A Bird’s-Eye View on Innovation

Managing risk and allowing innovation to flourish are two sides of the same coin. Today’s board directors must understand the value of both and create an environment that rewards them appropriately.

Sir Howard Davies, Chairman of the Royal Bank of Scotland, explains that while directors clearly should not be relied on for new product ideas, they have a key role in setting the right tone. “The board should be able to create an environment in which innovation is valued, supported and where people feel self-confident enough to take appropriate risks,” he says.

It’s a point shared by Andrew Minton, Managing Director at Criticaleye. He reasons: “It’s becoming increasingly clear that if a business wants to develop an innovative culture, the board has to create an environment within which people can experiment.

“As a result of increased transparency, non-executive directors must be cognisant of their role in setting the right culture and attitudes. If NEDs don’t appear to value innovation and fresh thinking, the rest of the business will follow suit.”

For Rita Clifton, Non-executive Director at ASOS and Nationwide, this goes beyond simply saying the right things. The modern boardroom must have vibrant, curious individuals who symbolise the behavioural standards and values that they expect from the wider organisation.

She says: “When I started sitting on boards 15 years ago, I would hear many chairmen, chief executives and directors talking about how the business needed to be more innovative; that it needed to move faster. I would look around the table and think: ‘Guys, you’re the problem, you don’t look as though you want to be innovative’.

“In my view, the board directors need to symbolise the best of your organisation. The standards and expectations they set are so important; people pick up cues from what the board appears preoccupied with. Regardless of what you say about culture, if your staff know that your main driver is profit you’re going to encourage fearful and short-term behaviour.”

Complaining about compliance

The challenge for boards is to find the time for strategic thinking when the immediate focus needs to be on regulatory compliance, corporate governance and effective risk management.

Sir Howard, who has sat on FTSE 100 boards for over 25 years, has seen a shift in the board’s approach to governance. He believes that time, which would otherwise be spent looking forward and assessing growth opportunities, is being eaten-up by “the pressure to demonstrate a robust control framework”.

What can you do to redress the balance? Sir Howard answers: “You can make better use of the risk committee, which should take a lot of the heavy-lifting off the main board. However, be careful that you don’t create two classes of director, one who is focused on risk and the other who can ignore it”.

“The key thing is that the board isn’t dragged too far into the detail and can afford to pull itself into more strategic thinking. You could also ensure that there are board and off site meetings in which risk and control are banned topics and you focused on innovation.”

For Guy Elliott, Deputy Chairman at SABMiller and Non-executive Director at Royal Dutch Shell, boards need to embed their obligations into strategic discussions.

“Often compliance and risk are segmented as a special discussion on the board. Board members may think they tick that off every six months, and if the audit committee has said that the processes are fine, they feel they’ve done their job,” he says.

“You have to go further than that. What you should be doing with risk, a lot of the time, is integrating it with strategy and futurology. For example, one might think about what’s going to happen to consumer habits; what rate of growth you’ll see in emerging markets compared to a developed one. Integral to that is exploring how you are going to chase an upside risk or mitigate a downside one.”

All-pervasive technology

The nature of innovation in the digital age means that directors require a much deeper understanding of technology. Natarajan Chandrasekaran, CEO and Managing Director of Tata Consultancy Services, says: “All of us, in every industry, are going through a transformation; the biggest [challenge] is that before technology was supporting business, now it’s leading it.

“It’s no longer the case that once the business model is decided, you deliver the technology to support it. Now, it’s absolutely essential that you appreciate the power of technology so that you’re able to define the future of the business.”

This sentiment is echoed by Stine Bosse, Member of the Supervisory Board of Allianz and Chairman of BankNordik. “I would argue that you can’t talk about anything in the future without considering technology. Last year, it took up about 30 per cent of board time. That included educating the board – we have to go into the machine room and understand the technology, then we can think about its impact strategically,” she comments.

“At Allianz, we have just had a full day looking at where disruption is likely to come from – a full day for the board is a lot of time. We were thinking about driverless cars and the implications for insurance.”

Even with this level of education, Stine believes that the composition of the board room will change. “The average age will fall because boards will need to have age diversity. Intuitive knowledge of technology [needs to] enter the board room. Of course, [everyone] has to be able to satisfy the regulators’ requirements, but let’s not be too frightened about that; you can educate yourself to that end.”

Ultimately, it’s a case of developing a board that has the confidence to invest in change and encourage the business to move forward. Guy says: “We have to have more discussion about technology and disruption in the boardroom. That doesn’t necessarily mean that a CIO needs to sit on the board, but they need to be there, talking the language of the board. It is important that what they say actually means something to everyone around the table. It’s difficult to make that linguistic transformation, but it can be done.”

Of course, the other side is that to ignore market disruption is a dereliction of duty. Rita notes: “Risk management can be seen as putting a brake on proceedings and trying to stop things from happening. With the speed at which most markets change these days, a key risk is not to innovate. If we’re not careful, the board will be seen as trying to stop things from happening.”

These comments were made during a panel discussion at Tata Consultancy Services’ European Summit in Berlin.

By Joshua Tearney, Account Manager, Advisory Practice

Do you have a story about innovation? Please share your perspectives by emailing: dawn@criticaleye.com

Don’t miss next week’s Community Update on how to change your leadership style.

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4 Tips on Improving Performance

Improving business performance takes strong leadership and immense effort, but neither will have impact if the company’s customers, staff and other stakeholders don’t believe in its future. A good leader will be able to create buy-in from everyone involved and use it to drive change.

When looking to bolster the performance of a company or division, Matthew Tait, Business Restructuring Partner at BDO, emphasises the value of communicating a clear strategy to all involved.

“One risk to recognise about businesses in distress is management’s tendency to lock the doors to the bunker. Despite the evidence, they can believe that no one sees what’s going wrong. Nothing could be further from the truth. Staff, customers, competitors, will know what is happening,” he says.

“A good turnaround plan needs to be agreed by the stakeholders as opposed to being imposed on them. You must understand what you need from each stakeholder – it could be time, funding, or a change in work practices. You also need to understand what the turnaround offers them; if it doesn’t give anything to key stakeholders then the turnaround won’t work.”

