Winning Strategies for Asia

Comm update_12 November1 The scale and pace at which markets across Asia are growing can leave you breathless. For both indigenous and foreign corporates, the pressure is on to move fast, whether it’s responding to urbanisation, creating new technology or simply meeting customer demand. It all presents a rigorous test for executive teams as they are expected to devise winning strategies in a complex, competitive landscape where talent is in short supply.

These were some of the key themes to emerge from the Criticaleye Asia Leadership Retreat, held in partnership with China Europe International Business School (CEIBS). Over the course of 24-hours, attendees gathered in Hong Kong to share ideas on innovation, sustainability, talent and what the rise of China’s private enterprises means for multi-national corporations (MNCs).

Hellmut Schütte, Vice-President and Dean of CEIBS, observed: “Perhaps the golden age in China is over for foreign MNCs. Everyone is here now, labour costs keep rising, and China’s own MNCs are making enormous progress.”

Aside from the emergence of international powerhouses like e-commerce conglomerate Alibaba and telecom equipment and smartphone maker Huawei, competition was described as particularly acute in China’s third and fourth tier cities, where an increasing number of home-grown private enterprises are capitalising on their local market knowledge. “China still presents significant opportunities for MNCs but it’s now a lot harder to realise,” said Stephen Mercer, Partner in Charge of Multinational Clients at KPMG.

“You have to understand what segment of the market you are dealing with as they can be so different. If you were operating in Europe, you wouldn’t replicate your market entry strategy for each country or market and China [is] the same. Unless you are clear about what you are trying to achieve in China, it will be very difficult to succeed.”

For those companies that do get it right, China’s $9.2 trillion economy provides plenty of openings and areas for growth. Hellmut said: “If China ‘only’ continues to grow its GDP by 7 per cent over the next ten years, it will still almost double the size of its economy. If you combine [Brazil, Russia, India and South Africa] … and the next ten emerging markets, all together they add up to the size of China’s economy today. This is very much in the mind of China’s Government when it deals with the outside world.”

The ability to bring new products to market rapidly was generally agreed to be a significant differentiator for successful businesses. George Yip, Professor of Management and Co-Director of the Centre on China Innovation at CEIBS, said: “Chinese companies have a deep understanding of the customer – [they take] a pragmatic, profitable and customer oriented approach to innovation… Western companies can be too slow because there are too many processes in place.”

Sujit Chatterjee, President & CEO of TATA Consultancy Services China, said that “innovation, as it was understood in the Western world, was for a long period about creating new markets, but, as we see in Asia, especially China, innovation is about capturing markets”.

Companies have to be capable of adjusting to the characteristics of a rapidly changing and geographically diverse country. “Each year, Western companies set-up more R&D centres in China than in any other country in the world, including the US,” George added. “Western companies have an appreciation for Chinese methods of innovation; they are eager to learn how to innovate faster.”

A long-term view

If businesses are to continue to take advantage of the consumer appetite for goods and services, attendees agreed that it needs to be done in a sustainable fashion. Peter Wong, President of Dow Chemical Greater China, said: “Sustainability is very much part of our strategy in terms of driving business growth. For example, in China we are looking at a few of the issues the Government is focusing on, such as food security and safety.

“If we bring our capabilities together, we believe that we’ll be able to find a solution that is going to help the Government tackle some of these challenges, like food spoilages.”

Setting the right strategy and implementing it is key. Peter Lacy, Managing Director of Strategy Practice & Sustainability Services for Asia Pac at Accenture, said: “Companies need to be aware of opportunities to improve their approach to sustainability… It needs to be integrated into organisational design so that support functions are created to incentivise people, so they want to make improvements. That’s as true here in Asia and China as it is elsewhere in the world.”

The challenge is to create alignment across the whole organisation. “At Dow in China, I’ve been trying to build a cross-collaboration model,” said Peter Wong. “It’s been about looking at what the issues are and seeing how people can jump beyond their own boundaries. Hopefully they’re thinking about how we can better collaborate, utilising the R&D lab to [address] the issues we have – if you don’t even understand your true capability, you can’t really develop an innovative mindset.”

Cecilia Ho, President of International Paper Asia, commented: “There actually has to be a change in mindset around sustainability; you’ve got to accept that if you do not operate sustainably you cannot operate at all. [If you understand that], then you’ll do it because it’s beneficial to the company as well as to the environment…

“You can do all the communication and internal marketing – and we certainly do – but the most important thing is that employees are convinced that you practice what you preach. So it needs to be driven by the senior leadership team.”

According to Peter Lacy, thinking sustainably can be a real driver for innovation:  “At the moment a lot of the focus in Singapore, India, China and Japan is on urbanisation and smart technologies and how they can be used to better manage energy and transport systems. There is a ‘digital revolution’ taking place, and we are really only just beginning to see the power of connected physical and digital infrastructure in areas like cloud computing, mobile tech [and the] Internet of Things (IoT).

“This is clearly a strong business imperative, but it’s also a sustainability benefit… Companies in China especially are using things like smart-metering and smart-grids to drive energy efficiency per unit of GDP.”

Matthew Smith, Global Head of Market Development for the Internet of Things at Cisco Systems, estimates that over the next ten years the connectivity of devices will create profits and cost savings of approximately $19 trillion. “People are not afraid to fail in China and that type of attitude is going to be really beneficial in this kind of economy,” he said.

The impact of the IoT will be felt in multiple sectors, from retail and healthcare to life insurance and, of course, energy. Matthew continues: “Texting went from zero to $300 billion in about six years. Thanks to WhatsApp and We Chat, it’s gone back to zero again – the point is a lot of new markets will emerge due to the Internet of Things.”

People first

If technology is unlocking new business models, and globalisation creates a more competitive environment, what kind of skills-mix is required to come out on top? Even for those companies that have a theoretical answer to this question, the reality of identifying and keeping the right people continues to be tough.

In the marketing industry, for instance, digital is having a seismic impact on the way customers behave and this requires a different set of skills. Chris Riquier, CEO for Asia Pacific at Taylor Nelson Sofres, said: “As marketers, we’re not investing sensibly and we’re not recognising the ROI today. We’re also ignoring new platforms, which means we don’t have the skills and expertise in the business.”

The quality of graduates, particularly in China, was also discussed. Hellmut questioned whether the country’s education system, with its emphasis on hierarchy and rote-learning, was preparing the younger generation for the dynamism and innovative thinking required for the modern workplace. “Ten years ago there were one million graduates, whereas today you have 7.5 million graduates and the number of universities and colleges has doubled during the same period,” he said.

“There has been tremendous growth but there is the problem of young people coming into the job market and being unable to find employment. At the same time, you have companies crying out for people. As companies must innovate in order to compete, it is not easy to find the talent you need when they come from this rules-based background.”

In order to overcome the shortfalls in talent, companies were encouraged to start looking regionally to bring in people of the right calibre. Michael Guo, Partner of Human Capital & Change Management Advisory for Greater China at EY, said: “Businesses are increasingly connected. Ten years ago the prime movers in Asia were China, India and Indonesia…

“Now … there are so many different countries where different solutions are required, and for that you need a diverse range of talent, especially for your senior leadership team.”

Global leadership

When discussing ‘Asia’, it’s important to remember the distinct national and cultural differences. Each country and region will present its own idiosyncrasies in terms of doing business, from how relationships are built, bureaucracy navigated and the regulatory environment understood. Nevertheless, the Retreat demonstrated there are questions being asked of senior leadership teams in Asia that will resonate internationally.

Andrew Minton, Executive Director at Criticaleye, said: “Whether leaders are confronting issues around sustainability, talent or digital transformation, they must be able to… see the bigger picture in order to shape their own strategy.

“That’s why, regardless of geography or culture and irrespective of industry or function, there is an overwhelming need for leaders to step out of the day-to-day if they’re to combat complexity successfully.”

Executives need to be prepared to reflect, collaborate and benchmark with others. Trying to establish strategic clairity in isolation is no longer an option.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Advertisements

How to Achieve Community Engagement

Comm update_25 June

Social responsibility and strategic goals are not mutually exclusive. The more enlightened directors sitting on the boards of corporates understand that there is a moral imperative to engage with local communities, plus other stakeholders, before embarking on projects which have the potential to disrupt lives. It’s a pity that far too many businesses around the world continue to struggle with this basic concept.

For some, it’s a classic case of prioritising profits above everything else; for others it’s a lack of awareness about how to plan and then communicate appropriately. Anne Stevens, Vice President for People and Organisation at Rio Tinto Copper, says: “Before you’ve even applied for permits or licences of any kind, you need to engage the full range of affected parties at the earliest opportunity.

“That means consulting with the local community, local and national government, NGOs and all of the other key stakeholders… Where there is lack of early engagement and less of what I would call ‘a collaborative approach’, there is an increased risk of local resistance and we have even seen examples of community outrage within the mining industry.”

Sandy Stash, Group Vice President of Safety, Sustainability and External Affairs at Tullow Oil, comments: “A common error is assuming that government speaks for all the stakeholders. Clearly, you need to do your homework and look at every dimension of how you can engage with everyone, including government, as early as possible. This needs to start with the planning process – you can’t wait until implementation.”

A company shouldn’t be too prescriptive in its approach if it wants to know what makes a local community tick, especially when operating in different countries. Anne says: “A common mistake made by leaders is to go in with their own mindset and… apply the same recipe or approach that was successful before in a different [place], without really engaging and understanding the requirements of the local environment.”

Face Time

If trust is to be gained – or at least a workable compromise found – then leaders within the business need to be on the ground and talking to the relevant parties. Luke Wilde, founder and CEO at business consultancy twentyfifty, says: “Communities need time to get to know the company and face to face communication is going to be critical in that.

“It’s unlikely that any CEO is going to be able to give that sort of time, [so it would be] better for a senior local manager to give the company a ‘human face’, to demonstrate the time and willingness to listen and to be available for the community to raise concerns with at any time.”

Sandy comments: “The CEO needs to foster a culture where people are interested in and engage with the communities where the organisation has an impact, but the local business managers need to take responsibility and be the sponsors for making community engagement work.”

Without that interaction, tensions can quickly bubble to the surface. Kevin Craven, CEO of the Services division at infrastructure provider Balfour Beatty, says: “We have found, to our cost, that if our local management is not really attuned to the local community’s needs, then you do get problems.

“For instance, although I’ve done about eight street lighting PFIs [private finance initiatives], there was one location… where we hit a road bump because the local community was very particular [about the aesthetics of the lighting]… so we decided to put somebody in as a dedicated community officer and arranged town hall meetings with residents.”

Business leaders shouldn’t underestimate the importance of delivering on promises that were made in order to receive the green light for a project. Bob Davies, a portfolio NED and former CEO of Renold and GE Druck, both manufacturers, comments: “Mistakes are often made where expectations are set incorrectly. There are so many different conversations with different entities—local governments, local unions, local newspapers—that a false image can be created of what you’re actually trying to do, so it’s vital that the CEO ensures absolute clarity of what is planned.

“This might not be a big issue on day one but two years down the line, when the local government was expecting you to employ 400 people and your plan was always 40, can be where the angst starts to give rise.”

Community engagement forms one part of what’s required to be a socially responsible organisation as it feeds into employment law, health and safety, corporate governance, supply chains and the environment. While few get it completely right, the intense spotlight on companies means none can afford to pay lip service to the notion of behaving in a way which shows respect to others.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Is the Feel-Good Factor Back for Boards?

Image

Reading tea leaves may prove more useful than relying on official measurements of how the economy is faring. There’s staggering national debt, real fear of inflation and overwhelming frustration at the short-termism of politicians, but this needs to be counterbalanced by the fact that, from a business perspective, confidence is picking-up in the boardroom today and it can’t all be due to a new royal baby.

Growth, and how to drive it in a sustainable fashion, is what’s on the agenda. Criticaleye spoke to a range of business leaders to get their take on the economic fix we find ourselves in, looking at it from both a local and global perspective. Here’s what they had to say…

1) Things are Getting Better

Optimism is returning and the vital signs – for the UK at least – are stronger than they have been for some time. In July, for example, the IMF upped its forecast of UK growth for 2013 to 0.9 per cent from 0.7 per cent in April. It’s positive news but with the national debt at 75 per cent of GDP and concerns about cheap money and subsidised credit, no-one’s getting carried away…

It’s more meaningful to talk about ‘optimism’ in the context of business performance and in this sense there are certainly some reasons to be cheerful. Brendan Walsh, Senior Vice-President of American Express’s Global Corporate Payments division in Europe, says: “At a macro level there are definite signs of improvement. When I look at my business month by month, over the last nine months, I can point to, at the aggregate level, total improvement, although the pace of improvement differs country by country.”

There are signs of a recovery in recruitment too. Stephen Barter, Chairman of KPMG’s Real Estate Advisory practice, comments: “We’ve seen quite significant job growth over the last nine months. Our recent Report on Jobs has shown the highest rate of growth in vacancies in the last three years, the fastest acceleration in permanent jobs being created for the last two years and the beginning of a movement in wages… The sectors that show the strongest growth have been engineering, IT and healthcare, but in recent months we’ve also started to see executive professional posts picking up too.”

Naturally, your view on whether things are improving will depend on the space you’re in. David Harding, who sits on the boards of two smaller UK companies, says they’ve both had diametrically opposing experiences: “The consumer business has been caught between rising input prices and an inability to increase prices in the supermarket. As a consequence, growth has been limited to trying to focus on specific segments where we have a strong USP, and give them a more direct service via the web. Conversely, the B2B business has just enjoyed a record year as cash-rich corporates unlock capex spending.”

2) Danger Signs

So, to come back to the big ‘E’, what’s currently weighing on the minds of business leaders?

“I keep my eyes on what’s happening to public spending and waiting for inflation to explode – and it will do,” insists Jon Moulton, Chairman of turnaround specialist Better Capital. “There is no means out of this deficit and debt position for the government other than inflation… We have reduced the amount of government debt in real terms and I’m sure we’re going to see a lot of inflation come through in the next few years.”

According to Jon, the situation at present is divorced from reality. “We’re in a very peculiar economy where the free market really doesn’t dominate any more… To a very large extent the economy is dominated by the behaviour of central banks, and the effect of low interest rates is, of course, to have very odd effects on asset allocation because people are perfectly happy to pile them into low-yielding assets, property and the like.

“People are not looking for an economic return, they are looking to preserve the value of their money. Higher interest rates would mean that people wouldn’t pursue hopeless business strategies because they couldn’t afford to.”

David Turner, CEO of outsourced contact centre company Webhelp TSC, comments: “Confidence and the economy remain fragile. My belief is that consumer spending will lead us out of recession but my worry is that we are beginning to see some levels of inflation coming through which could cause an upward trend on interest rates. We have to keep hold of inflation but higher interest rates will take away consumer confidence to spend and business opportunities to invest in the future.”

For Dominic Swords, economist at Henley Business School and a Criticaleye Thought Leader, the main cause for concern over inflation is that it could spark a hike in import prices. “Whether that’s around energy and commodity prices or a weakening of the exchange rate, it would mean that we have to pay more for our imports, which would all spell bad news because it would increase input or raw material costs for companies,” he says.

As for Europe, there continues to be lots of uncertainty. Mark Spelman, Global Head of Strategy at Accenture, comments: “In the UK and most European countries, with the exception of Germany, there’s going to be a debt drag that will last most of this decade, so you’ve either got to find the underlining fast-growth segments or find new geographic markets…

“Politically, too, the next two years are going to be quite turbulent because we’ve got the European Parliamentary elections, the Scottish referendum and the UK General Election. British business is going to have to navigate some quite choppy political waters.”

3) Supply and Demand

Deep concerns over food and energy prices persist, creating intense pressure for businesses and consumers. There has, however, been excitement over the implications of the shale gas boom, particularly in the US (albeit mixed with some genuine environmental concerns).

Lady Barbara Judge, Chairman of UCL Energy Institute and former Chair of the UK Atomic Energy Authority, comments: “I keep a close eye on the price and availability of energy. The greater availability of energy across the world is driving optimism with respect to manufacturing, so it’s having a clear economic impact. In the US, the discovery of shale gas and the economic revitalisation of shale technology have made America feel more optimistic, because the price of energy has gone down which is bringing manufacturing back to the US.

“But there is a dichotomy between price and availability. In the US, energy prices are going down and economic activity is going up, while in the UK and Europe, energy prices are going up because renewables are expensive and unreliable. So, in Europe, the economic vibrancy attributed to energy is less obvious and is not happening as fast.”

4) The Race for Growth

Plenty of CEOs actively dismiss pessimism over the economy. They prefer to concentrate on the positives of winning contracts, doing deals and seizing opportunities. In 2013, blaming the economy for poor performance can sound like a well-worn excuse.

Dominic says: “I see a lot of evidence from a number of businesses in a range of sectors that well positioned products can pick up on some quite high growth trends. For example, if you think of the healthcare and nutrition markets and the concerns that we as consumers have around obesity, well-being and healthy living standards, then you’re hitting a hot spot for a high growth market…

“For a well-positioned product in a company that understands its consumer markets, there are plenty of growth opportunities both in established Western markets and those in the BRIC economies.”

David says: “We’ve now got to the stage where everyone is looking for growth… [and] the same conversations are happening at the macroeconomic level, saying: ‘Yes, we have to control our debt and pay off our loans, but the more pressing need is what we are going to do to invest in the future?’

“It’s taken quite a long time for people to understand what being in a recession means and what you need to do to manage your way through it. What I’m now starting to see is senior managers coming back to the table feeling much more confident about taking a decision… which means the leadership can push on and assess what needs to be done.”

Any good strategy that’s decided on will contain a healthy respect for risk. Jon says: “We’ve been adopting such sophisticated planning scenarios as flat lines, assuming that we won’t have following tides of economic prosperity and therefore we run the companies in our portfolio along that basis. It’s very different to a fast-growing economy, where you would be doing new product developments at pace, so it’s made us adopt a safer strategy than we would do in more buoyant times.”

5) Relationships Matter

Following on from David Turner’s point about what it means to do business through a recession, it’s become increasingly important to communicate with stakeholders, manage uncertainty and build strong relationships with existing and prospective clients to understand exactly what they’re looking for.

Duane Lawrence, CEO of InferMed, which provides software solutions and technical services to the healthcare industry, says: “A good portion of our business is related to public spending on health and, with the NHS cutbacks, we’ve had to look not just at selling the clinical advantages of our software, but also at proving how it can take costs out of the system… the manner in which we go about talking to individuals about what we’ve got has changed pretty significantly.

“[Previously] we could just go in and talk about how we could make a difference in people’s lives by helping doctors treat patients better. That’s just not enough anymore because there has to be an economic benefit associated with it.”

***

Questions around how to solve the GDP/debt burden remain largely unresolved, with governments refusing to tackle austerity head-on or have a meaningful plan for recovery. Be that as it may, many businesses have identified where the growth spots lie for them and, as a result, they are a whole lot more optimistic than they have been for some time.

Given the systemic economic problems we face, it may be premature to say the ‘feel-good factor’ has come back to the boardroom, but there is a sense of direction and focus that’s been absent for way too long.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

The Eurozone: What’s Your Plan B?

Focus on the world’s fastest growing economies – that’s the message from business leaders on how to deal with Europe’s currency calamity. With Greece remaining mired in debt, and Spain, Italy and Portugal relying on the positive signals coming from the European Central Bank to buy sovereign bonds, the fact is that businesses simply cannot afford to adopt the equivalent of austerity measures if they want to prosper.

Jim Wilkinson, Group Finance Director at online gaming company Sportingbet, has needed to act quickly as Spain and Greece accounted for about 50 per cent of the European business. “We have withdrawn any cash balances out of those countries on a frequent basis and have reorganised our European business to match costs to revenue in local terms.”

Part of the solution, for Jim, has been to develop a standalone business in Australia: “It is well away from what may be happening in Spain and Greece and completely separate and immune to the currency troubles in Europe, to the extent that other currencies ever can be immune.”

Stephen Dury, Strategy & Market Development Director at Santander Corporate, Commercial & Business Banking, says: “Many of the SMEs that we have been working with are looking at the fast growth markets in China, India and Latin America to diversify outside the eurozone [and]… deliver more stable and sustainable income growth.”

The crisis reaches across all sectors. In British farming, for instance, there is a particular threat through the weakened currency. Tom Taylor, Chief Executive of the Agriculture and Horticulture Development Board, says: “The weak euro is giving imported pig meat a price advantage when compared to the UK product, and European pork is 12 per cent cheaper, just because of the euro, than it was a year ago, so the ability to sell UK products is being affected.”

In response to this, British farmers have also been looking to Asia. Tom says: “We’re actually now exporting to 50 countries where the currency isn’t having as big an impact… The first contract for pig meat to go to China was signed only a month ago for a £50 million deal and the first shipment went last fortnight.”

With there being so many variables to the crisis, each leadership team will need to devise their own solutions. Mary Jo Jacobi, NED at Mulvaney Capital Management and a Criticaleye Associate, says: “This macroeconomic uncertainty forces businesses to reconsider their plans yet makes developing new ones nearly impossible.

“Leaders need to remain focused on their primary objectives, factor in what has changed and what is changing and be confident that their strategy is sufficiently flexible; snap decisions based on today’s headlines are unlikely to yield positive results.”

Crystal ball gazing

Naturally, international expansion won’t necessarily be right for every business, but it does make sense to factor in and reduce exposure to particular eurozone risks. Nigel Burbidge, Risk Advisory partner at professional services firm BDO, says: “We have worked with economists to provide tailored workshops and economic forecasting for specific businesses, looking at the key risks for them and possible ways to mitigate those and gone from there. The problem is there is no one-size fits all answers for this – you have to form judgments for your case.”

Fortunately, leaders are recognising the scale of the risks, especially around areas like supply chains, and are taking the initiative to combat them. Paul Staples, Head of Corporate Finance at BNP Paribas, says: “The level of contingency planning being implemented by corporate clients with existing operations or exposure to the eurozone has accelerated markedly during the last six months.

“[From] how companies achieve access to funding, to reviewing the local banks who are deemed to be suitable counterparties, [and] how they seek to protect their own infrastructure and investments in a volatile market environment… this level of preparedness is no longer seen as overly conservative, which is testament to increasing concern over weakening economic data across both the European periphery and major Northern European economies.”

Mark Spelman, Global Head of Strategy at Accenture, notes: “While a combination of the European Central Bank’s action on liquidity and the European Union’s rescue funds have bolstered the fiscal system, the key structural problems of competitiveness [in the Union] remain unanswered… Business leaders must look into the abyss and have a base case for how they manage continued uncertainty.”

As ever, the best defence will remain a calm and confident leadership team equipped with a sound understanding of their business, its risks, and agility when it comes to strategy.

David Garman, Chairman of commercial laundry suppliers JLA, takes a pragmatic approach amid the endless speculation: “I don’t know what’s going to happen in the future and neither does anybody else… Decide what you want to do about any particular scenario when it becomes a reality, rather than wasting time that you could be spending on improving the fundamentals of your own business.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon.

Matthew

Boards and the War on Cyber Crime

Businesses are proving to be rich pickings for cyber criminals and boards need to fight back. Whether it’s loss of money, breaches of customer data or highly targeted theft of intellectual property, the risk of attack is all too real and executive and non-executive teams need to ensure their cyber security makes the grade.

Andy Hague, former Operations Director of the ethical hacking division for advisory services group NCC, says: “My entire perspective changed after four years running the UK’s largest anti-cyber crime business… When you see the scale of stuff that actually goes on, it is quite alarming… but in many places there is still absolutely no concept that it even exists.”

The threat is substantial, with the cost of cyber crime in the UK reported to be around £27 billion a year (businesses are bearing an estimated £21 billion of the burden). Andy, who is now UK MD of HR services provider Croner, explains: “On a central server, we hold everyone on the employee payroll for a number of businesses… That is hugely valuable for anybody who wants to get their hands on it.”

Stephen Mohan, MD of Operational Services at financial services platform Cofunds, makes a similar point: “For about 800,000 to 900,000 customers, we have: name; date of birth; National Insurance number; address; bank account; possibly next of kin; and the details of all of their investments. This is a significant area of trust that we hold, and people need to have certainty that we will be looking after them.”

The repercussions of an attack are instantaneous. Paula Barrett, Head of Privacy and Information Law at law firm Eversheds, says: “It can be particularly galling to see all the time invested in building trust in your brand evaporate suddenly, almost overnight, through a security breach… Businesses are only just starting to realise the potential power of increased connectivity, and the risks associated with it… There’s still a huge amount of education needed.”

Security measures need to take into account the variety of attacks. Luke Wilde, CEO at TwentyFifty, a global management consultancy with a focus on human rights, explains: “Given the nature of the work that we do, the risk from our point of view would… most likely come from some form of government-sponsored espionage… [investigating] something about a country or a particular business we’re dealing with. That would be a breach of security and of our confidentiality to our client, and is a significant reputational risk to us.”

A global threat

It’s easy to be complacent about the dangers posed by hackers. Andy says: “You can’t touch or feel cyber crime, and the biggest issue is that for most people it is not real, it is not something that happens to you. But… you’re talking about thousands of attempted attacks on a weekly or monthly basis.”

Paul Brennan, Chairman of cloud storage provider OnApp, has mixed sympathies: “For every board director… simply saying: ‘I wasn’t aware of the risk,’ is not an excuse… [However,] technology is moving so quickly that it’s probably unreasonable to expect the average director… to be completely aware of the risks associated with cyber crime.”

In order to keep ahead of the criminals, chairmen and CEOs should consider bringing in specialist representatives who sit at the top of the organisation. Brian Stevenson, Non-executive Director at the Agricultural Bank of China, explains: “Even though many companies’ business models lie intimately in the delivery of technology solutions… you rarely have someone on the board who is accountable directly to the chief executive on technology security and delivery.

“[It’s about] having the right professionals from the right background, sitting around the board table. If you don’t have people with a technology background you won’t ever latch onto the issue.”

Arguably, it’s about raising the profile and reporting responsibilities of risk managers or creating a new role entirely. Andy says: “You need somebody who can ask: ‘Does anything that we’ve got have inherent value to somebody else?’ Everyone needs an individual to champion the security of the data that they hold on behalf of their clients… and I can genuinely see a position in five to 10 years where people will need a Chief Cyber Security Officer.”

Regulators certainly seem to think so. If proposed legislation is passed through the EU, such security champions will become mandatory in all but the smallest businesses, while every organisation would have to announce a data breach within 24 hours of a discovery, or face a hefty fine. Paula comments: “Compulsory breach reporting [already] occurs in the US… and as can be seen [there], the cost of dealing with any potential breach is likely to soar. Coupled with heavier penalties coming in, it will raise cyber security higher on the board agenda.”

Boards would do well to recognise that fines are not the only potential cost of a data security failure. Paula adds: “It’s about the negative impact on the brand and the share price… account or contract terminations, or lost business opportunities if you are seen to be a security risk by your customers.”

Andy Blundell, Chief Executive of outsourced customer marketing supplier, Communisis, says: “For marketing purposes, businesses take a huge interest in you as an individual. Having that data is good for the business and the customer, but as a business it takes you into an area that requires a huge amount of protection… We are very aware that we are protecting our clients, and trust is the ticket to the game in our industry.”

For all those speaking to Criticaleye, the unanimous view is that provided a plan is in place and it gets updated accordingly, the risks of attack can be controlled. Ian Ryder, Deputy Chief Executive for BCS, The Chartered Institute for IT, says: “Clearly, the IT function has the technical know-how to implement the solutions. They need to be the key ‘partner’ in the business to help identify where the weak spots in systems and processes exist…. Cyber security is a specialist area – it must be treated as such.”

Another wise move would be prioritising specialist risk audits, led by a security specialist. Brian adds:  “Audit committees take an intense interest in finding out what went wrong and making sure it doesn’t happen again. I would like to see a regular data security item on the agenda, to make sure that you are tackling the issue proactively, and not just waiting for something to go wrong. It is about preparation and testing; your audit committees are there to question people – are they doing the full remit of their job?”

That is a question every board must ask itself. The reality, as noted in a speech by MI5 Director General Jonathan Evans only last week, is that the threat is “astonishing”, and encompasses the security of not only your business but each and every one of your customers. Only by taking real expertise on board can businesses begin to safeguard themselves and their customers against this threat.

As Paul says, the one certainty is that “it’s a huge area, and it will cost the whole world a lot more money as time goes by”.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Are Women on Board?

The recent Lord Davies report, Women on Boards, encouraged leaders of FTSE 350 companies to include more women on their boards based on the needs and characteristics of their businesses. The report ducked imposing actual quotas and instead considered the factors that might bring about cultural change. On the one hand, there’s an increasing need for organisations to adapt their culture to be more welcoming to all-comers; on the other, perceived outsiders – women included – must demonstrate their willingness to engage with the group.

In the UK, the very idea of quotas is not welcome. This is backed up by discussions from within the Criticaleye Community. Indeed, the consensus is that all the fuss around the Report might end up being counter-productive: not only for women attempting to break the ‘glass ceiling’ (who may feel they are there not by merit but by default), but also for businesses striving for quality without any flexibility to make choices.

Jane Furniss, CEO of Independent Police Complaints Commission, says: “Perception seems to me to be key to all this; how women perceive themselves and whether they see being on the board as something to which they aspire crucially affects their approach. If what we see is largely a white male group we will wonder not only ‘will I fit?’ but also ‘do I want to?’. As more boards reflect the communities they serve, more women will aspire to join them and so talent not gender will be the key criteria for selection. Quotas are helpful in challenging mindsets and status quo but they create another set of problems and can be counter productive. I have always wanted the certainty that I got the job on merit – the challenge is hard enough without the concern that others are wondering – ‘did she get it to improve the gender profile?’”

The gender agenda is clearly part of a wider issue about boardroom quality – ensuring that the best people are reaching the top. But, at a time when boardroom decisions are placed under increased public scrutiny to deliver, does discussion about quotas distract us from the need to focus on quality?

Alysoun Stewart, founder and director of Oxygen8 Solutions Ltd, says: “The impact of the recession cannot be underestimated. Beleaguered companies have realised that they have to do things differently if they are to survive and find competitive edge – having boards that continue to think and act in the same old way will be a high risk strategy and this has, in many companies, put the issue of boardroom diversity and corporate governance into the spotlight.

“But the debate should not be limited to considerations of gender representation and quotas but should focus on diversity in its widest sense. Boardroom representation has been a comparatively narrow club for too long and the accelerating pace of change in the trading environment demands fresh approaches, fresh perspectives and fresh inspiration. That can only come by widening the gene pool to those who can bring new blood, whether that is as a result of gender, background or experience.”

Is there a glass ceiling?

In a survey of members of the Institute of Leadership and Management, 73 per cent of female respondents said they thought there was a glass ceiling for women seeking senior management positions, compared to 38 per cent of male respondents.

CEOs frequently report their inability to find a female candidate of quality to promote or hire, suggesting that the glass ceiling is more than mere perception. Or they might hire women as a last ditch effort to save an underperforming business in order to effect a ‘high risk’ turnaround. Certainly, women shouldn’t be pushed to the edge of a ‘glass cliff’. But, in reality, many women – like many men – flourish when put in this position.

For example, Stevie Spring, CEO of specialist publishing house Future plc, was brought on board after Future had overstretched through a series of print acquisitions to meet the ambitions of the previous chief executive, Greg Ingham, who wanted to double the size of the publishing company. Stevie has exemplified the requirements of the role and has been involved in much of the consultation for the Davies report.

She says: “There’s obviously a big difference between executives and NEDs and I believe it is the former that is the big issue – women that have reached the top and can bring P&L experience. The pipeline of women for executive positions is therefore a bigger issue because too many fall out of the workforce along the executive stream. But on the demand side too, boards still tend unintentionally to recruit in their own image – largely white, middle-aged men. It’s a NED’s job to bring different perspectives to bear on scrutiny and strategy. Diversity encourages these different perspectives. Nobody wants the furtherance of group think.”

V ‘Ram’ Ramakrishnan, Associate Faculty Member at Singapore-based business school MDP and one of Criticaleye’s Thought Leaders, says: “There needs to be a system that nurtures and encourages substantial populations of capable women executives to stay the course once they make it to the top. As with male directors I believe women have to be identified, coached and nurtured to become successful board members. It is strange that we spend twenty odd years training to be general managers but are expected to acquire directorial wisdom by god-given gifts overnight. Direction is a skill very different from general management and need to be cultivated by both men and women potentials.”

Is the talent pipeline open?

One outcome of the downturn has been to drive boards towards recruiting experience; non-executives that can bring value to the table based on the challenges they have encountered in the past. But are there enough women of quality in the pipeline to fill the quota?

Peter Waine, Partner at Hanson Green, says: “There is a general shortage of suitable NED candidates – men or women – and even that pipeline will soon dry up. I don’t believe that this is down to the perceived downside of the appointment-salary gap widening between executives and non-executives or because demands are increasing and the legal liability is being highlighted. Plc boards have become progressively smaller with the executive element, in particular, contracting. The result of this is that there will not be enough candidates who are current executive main board directors to go round. Hence, the chances for women and others to join these boards are likely to present themselves more frequently. But, how far do we need to stray from business in order to find those candidates?”

Perhaps the focus needs to shift from getting more women into the boardroom as NEDs to encouraging and empowering more women to aspire to the top? A female CEO – a leader – is inspiring for female staff: does a female NED have the same impact?

Tony Cowling, Criticaleye Associate and President of Taylor Nelson Sofres, says: “The cause of the problem lies with a serious shortage of women with upper middle and senior management experience, hence the proper solution to this problem lies with increasing the number of women who achieve middle and senior management roles and so gain experience to prepare them for board positions. The shortage of women on plc boards, both exec and non-exec, is only a symptom of the problem and not the cause. We have heard a lot about ‘equal pay’ and we know that problem is not yet solved. We have heard less about ‘equal promotion prospects’, but I am sure it is a root cause of the shortage of women in senior and upper middle management. If we want to solve the problem we have to address its root cause.”

Of course, there are cultural issues to address. As Gary Kildare, VP, Human Resources, Americas, Europe, Asia Pacific at IBM, explains: “Companies need to create an environment where employees feel they are being treated equally with access to opportunities, without the need to be treated as an exception. Success is about creating the right business environment rather than targets and quotas. I am not convinced there is an appetite for this approach.

“We absolutely need more women in senior roles: their skills, experiences and characteristics. Certainly there is a need to do more to facilitate talented women coming through organisations, to build a talent pipeline that enables quality people to compete alongside their peers for promotions, regardless of gender.”

What needs to change?

Jacqui Grey, Managing Director of Transition Ltd, a transformational change management, leadership, executive coaching and coach-training business, believes that there aren’t enough women on boards because, on the one hand, they haven’t been encouraged to get there by organisations and, on the other, they “get in their own way”, meaning a lack of confidence holds them back.

“Of course, government has a duty to encourage organisations to change and to hire and promote more women onto boards, as do organisations in taking steps to ensure the recruitment, development and promotion of women,” says Jacqui. “But women themselves must also step up to the plate. They must focus on an immediate and visible improvement in their confidence and networking skills and activities. The fear of ‘not being good enough’ must be overcome.”

Noreen Doyle, NED at Rexam plc and executive director at Newmont Mining Corp, says: “While women may be just as competent – sometimes more so – as men, they are not so good at profiling themselves among their peers. Many women are still of the mindset that networking is what you do once your day job has finished; men have long seen it as an integral part of their job. This needs to change and there’s a role to be played by senior women, like me, in mentoring emerging talent and conveying this issue to them.”

The issue of boardroom gender diversity should be embraced as a force for fresh thinking at the highest level, not as a compromise over quotas. But getting to the top table and influencing decision-making takes high-level networking – something that goes to the very heart of Criticaleye. Entry to the party doesn’t stipulate gender or race, only a willingness to engage in the debate and contribute.

Denise Jagger, Partner at Eversheds, says: “Women are recognising the need to help themselves and a number of networks are providing mutual support for their members and, at the same time, providing recruiters with a source of potential candidates. Rather than quotas, I believe informed encouragement by respected business leaders from, for example, the Members of Criticaleye is the best route to a sustainable shift in the composition of this country’s boardrooms.”

Ultimately, a diverse, balanced board will bring the right experience to bear on issues that require fresh impetus and a balanced opinion. Everyone must bring something to the table, but the route to getting there must be from a level playing field. In the end, a diverse group can only be good for decision-making and business in general.

The upcoming Criticaleye Discussion Group, Women on Boards, will examine many of the questions posed by the recommendations of the Lord Davies report and further discuss the points covered in this blog.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

The Coalition

Nearly a week after the UK went to the polls the country woke up to a new Prime Minister. Backroom negotiations have concluded in a coalition government between the Conservatives and Liberal Democrats ushering in a new era for British politics.

Prime Minister David Cameron, on the steps of his new home, said that his administration would focus on “rebuilding family, rebuilding community, above all, rebuilding responsibility in our country”. He went on to say, “I think the service our country needs right now is to face up to our really big challenges, to confront our problems, to take difficult decisions, to lead people through those difficult decisions so that together we can reach better times ahead.”

This is an approach that many business leaders should be taking to deal with uncertainty in their organisations.

It has been 36 years since the United Kingdom has experienced a coalition government. This unfamiliar territory is throwing uncertainty into a precarious economic recovery. A week of unclear electoral results caused concerns, especially to the business community. The day after the election, markets around the world tumbled and sterling depreciated significantly, signs of waning confidence. Although the hung parliament caused volatility, the real concern comes from the systemic risk caused by Greece and the further EU financial crisis.

However, countries the world over have coalition governments and prosperous economies. Business leaders have been left asking what the impact of this new government will be on business and the economy. Members of the Community offered their thoughts on the results.

Sir Brian Bender, former Permanent Secretary:

“What business most needs from the new Government is decisive action on the budget deficit. Leaders of businesses whose customers are Government will need to be alert to the opportunities and risks resulting from that action. The prizes will go to those who can offer more for less for the taxpayer.”

Bryan Hughes, Chief Executive of Eversheds:

“The pound and euro are under pressure as a result of the fallout from the sovereign debt crisis. The UK needs to deal with its massive state debt, but political deadlock at Westminster will inevitably mean a delay and therefore more pain later on. Whatever happens over the coming days and weeks, it’s clear that the new government will need to take appropriate steps in order to reduce the deficit, but if they cut too deep the economy is in danger of going in to meltdown again. Clearly however, further cuts are required than have been detailed in the manifestos.”

Deborah Loudon, Head of Government Practice Group, Saxton Bampfylde:

“The face of politics has changed in ways we do not yet understand but which are enthralling the nation and suggesting that engagement with the process may yet overcome the cynicism provoked by the expenses issue. Many activists who have been out campaigning report a passionate engagement with policy issues on the doorstep, right across the political spectrum. Those approaching or seeking to influence government in the immediate future will need to do more homework than before and understand the likely shifts of policy as compromises between the new partners are hammered out. An optimist might say that reliance on solid and objective evidence will become more powerful as the ability to rely on agreed party policy diminishes for ministers.”

Steve Cooper, Managing Director, Barclays Business:

“While business owners and the wider business community may be getting used to a new political environment, it is important not to get distracted from the day to day basics of running a business. Getting and fulfilling orders, securing cash flow and keeping close to customer needs would be my advice today just as much as last week. The UK economy needs a strong business sector even more than ever and in my opinion, all political parties know they have a responsibility to keep momentum of the improving economy.”

Siva Shankar, Corporate Finance Director, Segro:

“The Greek crisis, contagion fears, ‘Lehman’s’ memories, and the brutal punishment meted out by nervous markets to ‘unstable’ countries, will all create a sense of urgency for a coalition government and business to work together on common ground to put the UK on a politically stable and fiscally sustainable path. Multi-national corporations are already well experienced in dealing with coalition governments across many of their geographical territories, and will quickly adapt to a coalition governed environment in the UK.”

Clive Ansell, Senior Advisor to the Board, Royal Mail:

“My message to business leaders is to accept that business and detailed business concerns will be low in the balance of priorities. In the business world the equivalent would be getting an M&A team to focus on BAU. So, aim your requirements at core areas of agreement between the parties, and try to go with the grain of policy. If you have to challenge policy, do so in a way which demonstrates that it’s a value-added initiative. There will be little time, appetite or capacity for detailed political interventions unless there’s a clear macroeconomic or employment upside.”

If you would like further information on today’s topic please look at the Insight pages on the website. Why organisations need to engage with the government provides advice on how to deal with the government.

Please get in touch if you have any comments about the issues in today’s update.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk