Sterling Performance

Gordon Brown is calling for the UK corporate governance code to force companies to state why they have not promoted more females to top jobs. The answers might be too embarrassingly honest.

The under-representation of women on corporate boards is a continuing cause celebre — and remains a perennial problem because the numbers are stubbornly static at their low level. While three-quarters of FTSE 100 companies have a woman on the board it is usually only one, and a mere 15 of the 100 firms have a female executive, according to Cranfield School of Management. 

Just 12 per cent of FTSE directors are women and the prime minister’s letter to the Financial Reporting Council wants the authors of the government code to make directors tell shareholders what they are doing about it. There’s no talk of Norwegian-style boardroom quotas, but the premier threatens that if having to account for a gender imbalance at board level does not work, he will take “more serious action”.  

Don’t expect any of these male-dominated boards to admit to misogyny. It takes a conspiracy theorist to believe nomination committees universally reject women candidates on principle or prejudice. The reality is that the shortlists provided by headhunters are notably short of females and these firms blame the lack of women willing to put themselves forward for advancement. 

Bending over backwards to find female names to fill-out candidates’ lists usually means bending the selection criteria and overpromotion helps neither the individual nor other would-be women directors, but that is the risk, not only as a result of the PM’s pressure, but also from the Equality Bill, which gives employers the sanction to discriminate positively to promote women. 

Politicians must concede that while there should be no barriers to women wanting to climb the corporate ladder, not all women see that as an objective. And if some choose to curtail their careers prematurely to pursue other options leaving many men remaining in the running, then there will be more males than females in top management.   

If the prime minister’s is successful in inserting a new clause into the corporate governance code, there will still be plenty of opportunity for directors to avoid being honest and provide a meaningless paragraph claiming they have done their best and are always open to appointing suitable candidates.

Brown can try to force companies to promote women but he cannot force women to take the jobs. Equality in business is about opportunity, not about equal numbers in the boardroom.

One of the interesting things happening after the Likeminds conference last month in  Exeter was the Likeminds Summit which actually took place on the following day at Bovey Castle in Dartmoor.

There were, of course, a bunch of like-minded people around the table. One of the recurring questions surrounding the implementation of social media was change management;
often touched on but rarely explained properly.

Here is a list of 10 ingredients I think are of the utmost importance when you want to set up change in your company. This list is based on my experience of implementing change at various companies throughout the world in the past 20 years:

1. The serenity prayer: the first ingredient is to always know what you can change and what you cannot change, and to ensure that you always will be able to tell the difference.
2. Think big, start small: obviously if you are trying to implement change, it’s because you have great ideas. But try and be reasonable and start small and then move on to bigger changes one step at a time.
3. Choose the path of least resistance: avoid people resisting change at all cost and try not to waste time convincing them. Focus on people who are more favourable to your project and work with them all the way up (they are your change agents).
4. Ask your boss to set an example: when you want to change things, management has to show the way and to prove others that things can be done not only by ordering them around but by actually doing things by themselves.
5. Don’t think top down: don’t assume top management’s email to all will bring about change. That’s not how it works.
6. Seek a mandate once (some) results have been proven. Or, if you already have a mandate, don’t show it until we have implemented a few results either. This will show people that you care about their opinion,
7. Respect people: the human factor is one of the most important in change management. Don’t underestimate people and try and convince them humanly.
8. Expect the best, but prepare for the worst: as always in project management, Murphy’s Law applies. Be prepared for the worst so that you can avoid it.
9. Act swiftly: change is best implemented within a three to six month period. If nothing has happened before then, chances are that nothing ever will.
10. In times of trouble, don’t stop, but speed up the change process. Times of chaos can be perceived as periods of danger by most people. Yet, most change managers will recognise this as the time when anything is possible. It’s mostly when things are uncertain that change is implemented and accepted, not the contrary.

Last, adhering to these 10 simple rules might not guarantee success but overlooking them will certainly mean failure.

March 2010 marks the 10th anniversary of the dotcom bubble bursting. Yet what did that boom and bust teach us? Not enough to stop the financial sector imploding a few years later. Are company directors too stupid to learn lessons from such collapses or so sensible they have strategies to survive them?

The dotcoms that started in 2000 and are still around have probably never seen their shares at those millennium levels again.

The FTSE 100-index celebrates the anniversary 20 per cent below its dotcom peak while the Dow Jones is down 10 per cent.

Yet it’s now hard to find a businessman, never mind banker, who does not claim now to have foreseen the current financial crisis. The coming crash’s date and depth were open to debate, but the bursting of the last bubble was a dead cert.