Change can be worrying for anyone, but the greatest fear comes from not being informed about where it will lead. As Joe Berwick, Business Development Manager at Criticaleye, highlights: “A clearly communicated strategy is the cornerstone of any successful change programme, and it is the leader’s responsibility to ensure it’s well-received by all stakeholders.”

We spoke to a range of business leaders, each of which have been through a restructuring, to find out how they managed their stakeholders. Here’s what they had to say:

  1. Reassure Your Customers 

When Vanda Murray, Criticaleye Board Mentor and Non-executive Director at Bunzl, led the turnaround of conservatory provider, Ultraframe, where she was UK MD and Group Marketing Director, she knew all key stakeholders had to be involved. “You must engage with them on a meaningful level about what they need, what their issues are and how you will work together,” she says. “The core of the turnaround story should always be the same and it should be based on reality, but you will clearly want different messages for different stakeholder groups.”

One move Vanda made early on in Ultraframe’s turnaround was to reassure customers that the company was reacting positively to market changes.

“The competitor had copied the product and halved the price, the product wasn’t quite as good but it was good enough. Our customers were leaving us in droves; it was a critical situation and action needed to be taken very quickly,”Vanda explains.

“I spent a week on the road speaking with all of the top customers to really understand what was happening. I spoke to most of the senior people in the company and then modelled how it could survive. We made it very clear what we hoped the timeline would be and we told them about our milestones to show we were on track. That was really important for them.”

  1. Build the Right Executive Team

When Andrew Richards took over as Managing Director of Britvic’s newly acquired Irish operations, recession had just hit the country. “We saw a procession of poor numbers, poor productivity and a poor marketplace performance across almost the entire spectrum. The business was failing,” he explains.

Andrew realised that he needed a team fit to take the business through Ireland’s recession; that meant very honest conversations with his executives, culminating in five of the seven leaving the business.

“In my first 90 days, one of my goals was to assess the nature of the loadbearing team,” says Andrew. “When I arrived, the Britvic Group Chief Executive had confidence in the Britvic Ireland executive team we’d inherited, but as we spent time pressure-testing the plan it became apparent that a lot of people weren’t capable of making the journey.

“The first person to exit the executive team, which was within three or four months, was the HRD. He was very well intending but not capable of managing a progressive HR agenda, and he recognised that.”

This process needs to be maintained throughout the change programme – while it’s common to make initial changes to the executive team, continued assessment will ensure the team still carries the skills it needs as the business evolves. “Those who initially feel they’re engaged and involved can begin to lose the energy to continue,” Andrew explains.

  1. Restore Staff Morale 

Low morale will take its toll on any business in decline; it can blight productivity, stain your company culture and lead your best staff towards the door. While emotions are bound to run high, there are ways to improve things – the most important of which are openness and clarity.

“People know when you are being straightforward with them. I talked to the staff in small groups of their own teams, so they felt comfortable enough to ask questions. I was as honest as I could be with them about the changes that would happen,” explains Vanda.

The greatest fear for many employees will be redundancy, so it is important to ensure it is handled properly. “We allowed people to leave with dignity and their heads held high, as much for them as the people left behind,” says Vanda.

It’s also important to understand how cultures vary across regional and international operations. Bryan Marcus, now Chairman of JBR Capital, recalled his experiences while being CEO of Volkswagen’s Latin American financial services division, VWFS.

Tasked with the turnaround of loss-making businesses, Bryan says: “I was a Brit leading a turnaround of German-owned banks in Brazil and Mexico, so the cultural, regulatory and operational challenges were numerous. From my experience, the critical success factors were openness with shareholders, consistency with local stakeholders and to ‘walk the talk’ with the local management teams.

  1. Communicate With the Board

Having led the turnaround of an international division, Bryan is familiar with the complexities of dealing with a distant board, as he explains: “Having worked in a local corporate, one of the challenges I faced was being part of a global corporation with global standards. You need to manage the pressure from headquarters and meet shareholder expectations while creating the time and space for the transformation to take root locally,” he explained.

Andrew faced similar issues at Britvic Ireland and found face-to-face communication was the remedy. “Some of my group executives and board colleagues had less sympathy or understanding of the situation I was in,” he explained.

“One of the ways I tried to work through that was to get the Chairman and a couple of non-execs over to explain what we were grappling with, that’s how I tried to manage my stakeholders back at the group level. Once I’d got them on the ground to see the situation first hand, they started to understand the challenges better.”

Whether you meet your stakeholders in person or build a rapport from afar, it’s imperative that you earn their confidence. As Matthew explains: “You need to have a trusted starting point otherwise people will hear the same messages reiterated but never believe it.”

And as much as you may want it, widespread improvements won’t happen without the belief of others.

Read more on managing your staff through a turnaround and rebuilding a business.

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A Shake-Up in the Boardroom

Familiarity in the boardroom doesn’t always breed contempt, but it can encourage complacency and assumptions that alienate directors from a business and its wider market. A good chairman, in conjunction with the CEO, will be fully aware of this and won’t be afraid to shake things up.

In the UK, the Corporate Governance Code states that listed companies are required to carry out annual board reviews. When executed in the right way, they can provide a catalyst for change and an injection of new ideas.

Ian Durant, Chairman at London property company Capital & Counties Properties (Capco) and bakery chain Greggs, has been through five board reviews at three different organisations.

“If the chairman wants to get something done then the board review can act as a tool to make it happen, or if board members want the chairman to behave differently it can assist the delivery of that message,” he explains.

Adding to this assessment, Judith Nicol, Director of Leadership Services at executive search firm Warren Partners, says: “Board reviews provide that time to think. Being made to stop and reflect opens up possibilities for the business.”

According to Judith, reviews generally have the most impact when “you have a new chair, new directors or a new set of challenges that the board is facing”.

Glen Moreno, Chairman of international publishing and education company Pearson and FTSE 250 bank Virgin Money, explains how he carried out his first review at Pearson after he had been there a year: “I led the effectiveness review with the support of the board… We decided that to add value we should focus on four key areas that would make a difference to the company: governance, strategy, business performance and people. We built our entire board cycle and agendas around those four themes.”

The code also states that FTSE 350 board reviews should be externally facilitated every three years. For Glen, specialist external advisors can help address softer issues, like board chemistry. “People need to be able to open up and say someone speaks too much, the chairman is too dominant or not dominant enough; a good external advisor can help facilitate that,” he comments.

