when it comes to handling crises and being able to offer sound advice.

The outstanding chairmen tend to be very humble and open about their mistakes. They also recognize when things have not gone the way they’d expected and call a halt to plans.

The top five priorities for a good chairman are:

1. Ability to run an effective board
2. Manage relationships with shareholders and stakeholders
3. Create value for shareholders.
4. Experience of economic crisis
5. Ability to motivate

“The chairmen I interviewed all had a common touch, the ability to communicate at all levels and an innate ability to make people feel comfortable with them,” says Elizabeth Jackson, chief executive of Directorbank. “Of course they have a presence and command respect, but there was a great deal of modesty about them as well.”

The research also identifies the ‘best of the best’ — the elite of the UK’s boardrooms:

• Sir Dominic Cadbury, former chairman, Cadbury Schweppes plc
• Jon Foulds, former chairman, Huntsworth Plc
• Ronnie Frost, former chairman, Hays Plc
• Ian Irvine, former chairman, Reed Elsevier Plc
• Eric Kinder, former chairman, Smith & Nephew Plc
• Sir Allan Leighton, chairman, Royal Mail
• Sir Rob Margetts CBE, chairman, Legal & General Group Plc
• Lord Marshall of Knightsbridge, former chairman, British Airways Plc
• Sir Peter Thompson, chairman, Phoenix Asset Management

The bad news…. Almost eight out of 10 of those surveyed said they had worked with an ineffective chairman. Directors talked about the ditherer who could not communicate or listen and who failed to keep the board on course. Says one: “He was only there for the title and money….abandoned management at the first sign of trouble”. And another: “Public school/Oxbridge education, totally into networking and nothing much else… Did not like to get his hands dirty”.

Yet 40 per cent of the UK’s boardrooms have no structure in place to remove their chairman if he is not up to scratch. and only one in five thought it was even worth training a poor performer. (And ‘he’ is deliberate — while directors believe diversity is essential to the best boards, there remains a dearth of chairwomen on boards.)

Directors claim their toughest challenge is sacking their chief executive. So it’s wrong that the chief executive can be sacked yet the chairman remains untouchable. Says Jackson: “Companies need to have everyone pulling their weight, not just on the factory floor or in the office but also in the boardroom. No-one should be immune.”

But quis custodiet ipsos custodes — who guards the guards?

Inspired, perhaps, by Sales Machine’s list of most irritating business jargon, Michael Wade offers up his list of ‘10 phrases you should never say in business’.

UK readers may not recognise ‘my bad’, except from US sitcoms. And I’m not sure I share Wade’s view of ‘the bottom line’ — “Effective when first uttered, it is now two steps removed from ‘Great Caesar’s ghost!’”

But the list gets some of the main culprits:

1. The bottom line.
2. Walk the talk.
3. Basically.
4. My bad.
5. Cool (”Use it around younger people and watch their eyes roll”).
6. The C-suite.
7. Back in the day.
8. Cut to the chase.
9. None of us is as smart as all of us. “True. Sometimes one of us is smarter”.
10. Thinking outside the box.

I use it plenty, but I think ‘credit crunch/crisis’ will soon join the ranks of irritating business shorthand.

Any more annoying business phrases?

Normally, an online offer of £250m is an invitation to become a victim of an internet scam. But just occasionally, such opportunities are real. An organisation’s ability to recognise such opportunities marks out the winners from the losers.

Twice, I have been in the fortunate position of offering an organisation the chance to make £250m. The first time, I was starting a bank. I contacted the chairman of what was then the Halifax and offered to discuss the idea. Six months later, the bank confirmed that it wanted its belated Christmas present and it started a new business bank.

The second time, I offered the government the chance to save £250m. This time the offer was even better — they had to make no investment and take no risk. They only had to pay for the results we achieved.

The scheme was a programme to reduce re-offending. We knew it would work because we’d already tried and proven it, so we were happy to put our own money behind it. Reducing re-offending saves the government a fortune in court, police and prison costs.

In the universe business people and humans inhabit, £250m, risk free, is worth talking about. If you are a junior minister or civil servant, you avoid such offers like the plague — they mean more work and may mean that you can not indulge your pet project of building big Titanic prisons. Building prisons generates headlines and photo opportunities, reducing crime does not.