So why does business not avoid these clearly coming crises? Here are four reasons:

1. Uncertainty over timing and degree: acting early can be riskier than being there when the crash comes. A fund manager wants to avoid holding shares after the market has turned down, but they don’t want to sell early and watch the market rise to perhaps double it’s volumes. Waiting to see the zenith and selling as shares slide makes more sense than exiting before the manager knows the market’s upside.
2. Not knowing what to do, even if the crash is accurately foreseen: Fund mangers can sell, but a manufacturer cannot quit its core business.
3. Bursting bubbles affect everyone: A CEO cannot be responsible for a recession, but he can happily blame it for the company’s failings. The reliance on relative performance for everything from directors’ remuneration to investment outcomes allows boards to ignore the macro economy, including those bursting bubbles.
4. Directors define their job as coping with crises, not averting them: They know some disasters will hit them — and not only the obvious ones — but they hope they know how to handle them. So the lesson of the dotcom collapse was not lost; the real lesson was that most businesses survived — just as they have with the current crises and previous recessions.

Executives who protect a company against every potential disaster miss every opportunity too. The dotcom crash was just the latest of many setbacks - bruising but not fatal. Good managers ride bubbles rather than run away from them.

(Pic: chefranden cc2.0)

The recruitment freeze isn’t lifting any time soon, but companies are focusing more on keeping their existing key staff happy, so that their elite workers aren’t tempted to stray, according to a panel of HR bosses.

NSG Group (formerly Pilkington) human resources VP Luis Henrique Souza, Axa head of global resourcing Samantha Rich and De Beers Goup HR director Phil Volkovski aired their views on talent retention at the launch of a report by the Economist Intelligence Unit called Companies at a Crossroads. The report was sponsored by workforce management software company Stepstone, of which all three panellists are customers.

Issues arising from the report included:

• Organisations need to focus on talent retention at all levels of the business
• Talent drift is a becoming an increasing danger to company’s talent pools as key workers become disaffected. (more…)

I’m sure you’ve heard the aphorism “change is the only constant,” but do you know when who first coined the phrase? Surprisingly, it is not the work of Tom Peters, Peter Drucker, Henry Ford, or any other management guru, but was, instead, written by the Greek philosopher, Heraclitus, 2,500 years ago.

We often talk about the nature and speed of change and the importance of change management as if it is some new concept, developed over the past 20 or 30 years. Yet responding to external challenges and opportunities, and finding ways to overcome them is, in essence, the story of mankind.

Consequently, change management is not an element of your job as a business manager or leader; it is the job. If you’re not helping yourself, your team or your organisation find ways to overcome new challenges or exploit new opportunities then it is unlikely that you are adding any real value to the business at all.

At the heart of change is agility. Your ability to anticipate, respond to and maximise the results from changes to your external environments are the key drivers of success.

I have identified three levels of agility. At which of the three levels does your business operate?

1. Operational Agility. 18 months ago Tesco responded to the downturn and the increased competition from low price such as Aldi by launching its own Discounter range. This initiative did not require a change in direction from the company, but did require fast, effective decision making to enable a reallocation of resources and focus onto the new particular project.
2. Strategic Agility. In 1991, after six years of failing to succeed as a full-service airline between Ireland and London, Ryanair adopted a distinctively different strategy, focused on becoming Europe’s low fare airline. The company’s ability to change strategy led to it becoming the largest airline in Europe.
3. Organisational Agility. Pulling off a fundamental shift in strategy once is worthy of celebration. Businesses that can repeatedly shift resources and strategy and adapt to new customer needs, technological changes and uncertain economic realities are few and far between. GE continues to face difficulties and uncertainty, but its performance over the last 100 years demonstrates the organisation’s -– and its people’s –- remarkable ability to experiment, adapt and overcome major external challenges.

Freezing top directors’ pay plays to the public gallery but it creates problems in remuneration structures rather than solves them. Who wants to run Barclays or Shell if it means forfeiting the reward?

If a high pay culture runs right through an organisation, tackling it only at the top leaves a rich cake, covered in a fat layer of marzipan, but spread with only a thin coating of icing.

Management at every level must have an incentive to improve and people will not seek promotion unless there is sufficient extra pay. 

It is top salaries that receive publicity, not least because directors’ rewards are revealed publicly and voted on. And last year, Royal Dutch Shell’s shareholders voted against the remuneration report. The oil company has thus written to investors pledging to freeze and cut pay. (more…)

The business is in trouble. The finance director has bought some time from the creditors, and now you need to deliver a turnaround in the trading performance. Here are the five basic steps you need to follow.

1. Identity Check that everyone around the table is absolutely clear on what the business is about; “what you do” and, more importantly “what you don’t do”. A diversified or multi-segment business needs fast decisions on which parts have a future, and which would be better owned by someone else. The decision needs to be logical and simply explainable, to everyone in the business, so the ones that are staying know what the future holds. Move fast, move once, and move on. (more…)

Barclays Bank’s proposed bonuses to high performing staff illustrates the dilemmas banks face — reward high-flyers or risk them skipping off to rivals, increase lending and risk being accused of abandoning fiscal prudence.