“Like most things in life, board reviews are what you make of them. They can either be expensive, time consuming and useless, or they can be creative and valuable. It’s the chairman’s job to ensure the latter.”

Making the most of it 

Boards are often criticised for box-ticking their way through evaluations, carrying them out purely as an act of compliance.

Glen says: “Practitioners ignore the code’s unique flexibility and attempt to apply it rigidly. The phenomenon we all refer to as box-ticking is spreading like wild fire… whether the review is internal, external or externally assisted.

“Boards are there to create enduring businesses that benefit customers, employees, shareholders and other societal stakeholders… We need to reconcile good practice with the realities of business life.”

Some board directors cite a lack of time as the reason for taking a prescribed approach to evaluations. Ian vehemently disagrees and says it’s down to attitude: “Some boards view the way they do things as satisfactory and don’t think anything needs to change.

“Board evaluations need to be viewed as a useful forum and a democratic process for improvement. Circulate the report after the review and give members time to go through it. The board may dismiss some points, but you have to discuss them and decide what should be actioned and why. Then, it’s up to the chairman to make sure they are pursued.”

For Charlie Wagstaff, Managing Director of Executive Membership at Criticaleye, it’s important to note that even the most competent individuals can learn how to improve, both from an individual and collective perspective.

“Bringing together successful people does not guarantee a successful board – the two are not necessarily aligned,” he says. “Constant evaluation is a necessity, as it can all too easily drift off course.”

While the success of a board evaluation rests heavily on the shoulders of the chairman, the chief executive must fully participate because it’s the CEO and executive team that will ensure change is felt across the company.

As Rob Margetts, Chairman at Britain’s mapping agency Ordnance Survey, says: “All reviews start and finish with the chairman; it’s their job to make it work and to get the most out of them.

“No one can argue over the virtue of improvement; you need a chairman who is both humble and self-confident so they can drive that. And if you show a real commitment to enhancement and effectiveness at the board level, it should echo throughout the organisation.”

These comments were taken from a recent Criticaleye Discussion Group, Board Effectiveness Review – Why Bother?, held in association with executive search firm Warren Partners.

By Dawn Murden, Editor, Advisory

Do you have a view on this subject? If you have an opinion you’d like to share, please email Dawn at: dawn@criticaleye.com

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Getting Fit for the Board

Plaudits garnered during an executive career are no guarantee of a breezy transition into a non-executive director role. This can come as a surprise to both an aspiring NED and one growing their portfolio. Often, they realise that competition is fierce and the criteria for candidates is only getting tougher.

Tom Taylor, Chairman of the Consumer Council for Water in Wales and former Chief Executive of the Agriculture and Horticulture Development Board, recalls that he applied for a NED role that had attracted 138 applicants: “It’s a tough world, so start early is my advice. Companies are not waiting for you to be a NED. Life’s not like that.”

A shift is occurring in the market for non-execs, as Andrew Tallents, Director at Warren Partners, notes: “It’s starting to change. A number of boards we’re speaking to now are saying: ‘I want a contemporary non-exec director.’ Particularly with digital experience.”

As such, planning needs to begin while still in an executive role. Ruth Cairnie, Criticaleye Board Mentor and NED at Keller Group, ABF and Rolls-Royce, says that in the early stages of seeking a NED position, she took the opportunity to ask numerous contacts for feedback on her CV.

She realised that charting her progression through a set of impressive roles was not enough. “I can write a beautifully crafted list of what I’m good at, but the trick is in telling the story − helping people understand how your experience is relevant and what you can really bring to the table,” she explains.

Bill Payne started to think about how to make the move into a NED role when he turned 50 and was General Manager of Customer Experiences and Industries at IBM. “I made an effort to build my network and my personal brand,” he recalls.

“I wrote articles and became interested in lots of different things, including academia, so I did teaching. I also became involved in venture capital, investing in [companies] and doing pro-bono work for VC-backed businesses.”

Bill, who is now a Non-executive Director at the AIM-listed technology and intellectual property services company Tekcapital, insists there has to be a degree of experimentation and discomfort when first transitioning to a NED role. “You need to create the time and space to do things that are different to your normal daily life,” he says.

Balancing act

Some companies are open to the idea of an executive taking a NED role, but this must be carefully scoped out and there has to be buy-in from the top. Ruth, who was Executive Vice President of Strategy & Planning at Royal Dutch Shell when she landed her role at Keller, says that “it was important to know exactly how the final decision would be made”.

She was grateful to have had a line manager with board experience, which meant he understood the responsibility and supported her. “I could say: ‘I’m sorry I can’t do this internal meeting, it clashes with a board meeting,’ and there was never any push-back or further discussion. If you have a line manager who doesn’t understand the commitment, it could be very tricky,” she warns.

Andrew notes that it’s also essential to understand the board dynamics when applying for NED vacancies as an executive. “You need to convince the board that you’re actually going to be a non-executive as opposed to an executive, which you obviously are in your day job. And that you’ve got the time to commit,” he says.

It’s all too easy to take that first offer of a NED role as soon as it’s made. Charlie Wagstaff, Managing Director of Executive Membership at Criticaleye, says: “Particularly if you’re a first-time NED, it’s flattering when you get the call that says: ‘Come and join this board.’ But do your due diligence and work out if it’s actually the right thing for you.

“Boards work brilliantly when you’ve got the appropriate level of challenge and support. You’ve got to make sure that you can work with the board’s chemistry and tone, in particular that of the chairman, especially if you’re simultaneously keeping an executive role going.”

Don’t be afraid to ask questions about company performance, risk management and the culture within the boardroom. Of course, there’ll be conversations with the chairman and other directors, but also speak to advisors to get the fullest picture possible.

It takes patience and planning to make the transition to the boardroom. Relying on past glories just won’t cut it anymore.

Do you have a view on this subject? If you have an opinion you’d like to share, please email Mary-Anne at: maryanneb@criticaleye.net

Jane Furniss Criticaleye Board Mentor and NED on the board of the National Crime Agency will discuss how she took a portfolio NED career at Criticaleye’s next Aspiring NED dinner.
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That First Board Meeting as CEO

Knowing how to manage a board can be a tricky proposition for a new CEO. There may be a sneaking sense that the board is something of a distraction from running the business. This shouldn’t be the case and it’s up to the CEO, in conjunction with the chairman, to get the interaction right so everyone understands how these meetings can be productive.

Gareth Davis, Chairman of Wolseley, William Hill and DS Smith, remembers his first board meeting when he was appointed CEO of Imperial Tobacco Group: “We were re-floating out from a conglomerate as an independent, straight into the FTSE 100… there was a huge agenda… and it was a bit daunting.

“It was my first board appointment, so you’re a little bit unsure of the role of non-execs. Most of them were very experienced board practitioners… but the reality is, it’s much less difficult than you think; what you forget is everyone wants you to succeed.”

If coming in as an external appointment, the CEO will need to explain what they expect from the board. Ian Tyler, Chairman of Bovis Homes and Al Noor Hospital Group, and former CEO of Balfour Beatty, comments: “I’ve just gone through a process where an incoming CEO was taking over in one of my companies. That’s more about making your presence felt on the first encounter.”

This was the case for Ian Bowles, CEO of Allocate Software: “I used that first board meeting to set my stall out clearly and draw a line as to what was board responsibility, what was exec responsibility, where the lines had blurred and how we would handle that… We agreed our respective roles: the chairman runs the board; the CEO runs the company.”

For those appointed as CEO from within the organisation, there may be less of a need to make a mark. Ian Tyler says: “I was already on the board – I had been the CFO and then COO. In reality it was just moving into a different seat.

“The issues that I was dealing with were a big chunk of the CEO’s overall responsibility. The only difference is that all eyes look to you as the CEO… But I had gone through a long succession process.”

Knowledge is power 

Once expectations and responsibilities have been established, the focus should be on how to get the best out of discussions. “A CEO has to understand why [they] need the board and non-executive directors, and why corporate governance is useful,” says Theresa Wallis, Chairman of medical technology concern LiDCO Group.

“Some people, when they first go on the board of a company… think: ‘Why do we need non-execs? What do they do?’ You need to explain the obligations of the non-execs; how they can contribute and be useful.”

Gareth says: “A CEO has to tell it as it is, warts and all. Be very open, remembering you’re among people who want to help… If there’s bad news, get it out of the way.

“Don’t underestimate the ability of NEDs to absorb and contribute… It’s usually when boards come into their own – when bad news is shared and collective intellect is applied.”

It’s important that the CEO exercises leadership in the boardroom and gets as much value from the discussions as possible. Ian Tyler comments: “I appreciate the chairman formally leads the board, but the chief executive has to be taking the board where he or she wants to go… that’s when you get a healthy dynamic where there is respect both ways, but the chief executive is clearly the prime mover in the discussion.”

Anthony Fletcher, CEO of online snack retailer Graze, says: “You prepare this enormous board pack, you prep all these people to come in and present. Then, you need to capitalise on all this information and the views people have brought around the table with their different experiences.”

When the CEO and board dynamic is healthy, the chief exec accepts challenge and listens to what is being discussed. “That’s when it works, the diversity, the debate – management brings something forward and it’s ultimately improved,” adds Anthony.

Charlie Wagstaff, Managing Director of Executive Membership for Criticaleye, says: “The CEO should be able to use the chairman and NEDs as a sounding board, drawing on their collective experience to provide guidance when necessary.”

“They are there to hold management to account, but also to support and guide you. Getting them up to speed sooner, rather than later, can only be a good thing.”

Cracks appear in the relationship between the chief exec and non-execs when the information provided is poor or selective. “There are recent examples with governance accidents where executives were not terribly welcoming to non-execs,” says Gareth. “They are directors of the company, they should have complete access and [the CEO] should facilitate that.”

James Crosby, Criticaleye Board Mentor and former Senior Independent Director of Compass Group, comments: “The chief executive has to take the initiative in putting proposals and ideas to the non-executives as early as possible… You can’t just dump a whole pile of fait accompli on them – if that’s how you treat them, you won’t have the right relationship of collaboration and challenge.”

Ultimately, the manner in which the CEO and chairman work together will set the tone for everyone else. As Ian Bowles of Allocate Software says: “If those two aren’t collaborative, then the board is going to be dysfunctional from the get go.”

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What NEDs Bring to the Table

Would you accept a role as a non-executive director that required you to work for 120 to 140 days a year? Thought not. And yet one of the UK’s major financial institutions is apparently scouring CVs and conducting interviews in the hope that somebody will make that kind of commitment. It’s another example of the ever-increasing demands put on independent directors today.

Those aspiring to a seat on the board need to be careful what they wish for. While 140 days a year is obviously extreme, the time NEDs are required to commit is generally creeping up from the standard of 18 to 25 days a year, as is the depth of insight they’re expected to bring into the business.

This is testing the notion of what it means to be independent. For David Dumeresque, Partner at executive search firm Tyzack Partners, there is a real danger that, with all the talk of providing digital expertise, sharing global know-how and contributing to boardroom debate by drawing on other areas of operational experience, the real purpose of the position is being forgotten.

“[People are] beginning to confuse the role of the non-executive and conflate it with that of an advisor,” he explains. “The non-exec is focused on governance: it’s about holding the board to account, not second-guessing them or being appointed because of specific knowledge gained in an executive environment…

“One of the things that I hear quite regularly from chief execs is that non-execs are interfering in their work.”

There needs to be balance. Gerry Brown, Criticaleye Board Mentor and Chairman of private equity firm Novaquest Capital Management, argues that an independent director can only properly fulfil their duties by being strategic. This means actively contributing to the debate on questions of operational excellence, especially in areas such as risk management.

Risk is an area where independent directors are expected to check that the right procedures and policies are in place, but for Gerry this doesn’t go far enough. He recalls when he sat on the board of a global construction business and it was felt safety improvements needed to be made.

“We decided we would have a health and safety sub-committee and it would be led by one of the board members who was very experienced,” he says. “We then developed a strategy and policy about strengthening the whole area of risk prevention and awareness throughout our subsidiaries around the world.”

Rather than solely looking at compliance and adopting a box-ticking approach, the NEDs went further than was necessary, pushing the executives to improve the business. Ultimately, this is what executives should seek from their independent directors.