Ministers and civil servants reacted to the idea of saving money exactly the way a bad business reacts to disaster. They all started saying it was nothing to do with them, passing the buck from the Prisons minister to the Justice Secretary to the Department of Work and Pensions to the Department of Industry, Universities and Skills to BERR (don’t ask) to the Treasury, to the Cabinet Office and back to the Prisons Minister.

If government was a business, it would be out of business. It should be referred to the Competition Commission immediately.

If, as a taxpayer, you wonder whether your taxes are being wisely spent. Doubt no more. They are being wasted horribly. Even in the middle of a credit crunch which means most businesses and families are tightening their belts, the government carries on spending and can afford to ignore offers of £250m of savings.

So here is a special offer to any government minister who is interested in saving taxpayer’s money or reducing crime: get in touch and I can give you £250m. All that money is just an email away.

It is inevitable that the ongoing economic problems will lead to major cost reductions for many businesses.

Management’s challenge is to deliver cost savings that help both short-term profit performance and longer-term value growth.

In my experience companies can fall into one of three traps:

1. Focusing cost reduction on areas with highly variable costs. Advertising, training and recruitment are often hit simply because they are easy to switch on and off.
2. Seeking to give all areas of the business an equal share of the pain. For example, all departments may be required to find 20 per cent cost savings regardless of their relative importance.
3. Enabling a political power struggle. I have witnessed organisations where departmental leaders use their influence with the CEO to campaign to protect their area, whatever the cost elsewhere.

So how do you cut costs effectively? Here are three approaches to help you deliver short and long-term gains.

• Identify and protect your key value drivers. A value driver is a business activity that has a disproportionately large impact on the profit and value of the organisation. These drivers should be managed so that they optimise long-term value, not so that their costs are minimised. Companies such as American Express, Accenture and Kelloggs are protecting or increasing their marketing budgets because effective marketing is a key value driver of those organisations.
• Understand where you are competitively disadvantaged on cost. Don’t just review your own costs to drive profits, you should also critically review and understand your competitors’ costs. By identifying the activities that your competitors are delivering more efficiently, you will be able to focus your efforts where you can improve profits and your competitive position.
• Determine where you make and lose money. A good starting point for increasing profit is to stop losing money. In most businesses there are areas of high profitability and areas of low returns or losses. Poor-performing businesses cannot be switched off overnight, but focusing your resources and effort where you deliver the greatest returns is likely to raise profits. Tesco continues to devote more resources and space in its stores to non-food categories, primarily because it makes more profit from them than from its food categories.

These three principles of cost reduction are sound business practice in good economic times, but can be the difference between corporate life and death during periods of market decline.

Where are you cutting costs to ensure that your business not only survives but also thrives? What are some other cost-cutting traps?

(Photo by Gary Denness, CC2.0)

Alex Singleton takes up the cause of unloved short-sellers, most recently criticised by the Archbishop of Canterbury, Dr Rowan Williams, and Archbishop of York Dr John Sentamu.

“Short-selling is a morally virtuous activity because it helps keep share prices honest,” says Singleton.

His argument goes something like this: the stockmarket is a “big debating chamber” where company values are accurately assessed in terms of their return potential — those deemed the best bets get investment and contribute to wider economic prosperity.

Short-sellers provide a “counterbalance” to long-term investors, who might be incentivised to paper over problems in favour of longer-term returns. “They [short-sellers] give a financial incentive to tell the truth about companies and help push the prices down to a more accurate level.”

Spreading false rumours that drive down a share price is, he admits, unethical — but claims over-valuation is just as prevalent.

The morality argument doesn’t add up for me. But Singleton’s not alone in championing short-sellers. Defenders argue they are quick to spot over-valued assets and therefore market malfeasance (Greenlight Capital’s David Einhorn questioned Lehman Brothers well before its demise), with Jim Chanos of Kynikos Associates credited with raising awkward questions about Enron.

But how helpful are they in addressing the underlying cause of over-valuations? And how instrumental are they in pushing down good stocks? Defenders say that only naked shorting, when the short-seller doesn’t even bother to take on the stock, is worthy of banning, and complain that short-selllers have been market scapegoats since the 17th century.

But where defenders argue they add liquidity, detractors see in their actions a venality that takes no notice of the wider impact on the economy and results in dangerous volatility.

That leads to the kind of panic that necessitated the FSA ban on shorting financial stock in the UK — if only to stop rampant speculation and quell public fears that HBOS was about to implode. The FSA has (thus far) resisted pleas from non-financial firms wanting protection from short sellers — despite those who question why some are protected while others aren’t.

Whatever your views, fans and foes of short-selling believe the ban is going to change business dealings significantly. But is that such a bad thing?

If we are to believe Hank Paulson, the US Treasury Secretary, the financial sky is about to fall down. The only solution is to nationalise the banking industry, so that the US can become the leader of world socialism.

Or it is to pay vast amounts to greedy bankers who caused the problem in the first place. Either way, $700bn looks like it is about to poured down the sewer as fast as possible. At times like this, being a sewer rat becomes an attractive option.

In truth, the sky is not about to fall down. If the bureaucrats and plutocrats wanted to find out what a real crisis looks like, they could come with me on one of my trips to the highlands of Papua New Guinea.

Last time, we could not visit the first village: it had been burned down. At the second village, all the children drew pictures of burned houses, dead people and chopped down crops. We were escorted by 30 warriors back to the nearest town where we met the local magistrate, who had just been held up at gun-point on the highway. And that was before the tsunami struck.

The current crisis is not about toxic assets, regulation, leverage and complex financial products. The root cause of the crisis is much more simple. The crisis comes from a failure of values, not of regulation.

The tribes can teach us a thing or two about dealing with crises. It starts with leadership.

The tribes look for three things from a leader:

• Courage. Tribes require physical courage, whereas business leaders need courage to make tough decisions and take people where they would not have gone by themselves.
• Contribution. Tribes want leaders who can give to the tribe. Money, wisdom, power, access are all things leaders can give. Businesses need leaders who focus more on what they can give to their organisation than what they can take out in terms of bonus, pension, stock options and all the other trappings of success from trophy house to trophy spouse.
• Responsibility. Tribal leaders are expected to take responsibility. Business leaders are good at taking responsibility for success but become like Macavity the cat when there are problems — they become invisible and they get very good at delegating blame onto others.

In the financial crisis, they are delegating the solution to the taxpayer, who is expected to bail them out.

If Wall Street bankers had focused on courage, contribution and responsibility instead of greed, we would have no crisis. Meanwhile, the bureaucrats are talking about changing the regulatory regime.

You cannot regulate values. Regulation addresses the symptoms, not the causes, of the problem. It is as useful as putting spot remover on a child’s face to cure measles. The symptom may go away, but the disease will not.

Tribes also teach us how to deal with disaster if it really does strike. I was in the tent of a nomad in the middle of the Mongolian steppe. Nomads keep the absolute bare minimum of possessions to survive winters where the temperature can hit -40 degrees centigrade. At the end of our interview, I asked the nomad if there was anything she needed. She looked astonished. “Why would I need anything? I have everything already. I have my family, my friends, my health. What else do I need?”

In the hunt for the next car, handbag, pair of shoes, exotic holiday, latest phone or other stuff, we often lose sight of what can really make us happy. If we know what is important, we do not have to join in the suffering of greedy Wall Street and City bankers.

(Photo by Asobitsuchiya, CC2.0)

Just toiled your way through an MBA course only to enter a depressed labour market? Megan McArdle — whose graduation coincided with the 2001 dotcom bust — has some valuable advice for any new graduate.

Cast a wide net — you’re likely to have diverse skills. Use them. McArdle was both journalist and consultant.

Get a job that’s going somewhere – better to be flexible on hours or pay than land yourself in a job without any prospects for progression.

Reassess your goals — now’s a good time to decide whether you want to jump to another career.

Curb your spending now – resist the urge to splurge (even if you deserve it). McArdle’s tip is sound — “Allow yourself exactly one feel-good treat of under £150, such as a spa day or a really epic night of drinking. Then promise yourself something really good after you find a job.”

Consider going back to your old firm — unless you want to change career or loathed your old workplace, it’s a sensible first-stop.

Network like hell — McArdle sent out 1,400 CVs after her firm failed, but her job interviews came from personal contacts.

Find kindred spirits – being unemployed can make you feel like a pariah. Find people in the same boat, who will also be living on the same budget as you.

Find some way of making money — sitting alone and fretting will make matters worse. Even a dog-walking job will give you a sense of purpose, as well as a bit of spending money.

Don’t panic Everyone I went to school with is gainfully employed, except for those who have chosen to stay home with children. No one is living on cat food. It’s hard to believe it, but you will come through this, even if it takes you, as it did me, 18 months to get back on your feet. Believe it or not, losing that job was the best thing that ever happened to me. More than a few of my classmates say the same.

An add to the ‘network like hell’ tip — consider volunteering some of your time to a charity. It’s another way of getting out and about, meeting people with the same interests as you and generally taking your mind off the waits that go with all job searching.

In the days before spreadsheets, senior managers could terrorise junior managers by spotting errors in their calculations. This was normally done by quickly adding up rows or columns and finding that the sum didn’t come to 100.

The arrival of spreadsheets has destroyed this form of terror, but the bar has been raised for management — they need some other way of showing that they are good at numbers.

The secret is that you do not need to be good at numbers in order to be good at analysing spreadsheets. You need to know how the spreadsheet was constructed.

All spreadsheets are constructed the same way — from the bottom right hand corner backwards. In other words, staff start with the answer you want and work back from that. If you expect a 15 per cent return, you will find the spreadsheet delivers 15.4 per cent; if you want a million dollar profit, the spreadsheet will predict $1.057m.

Armed with this knowledge, you can now analyse the spreadsheet successfully. There are three basic questions to ask:

1. The venture capitalist’s question
   What is the track record of person presenting the numbers? A B-grade spreadsheet from a manager with an A-plus track record is worth far more than an A-plus spreadsheet from a manager with a B-grade track record. The numbers are only as good as the person who stands behind them.
2. The banker’s question
   What are the assumptions that lie behind the numbers? Subject every number to the “what if” test — growth rates, market share, costs, salaries etc. Start with the big assumptions: assumptions about the costs of the coffee machine will not make or break the spreadsheet (unless your business is selling coffee machines).
3. The manager’s question
   Do I recognise these numbers? Every good manager will know the basic operating numbers of their business — margins, costs, growth and more. See if the numbers on the spreadsheet align with what you know to be the reality of your business.

If you get positive answers to all of the above, you are probably looking at a robust spreadsheet. By asking these questions you may also uncover some uncomfortable truths.

Either way, you will be in severe danger of looking very smart, even if you are the sort of person who normally hates numbers.

(Photo by Ansik, CC2.0)

British businesses are suffering an epidemic of “Crowhursting” — sending out deceptively cheery messages that bear little resemblance to the truth, says Libby Purves, recounting the tale of Donald Crowhurst, who died trying to sail around the world in The Sunday Times Golden Globe race 40 years ago.

A rookie sailor with an ill-equipped boat, Crowhurst had everything to lose — he’d made a last-minute deal that would leave his wife and family homeless were he to fail. Yet this looked increasingly likely with each passing day.

So he decided to send back false position reports to keep his supporters enthused, while he kept a separate log of his real course. His sanity began to crumble and his morale bottomed out. Yet he went on transmitting tall tales and false positions — at one point, his reports made it appear that he was in the lead.

Deep in the lie, he carried on sending upbeat messages. In July 1, 1969, after 243 days alone, he “stepped or fell from his boat and drowned”, his diaries testimony to his unravelling mind.

It’s relevance today? “We have suffered an international outbreak of business and political Crowhursting,” says Purves.

Bankers, the financial sector and travel companies have remained relentlessly cheerful, talking up their businesses, refusing to cut their losses and practising a corrosive, “smiley deception”.

Over-pessimism is no better — maintaining a level of confidence among employees and investors may sometimes require a little bluff. But when so much is at stake, even a white lie can open the door to dangerous deception.

So when do you send up the flare? When Chancellor Darling openly aired his concerns about the fragile state of the economy not so long ago, he was lambasted for rattling public confidence. Yet Lehman Brothers’ former CEO, Richard Fuld, was among those in the financial sector who failed to raise the alarm soon enough.

It takes judicious balance and the kind of risk management advocated by one BNET reader commenting on Lehman Brothers’ fall.

Author James O’Toole would argue that it starts with openness. But transparency is rare and not especially welcomed by leaders used to less-than-honest feedback.

Work may need “principled contrarians”, individuals who will ask the awkward questions — in the Belbin team structure, the “monitor/evaluator” or “shaper. But realists at work too easily become Cassandras. Judging by the comments following Purves’s piece, Crowhursting’s rife worldwide. Can we really not handle the truth?

(Photo by Discoodoni, CC2.0)

Conflict is a process that occurs between two or more persons or groups when they have different points of views, different goals, different needs and values.

Every single person will have conflict with someone at some stage in their life. It’s inevitable and can be good for relationships — business and personal. Well managed conflict can lead us to acquire new ideas, learn something about ourselves and gain fresh insights. Learn painful lessons and move forward wiser and empowered. Conflict can be good for you.

Six causes of conflict:

1. Needs or wants are not met.
2. Values are being tested.
3. Perceptions are being questioned.
4. Assumptions are being made.
5. Knowledge is minimal.
6. Expectations are too high/too low.

How we handle conflict is determined by a complex web of facts such as personality, upbringing, interpersonal skills, emotional intelligence, gender, race and culture

Two people in a conflicting situation will unavoidably have different approaches to how they perceive the problem how they handle conflict and their attitude to resolution.

What is your conflict style?

• Avoiders
  Some people simply hate difficult conversations and will do anything to avoid facing the issue, to the point of kidding themselves nothing is wrong. Or they may be unaware that one of their needs in not being met and they unconsciously start to act out. Sabotaging behaviours such as turning up late for meetings, missing deadlines or not returning calls are common in the workplace.Dangers of avoidance Most conflicting problems rarely disappear into thin air. Not addressing conflict and pretending all is OK allowing the time bomb to keep ticking. Avoiders eventually have emotional outbursts and shock those around them, who are unaware anything is wrong.
• Analysers
  Analysers instinctively retreat and work out what is going on. Unlike the avoider, the analyser isn’t kidding themselves the problem will go away, but will want to spend time working out what is the cause and how they should resolve it. Some analysers will search out friends and colleagues to talk through the problem. Google and self-help books are other analytical tools.Dangers of analysing It is sensible to think things through, but over-analysing can be destructive. One person’s retreat can be another’s moody sulk. Some analysers don’t act as if anything is wrong, so when they move on from analysing to discussion the other party can be caught unaware. Having worked it all out an analyser will start a difficult conversation with their mind already made up. Chances are the other party won’t agree and the conflict may end up explosive.
• Confronters
  Confronters waste no time jumping in and facing challenges head on. They have a sense of urgency and want to thrash things out and argue their point until the problem is resolved. Their language is typically direct, challenging and emotional. The goal is to solve the problem and find a resolution as soon as possible so they can move on to the next thing. Dangers of confronting Confronting matters head on, without any reflection or consideration of consequences can backfire. It is natural to feel emotional during conflict. But trying to resolve it in a highly emotional state will come across as irrational and illogical. If the goal is to move quickly and resolve the problem, confrontation isn’t the best way forward.

Five types of ‘bad’ conflict consequences

1. Takes attention away from other important activities.
2. Undermines morale or self-concept.
3. Polarises people and reduces co-operation.
4. Increases or sharpens differences.
5. Leads to irresponsible and harmful behaviour, such as fighting, name-calling.

So how do you have ‘good’ conflict?

1. Recognise signs of conflict early.
2. Understand why this is a conflict for you? Is it about needs, values, goals or opinions?
3. Aim to work at resolving conflict sooner rather than later — before the red mist descends
4. Be clear, concise and choose your works carefully.
5. Be aware of your conflict style especially its dangers.
6. Build authentic and honest relationships with people before conflicts arise.
7. Accept you can’t change others, only yourself.
8. Help others develop understanding — not everyone is an expert communicator.
9. Watch your body language during conflict.
10. Be prepared to agree to disagree.

(Image by Ajda Gregorcic, CC2.0)