Barclays has tried to offset any umbrage caused by the doubling of its yearly profits for 2009 to £11.6bn by announcing the chairman, president and CEO will not take their annual bonuses and that it lent £35bn to individuals and businesses last year — three times more than it promised at the beginning of the tax year.

That said, it is paying 22,000 investment bankers £2.7bn in short-term and long-term bonuses — about £100,000 extra in their pay packet. The announcement looks selfish against the background of a report out by the Institute of Directors which found 60 per cent of small businesses have been refused the loans they need to keep their heads above water and many have been forced to rely on unsecured credit, such as credit cards.

Undoubtedly there will be a real fear that if investment bankers don’t get the remuneration they feel they deserve, they will defect, especially after the news that two senior investment bankers at majority state-owned RBS have done just that, a week before the bank announces its bonus package. Barclays glowing figures are entirely down to its investment arm, with the retail division halving its yearly profits. Is it not good business sense then to invest in the booming part of the business and cut back on the poorly performing part?

It’s understandable that banks are more careful in lending to small businesses, which carry a higher risk of defaulting on debt. The banks were branded the irresponsible catalysts of the credit crunch and are much more risk averse in all areas of business than they were two years ago.

However, Barclays and all the other UK big banks have a duty to the economy now. Barclays didn’t take any of the government hand-out, but it benefitted from the banking industry as a whole being propped up by the public purse. Business customers are also tax-payers and so deserve to benefit from banks’ stellar profits.

There are lots of good business reasons too for banks to release more funds to small businesses. Foremost, it wasn’t lending to small businesses that caused the credit crunch, so there is little good reason that they should be penalised any more than they were before the economic downturn. As a group, they are a significant customer group for the banks. This customer group may find their custom is more welcome elsewhere if UK banks restrict credit for the long-term.

More than this though, although many small businesses fall by the wayside, some eventually become big businesses that are prudent investments. To throttle small businesses now limits the potential for profits for banks in the future.

Stockmarket-quoted companies have had no trouble raising money, so how come unquoted companies are finding it so hard to come to market?

In short order, Travelport, fashion retailer New Look, and the Merlin leisure group have pulled planned flotations at the last minute because of investor resistance. Many other directors and advisers are thus rethinking the initial public offers currently taxiing towards the runway.

But this is a problem of private-equity not public businesses. The common theme of those pulled share issues is their ownership: private-equity firms and funds desperate to crystalise profits — not least to offset paper losses elsewhere.

The businesses they are selling are often as mature as the quoted companies that raised record sums in rights issues through the stockmarket over the past year: New Look has been selling fashion since the 1960s and first floated on the stockmarket in 1998, for instance, while Merlin’s Madame Tussauds subsidiary dates from Victorian times.

The problem is the corporate structures encouraged by private-equity. Despite the name, these funds are based on debt rather than equity: they gear up businesses to lever the returns but must eventually repay those loans.

That means trade sales, flotations or — the ultimate parcel-passing — sales to other private-equity funds. That last option is off because the credit crunch has made borrowing impossible but trade sales require buyers with free cash too. So stockmarkets look appealing, especially after the rise in share prices. However, markets differentiate between companies raising money for expansion and owners issuing shares to take profits.

Investment managers have a choice of buying any travel group, retailer of leisure company; why would they buy a fully-priced flotation when they can buy discounted shares in a rival with a long trading history and which understands the disciplines demanded of public companies? Any business seeking to come to market with questionable corporate governance, excessive incentive schemes or unproven profits records will be treated with suspicion.

And the private-equity sector has only itself to blame: managers of quoted funds have not forgotten how Debenhams was taken private, geared up and refloated at a price the retailer has never seen again. Investment managers have no wish to be caught again. If a company is such a good purchase, why would private-equity mangers be selling?

But that stream of successful rights issues shows fund managers do have money to invest in quoted shares and markets are not closed to new issues.

However, private-equity funds have misread the market and expected too much: a conservatively-priced company with a cleaned-up board and rewards scheme ,plus a business plan that delivers growth, is likely to receive a reasonable reception.

Investors would rather their money went into the business than finance the owners’ exit and they would have more confidence if the private-equity owners retain a stake after flotation, but stock markets need new companies as well as new money.

Private-equity sellers should expect less and deliver more.

(Pic: Muffet cc2.0)

News that the French parliament has voted to regulate businesses in the country, forcing them to fill 40 per cent of board positions with female candidates, will be welcomed by many women around the world.

France has followed in the footsteps of Holland and Spain and the move strengthens the case for similar laws in other countries, including the UK.

At the moment, only 10 per cent of FTSE 100 company board positions are held by women and it may be this same old-boys-club mentality in British boards keeping women out that is in part responsible for the private sector’s current economic woes. (more…)