Be committed

Given the onerous liabilities and expectations, it’s more important than ever for those considering the transition to NED to understand the demands of the job. Ruth Cairnie, Criticaleye Board Mentor and Non-executive Director of Keller Group, ABF and Rolls-Royce, says: “You really need to think through why you want to do it and what you want to get out of it. In my experience, unless you’re clear about this then you’re probably not going to succeed…

“Linked to that, it’s important to try and understand what boards do. So, what is the role of a NED? There are lots of things you can do to find this out… I’ve found it helpful to really understand what I could contribute.”

Ian Stuart, Chairman of manufacturing concern Aspen Pumps, says: “Go and talk to some people who are NEDs or [those] who want to employ NEDs. So, for instance, I’m in private equity and I think it would be critical to talk to people who are either existing NEDs in private equity or private equity sponsors…

“You should understand what is truly involved. You also need to know what you’re bringing to it; what is your prime selling point?”

If an opportunity does arise, don’t be reticent about undertaking some thorough due diligence. “Talk to the brokers, nomads, accountants and investment bankers and as many other members of the board as you can,” says David. “I would consider it a massive red flag if you’re not allowed to.”

Vanda Murray, Criticaleye Board Mentor and Senior Independent Director at manufacturing company Fenner, comments: “You need to believe you can make a valuable contribution to that company. Be sure that it’s the right board for you, not just in terms of the mix of skills around the board table, but in terms of culture…

“If the board have done their job properly, they’ll know what skills they’re looking for and you can have a conversation around those skills. Then… you will have to assess to what degree you’re the right fit for that board culturally. Does this group of people share the values that I have? Will we be able to work together as a team?”

Increasingly, it makes sense to take on a not-for-profit or charity role before looking to step up to a public company or private equity board position. It provides a platform to gain experience about how a board is run, governance procedures and the different ways to express a point of view as a non-executive in the boardroom.

“There are all kinds of organisations with good corporate governance regimes that can teach you the basics of being a NED,” says Vanda. “That will make it so much easier when moving into a large private, private equity-backed or a quoted company board.”

It underlines the need to be fully prepared so that you, as a representative of shareholders, know what you should be doing. “The reality is that you are there as an influencer,” says Ruth. “You don’t have direct authority, and you shouldn’t be trying to tell the executives what to do. You’re there to provide the input, the stimulus and the challenge to help them formulate their views.

“Things do happen more slowly, but then the satisfaction comes over a period of time, when you see the executives really starting to embrace some of… your ideas.”

The competition for independent director roles remains fierce. To succeed, you will need to educate yourself, expand your network and then think carefully about what organisation will be right for you, especially if you’re being asked to work for a third of the year.

I hope to see you soon

Matthew

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Going Beyond Boardroom Diversity

ImageThe spotlight on gender inequality in the boardroom is important as such glaring imbalances need to be addressed, but in no way should the focus on diversity end there. To perform to the highest level, businesses require a rich mix of people so that insight is coming from those whose age, race, social background, gender and range of skills and experience are different.

Put another way, if your leadership team is resolutely male, pale and stale, you’re going to struggle. Criticaleye spoke to a range of successful female executives and non-executive directors to get their views on the gender debate, diversity, and where they believe the real, systemic problems lie.

Vanda Murray, Criticaleye Board Mentor and Non-executive Director at construction and support services company Carillion, comments: “The issue of gender absolutely needs to be addressed. We’ve got more female graduates coming through the education system and yet… they just drop off as they go up the management ladder for all kinds of reasons… But I think many men, who are leaders in organisations, believe they’re going because of children… Exit polls show that this is not always the case.”

A lack of flexibility or perceived lack of opportunity, continues Vanda, are other reasons for women to leave. Unconscious bias in organisations was also identified by those speaking to Criticaleye as an issue when it came to interviewing, promoting and simply communicating on a day-to-day basis.

Anne Stevens, Vice President for People & Organisation at Rio Tinto Copper, says: “There is still a huge amount of unconscious bias in respect to female leaders in many businesses. Leaders typically recruit in their own image… so, if a leader’s got a certain style they often let their own unconscious bias come to the fore and end up recruiting somebody just like themselves…

“Furthermore, some of the attributes that we often associate with potential, so, for example, aggression, assertion… delivering the bottom line at all costs, are typically male traits and, quite frankly, if we believe that this is what makes a good board, then we are never going to get a good balance in the boardroom or anywhere else for that matter.”

It means being brave enough to tackle entrenched attitudes and stereotypes. Alison Carnwath, Chairman of commercial property and investment company Land Securities Group, says: “I think the key barrier is whether women want to get to the top of the sort of organisations that have been mostly run by men in the past, where they’ve been run along male lines, male cultures. A lot of women self-select out of this because they just don’t particularly like that work environment.”

Jane Furniss, Criticaleye Board Mentor and Deputy Chair of homeless charity Crisis, says: “The really important thing is that we invest more in helping women lower down the organisation to overcome the barriers that are undoubtedly there, give them lots of opportunities to learn about situations that they are not familiar with and take some risks. As a leader you really need to encourage people to put themselves in those situations and provide a safety net where they can make mistakes and learn from them.”

Pride and prejudice

The context for discussing diversity has to be broader than gender alone. Therese Procter, Project Manager for Personnel at TESCO Bank, says: “Diverse teams are more creative, they see potential problems and opportunities much more quickly, and they make the robust internal challenges which avoid some of the self-sustaining negative behaviours we witnessed in the banking crisis.”

Tea Colaianni, Group HR Director at Merlin Entertainments Group and a Non-executive Director at discount retailer Poundland, says: “Every organisation needs somebody who takes responsibility and is accountable for promoting the gender or broader diversity agenda.

“You need to have an individual who challenges the assumptions, biases or old ways of thinking. And without someone taking ownership for that, little progress will be made. There are always people in an organisation that might feel very strongly about these things and you just need to identify and empower them.”

Hayley Tatum, Executive People Director at retailer Asda, says: “We use talent ambassadors across the business to assist and guide business leaders around how they recruit, select, develop, coach and mentor future leaders. We focus on developing women and other under-represented groups throughout the organisation in order to strengthen and develop our executive pipeline, which means that at the point when jobs become available, the pool from which we are able to select is richer and more diverse than it would have been.”

Mentors and coaches were identified as crucial for helping to develop and nurture people. Vanda comments: “If you really want to drive diversity, both in terms of gender and ethnicity, then you’ve got to identify role models in the company. You’ve got to give them some publicity, particularly in operational and management roles – not just in HR because that’s just the same old, same old. I think you’ve got to put talent programmes and diversity programmes in place to drive the change.”

Tipping point

A lot of lip-service to diversity continues to be played by many executives and NEDs (certain sectors are far more progressive than others). It’s why the context for the discussion has to be absolutely right. In recent times, there has been a tendency to emphasise the need for diversity of skills and experience in businesses, without giving due consideration to addressing inequalities around sex, race, class and so on – as if they are somehow mutually exclusive.

Again, the central point to bear in mind is that if you have a culture which can attract people from the widest possible talent pool, and that has a structure which allows them to develop skills and reach their full potential, this will be of direct benefit to a business and its long-term performance.

In the UK, the report spearheaded by Lord Davies, Women on Boards, which was launched in 2011, has done a great deal of good in raising awareness around gender inequality. Over the last three years, female representation on FTSE 100 boards has gone from 12.5 to 20.7 per cent with the aim of hitting 25 per cent by 2015.

More now needs to be done to widen the terms of debate. Samantha Barber, Non-executive Director at electricity company Iberdrola, says: “We could achieve some targets and yet miss the point completely because, actually, it’s about bringing on more women and more people from diverse professional backgrounds in different positions within business. And that’s a different challenge from the gender boardroom target.”

Alison comments: “It is the broader diversity issue that’s important, which means not just focusing on gender inequality. Effectively, Davies has focused on something where there was inequality before and boards were blind to the necessity to incorporate a business model that would allow females to thrive.”

It’s up to companies themselves to keep track of progress. Melanie Richards, Partner an‎d Member of the UK Board at KPMG, comments: “The single biggest thing that the Davies Report has shown is that what you measure gets done. The more businesses create targets and measure themselves on their achievements, the more they are likely to see real results coming through.”

The great thing is that companies have it within their power to make the changes necessary to create a level-playing field.

All it needs is commitment and a little vision.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

The Role of the Board in M&A

ImageWhile the CEO and CFO will be responsible for driving a deal, it’s essential for other board members to play their part in providing robust input on whether an acquisition is in the best interests of the business and its shareholders. This begins by talking through the strategic fit of a target and continues with ongoing assessments of whether the integration process really is on track.

Terry Stannard, Chairman of interior furnishings company Walker Greenbank, says: “Once the initial excitement of an acquisition has taken place, the NED [non-executive director] has an absolutely critical role to play around reinforcing the milestones that have been set to ensure a successful acquisition is made, so that the integration and the synergy benefits are effectively managed…

“The NED needs to ground the executive team to ensure that the acquisition does actually create shareholder value and does not, like so many of them, become a rather wasteful distraction.”

Liz Claydon, UK Head of Consumer Markets at KPMG and a Partner in the Transaction team, comments: “I see a key role of other board members as being one of challenge: does this M&A strategy align with the overall strategy for the business? You see that playing out in their specific areas of expertise, be that the CIO [Chief Information Officer] in terms of how the different systems will integrate, or the HR Director in terms of the different culture of the target… Remember, the key priority for the board on behalf of the shareholders is that value is created.”

In practice, this means digging deeper into the transaction. Simon Denham, Founder of online trading concern London Capital Group, comments: “Many times an acquisition requires large synergy savings to back up the numbers. Synergy savings are notoriously hard to achieve and any number quoted by the CFO should be torn apart and re-analysed by the NEDs. In some circumstances it is wise to bring in outside consultants to go through the data, before going through the expensive bits of due diligence and legal costs.”

Much of this will be par for the course for a good NED; someone who knows how to walk the line by providing a healthy degree of challenge while also allowing the executives to get on with the job of driving the business. Jim Wilkinson, Chief Financial Officer at African investment concern Lonrho and former Group FD at online gambling company Sportingbet, comments: “The big danger obviously is that they get excited by the deal, as much as the management team do, and they race through [it].

“They really should be questioning why we’re doing it… [but] they need to be at a distance from the deal, remain impartial and be able to make a rational decision about whether it’s a good deal or not.”

Paul Staples, Managing Director of Investment Banking in Europe for BNP Paribas, comments: “A NED should aim to be a sounding board, facilitating – though seldom leading – a rigorous discussion regarding the wisdom of an acquisition. They need to display good judgement, understanding when to be supportive and when to put forward a more challenging perspective.”

In essence, the M&A process can be seen as a litmus test for the health of the executive and non-executive team. “Once a target has been identified then the whole board should be notified and the rationale explained normally by the CFO, but with assistance from the CEO,” observes Simon. “It is for the board as a whole to agree on whether the reasons for the acquisition are realistic, believable and attainable.”

A similar point is made by Mark Garrett, COO of global technology consultancy Ricardo. “The whole board should understand and agree to the rationale for the acquisition, but the rationale should be proposed by the executive team based on [how it fits with] corporate strategy,” he says.

Creating value

After the euphoria of signing a deal has passed, the danger is to just blithely move on to the next big thing. Bob Emmins, Finance Director for The Silver Spoon Company, which is a £250 million business within the grocery division of Associated British Foods, says: “The hardest thing about an acquisition is integrating it and thereafter achieving the objectives and financial goals. To succeed you’ve got to get your full team behind it, buying into those goals and recognising that they have an executive responsibility to deliver them post-acquisition.”

Anne Stevens, VP, People and Organisation at mining concern Rio Tinto Copper, says: “In recent years there’s been a big shift towards recognising the importance of getting the people aspects of a deal right.

“If you don’t get the people piece right… [and] if you don’t manage all the key stakeholders correctly then a deal, whether it’s a good commercial deal or not, is going to fall flat on its face.”

This is something that needs to be pursued by the board so everyone is clear that the original goals of the acquisition are being achieved and, if not, appropriate decisions are made to find out how to create value from the new company.

Bob says: “There needs to be a distinct view taken as to how the business or the cultural differences of what you acquire fit into your existing business… Increasingly, because it’s nearly all down to people, the HR director should have a greater say on whether the two businesses will fit together or, if not, where the clashes are going to be.”

As market conditions improve, corporates are finally loosening their grip on their balance sheets to make acquisitions. Yet it remains an environment where boards must demonstrate they are delivering long term, sustainable value. If that is to happen, directors need to work together and be fully aware of their roles and responsibilities on the M&A journey.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

The Outlook for Business in 2014

Comm update_17 Dec

If the winds of change haven’t been felt already, business leaders should be tacking hard and plotting a course for growth. Boards that have learned valuable lessons over the last five years around managing budgets, investing in technology and growing talent, and who have made the necessary strategic and operational recalibrations to take advantage of new opportunities, will be the ones who prosper.

Criticaleye spoke to a number of Members from around the globe, operating in a variety of areas, from consumer goods and construction to private equity and investment banking, to examine what their expectations are for 2014 and how they are planning to take advantage of resurgent growth.

According to Mark Spelman, Global Managing Director at Accenture, the broader picture is certainly optimistic: “My bottom-line message is that I think 2014 will be better than 2013 in terms of macroeconomic growth rates… because, if you look at the three major trading blocs, the US, the European Union and China, I think they’re all going to see some positive upturn in 2014 relative to 2013.”

The US remains the world’s largest economy, with upwards of $16.5 trillion in GDP, and the Bureau of Economic Analysis’s second estimate for GDP in Q3 of 2013 saw figures revised upwards from an annualised rate of 2.8 per cent to 3.6 per cent. That said there are still considerable issues to sort though.

Paul Danos, Criticaleye Thought Leader and Dean of Tuck School of Business at Dartmouth College in the US, comments: “You have all those drags like the tremendous public debt. In the US alone, they’re projecting $20 trillion by 2020, and that’s going to have to be brought down… so we can expect periodic clashes in Congress on the debt ceiling, which will create uncertainty, not to mention the question around whether the Federal Reserve will scale back its programme of quantitative easing.”

Likewise in Europe, there will be plenty of bumps along the way. “The European elections in May are going to be very important,” says Mark. “Mainstream parties are going to struggle… and the more fragmented the European Parliament becomes, the more difficult it’s going to be to drive a reform agenda in Europe.”

Those seeking to expand into Asia’s high growth markets must be fully committed to their strategy. Hellmut Schutte, Vice-President and Dean at China Europe International Business School in Shanghai, comments: “Growth [in China] will continue and markets will become more transparent due to the continuing fight against corruption. This means more of an equal chance for foreign firms… [and] business will be better for multinational companies than before.

“But running operations in China will also become more demanding. Constant upgrading of technology and improving management skill in Chinese companies erode the competitive advantages of many foreign firms. In many industries, standards in China have reached international [levels]; so, depending on the size of a particular market, the outcome of competition in China will determine the success or failure of firms in global markets. This means half-hearted engagements in China have little chance of success.”

Andy Dunkley, CEO of jeans brand Lee Cooper, who completed a $72 million (£47 million) trade sale to US company Iconix earlier this year, says: “With a business such as ours, which is 95 per cent outside of the UK, we see lots of opportunities in global growth for 2014… We have an excellent base in the Middle East, India, China and South Asia [and] we have foundations that can grow at double digits in these markets.”

The key pressure points for 2014 will be, in Andy’s view, unexpected changes in the patterns of growth: “A discussion of the reduction of tapering relief in the US [in 2013] has had a dramatic impact on currency movements and values in India and across markets that are seemingly unrelated. [Therefore, as we grow] we continue to seek a balance which means we are not over exposed in any one market.”

For Giles Derry, Partner at mid-market private equity firm Dunedin, business leaders need to bold without being foolish: “I think there’s a tightrope to walk in terms of making sure you’re investing for expansion, but without betting the farm on certain assumptions having a specific outcome… how brave you’re feeling probably depends on your end markets and which areas of the global economy you’re exporting to.”

Appetite for deals

In terms of M&A, research from Big Four firm EY suggests an uptick in deal activity after a five-year period of declining transactions globally. A survey of 1,600 senior executives in more than 70 countries conducted by EY finds that 69 per cent expect deal volumes and deal sizes to improve over the next 12 months.

David Barker, Head of Transaction Advisory Services for EY’s Financial Services division, says: “Banks continue to search for yield and therefore remain enthusiastic financiers of good deals which we think will continue to drive positive trends in M&A…

“In particular, M&A activity among banks will increase significantly following the ECB-led Asset Quality Review programme and the associated balance sheet stress tests, a process which begins in April and continues on through the summer. We’d certainly expect M&A activity to grow off the back of that… particularly around central and southern Europe, as banks choose to reposition which countries they want to operate in as core and in which they will consider reducing their levels of activity.”

Steve Pateman, Head of UK Banking at Santander, comments: “For the banking industry in its broadest context, there’s this massive regulatory agenda in 2014 because it’s the year when mortgage regulations change fundamentally, and all banks will have to adapt to a new system called MMR [Mortgage Market Review]. So, as they head into Christmas, most are probably thinking about whether they going to be ready for MMR on the 26th April.”

Reconnecting with customers is also vitally important for Steve: “[This] will hopefully be the year when banks start to rebuild trust and perform the role we’re supposed to perform in supporting the economy. If it continues to grow and recover from some of the lows of the last few years, it will be easier for the industry to do that.”

Funds for growth

On the public markets, the IPO renaissance over the last six months looks set to continue. Alastair Walmsley, Head of Primary Markets at the London Stock Exchange, says: “Q4 of 2013 is going to be the best quarter for overall capital-raising in the UK market for more than four years… [and] we are expecting the level of activity to continue, potentially even accelerate, into the New Year.

“Investor risk appetite has increased significantly which is being recognised by international companies… so cross-border IPOs, which have been pretty muted around the world this year, are looking likely to pick up going into 2014.”

Proper access to finance combined with a healthy set of accounts will certainly help most businesses that are looking to grow, not least in the property sector.Alison Carnwath, Chairman of Land Securities, says: “Because we have a strong balance sheet and are able to build into a development cycle, and because London, in particular, is under-supplied with first-rate property for occupiers, we see 2014 as being a good year for the property industry. It won’t be so easy, of course, if you’re not well-financed, because accessing funds from banks and alternative sources still remains a problem.

“Another trend we see is that, if interest rates start to rise, retailers will find it increasingly difficult because they haven’t enjoyed a particularly buoyant period. Furthermore it’s going to be testing for consumers who’ve got big mortgages to decide where they’re going to restrict their expenditure. And we expect quite a lot of it to come from them spending less in retail.”

Steve Cooper, Head of Personal and Business Banking for the UK Retail & Business Bank at Barclays, comments: “The housing market is definitely improving, albeit it is largely driven by London and the southeast. But there is improvement elsewhere as well. If I look at business turnover, what they are generating in terms of cash and sales, that’s now gone back to above where it was pre-downturn. It takes a long time to get there, but businesses are definitely generating more sales.

“What I’m not yet seeing is enough businesses investing cash for growth. I’m still seeing [them] generate and hoard cash. It’s not that they’re fearful about the future, just that they… can’t see sufficient opportunity to invest for growth.”

All change

As ever, talent and skills will be a pervasive issue for CEOs in 2014. David Stokes, Chief Executive for IBM in the UK and Ireland, says: “A key issue facing business leaders today is skills. Press coverage over the last few weeks indicates that the UK is lagging behind foreign counterparts in building core skills and estimates predict an annual shortfall of 40,000 science, technology, engineering and maths graduates causing significant problems for business if not addressed now.

“Investment in initiatives which enable young people to build the skills that are valued by the market – thinking particularly about skills that will enable the digital world – will help businesses safeguard their own future as well as the future of our economy.”

Martin Balaam, CEO at IT services concern Jigsaw24, comments: “Talent will be an issue because… anybody that’s come up through the ranks in the last five years or so will have never really been in a period of growth…

“We’re just in the throes of recruiting a new graduate intake and, also, we’re actively working with the local authority in terms of apprentices. There’s been a bit of a lull in terms of investing in the next generation, and we’re certainly turning that tap back on… so we’re bringing on people who, in addition to our existing workforce, can learn on the job and ultimately fill those roles that we believe are going to become available as we grow next year.”

***

Just from these snapshots of business sentiment it’s clear that as we go into 2014 the mood among the Criticaleye Community is markedly sunnier than at the same point last year. There will be some real areas of growth to capitalise on over the next 12 months, just so long as leaders are prepared to take a punt and have the gumption to make it happen.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Big Data’s Place on the Board

Comm update_19 Nov

The volume of information currently available to businesses, and the ways in which this can be analysed to drive insights about performance, customer behaviour and strategy, has moved onto another level. While ‘big data’ in and of itself won’t provide all the answers, board-level executives increasingly need to sit up and take note of how it can benefit the decision-making process.

Retailers are only too aware of the huge influx of information now at their fingertips, but knowing how to utilise it across various business units is another matter entirely. Fiona Briault, People and Service Director at retailer Asda, says: “The challenge is how you bring all the data together through one part of the business to say: ‘That is what the customer thinks and these are the areas we should be focusing on.’

“At the moment there’s a tendency for data to be fragmented into different business areas… the goal is to understand how you link data together in a complex business to create one story.”

Eddie Short, Partner and Lead for Data and Analytics at KPMG in the UK and EMA, says “What we’re seeing with big data is that a silos-based approach is not always that effective. For example, when you look at some of the big retailers, they’re very good on quotes to the customer and particularly in giving you vouchers and new offers, but they struggle to get line of sight of what that actually delivers to the P&L.”

Look closely

It’s a learning process for businesses, but progress is certainly being made. Helen Murray, Chief Customer Solutions Officer at outsourced contact centre company Webhelp TSC, says: “More bits of information, when they’re pieced together effectively, help us to understand the clients, their propensity to buy, the way they make decisions and how they behave, and their likelihood to either want follow-up support or not. That then helps us to make decisions about how we treat each individual.”

For Steve Parkin, CEO of Mayborn Group, which makes baby and child products, there has been a concerted effort to break down the profile of customers in order to gain a better understanding. “You’ve got to build loyalty though an emotional connection and be very clever with your rational call to action to drive purchase behaviour,” he explains.

“We’ve segmented our marketplace down into six different consumer typology groups… [and] with the data that we’re capturing, we can understand the typologies of mums on the database that we’re building.”

Mark Wood, SVP and Managing Director of EMEA for US-based cosmetics firm Revlon, comments: “We’ve invested a lot in terms of mapping where customers go on digital and social media and following that pattern to make sure that our brand is always front of mind and that we’re always in the right places.

“[By engaging on social media] customers see that we’re listening to them, that we’re taking an active part in terms of what they want from the brand, and that we’re delivering against that through the conversations we’re having with them.”

Each customer touch point has to be seen as an opportunity to innovate. Neil Ward, VP and General Manager of Business Operations at internet communications platform Skype, says: “We’re using data to blur the lines between a support interaction and a brand opportunity… Beyond resolving customer service issues faster and more efficiently, we’re now seeing that problem solving is a gateway to taking a user’s insight and up-selling to them or deepening our engagement with them.”

Inevitably, this does entail not being afraid to try something different. At Asda, for example, it was decided to stop using a marketing agency to run social media interaction and instead bring it into the customer contact centres. “By running it in-house we can not only respond on social media for more of the working week, because our contact centres are open longer hours, but it also gives us consistency of approach in how we talk to those customers and the messages with give them,” says Fiona.

Game changers

According to some reports, 90 per cent of the world’s data has been produced in the past two years. There may indeed be elements of marketing hype around ‘big data’, but equally it’s clear the ongoing transition to digital has created a whole new universe of information to be explored.

It’s a somewhat daunting prospect. Research by KPMG International, which involved conducting interviews with 144 CFOs and CIOs from multinational companies with annual revenues of $1 billion or more, found an overwhelming 96 per cent of respondents believe their company is not currently using data and analytics effectively. Eddie comments: “The one singular wrong answer is to do nothing. We don’t all have to be data scientists with PhDs in statistics, but I think everybody has to embrace a more data-driven approach.”

Good decision-making involves understanding what your options are. You assess the information at hand, analysing data, speaking to various stakeholders and thereafter a choice is made. What follows next is called leadership, so that the decision arrived at is acted upon and implemented across an organisation. It’s the latter that many businesses need to start concentrating on if they’re going to capitalise on the information now at their disposal.

When it comes to big data, it’s a case of use it or lose it.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk