Unconscious Bias: The Enemy Within

Unconscious bias reinforces the inequalities that exist in organisations. From the wording of a job advert to choosing who gets a promotion or big project to manage, the opportunities for people to progress can be dramatically restricted due to unwitting assumptions. If senior executives are committed to creating diverse workforces, then steps need to be taken to increase awareness levels of the psychological shorthand individuals use to define others.

Jane Griffiths, Company Group Chairman for EMEA at Janssen, the pharmaceutical division of Johnson & Johnson, says: “The biggest threat to a business like ours is ‘group think’… Innovation is our life blood: if we don’t have the diversity of people, we won’t drive innovation, which ultimately affects our business’ success.”

In order to create the right mix of talent, board-level executives must lead by example. Jamie Wilson, Marketing & Innovation Director at Criticaleye and Head of Women in Leadership, comments: “Recognising and addressing the barriers that unconscious bias can place on an organisation’s ability to diversify its talent, from the top down, will be crucial if boards are serious about building fit-for-purpose, high-performing teams.”

It’s a case of thinking differently about the qualities required to lead successfully. Jane says: “People have a tendency to gravitate towards those who are like them or have common interests. I honestly believe much of this is unconscious but our role as leaders is to hold the mirror to ourselves and our teams to challenge that.”

Stuart Steele, Partner for Human Capital Advisory at professional services firm EY, argues that the first step has to be to ensure that everyone understands how their biases affect decision making: “Do I think we’ll change their behaviour for every minute of every day? No. However, if we can change their behaviour, or at least influence it, at a point in time when they’re making key decisions, particularly decisions which impact an employee’s progression or development… that’s a significant step forward.”

In practice, this means acknowledging that bias may exist around, among other things, class, gender and race. Naomi Gillies, Head of Future Planning and Sustainable Development for retail group the John Lewis Partnership, comments: “We have recognised that by focusing on unconscious bias… we can improve the performance of our company.

“As an organisation we run a number of development courses on unconscious bias which remind the senior leadership team of the role it plays in their daily decision making. Personally, when I’m recruiting, it reminds me of the importance of balance within the team.”

The trick, as ever, is to ensure that what’s discussed on training courses actually becomes reality within the business. Margaret Kett, Partner for Human Resources at executive search firm, Tyzack Partners, says: “It could be coaching, either one-to-one or group, but there needs to be something to embed the unconscious bias training into the organisation…

“It’s the same with diversity and inclusion, it can’t be a standalone agenda. It’s got to be embedded into the core of the organisation. Some are going so far as to link a proportion of bonus to the demonstration of inclusive behaviour.”

Taking a stand

In order to break what may have become a facsimile approach to recruitment, it makes sense to think beyond the standard job specs. Margaret comments: “You have to pose the thought-provoking question: does the new incumbent honestly need to have industry experience or could we look for candidates from further afield and develop them – really pushing organisational boundaries.

“Does the person we are seeking necessarily need to have an engineering degree? Because, by insisting that everybody does, you are excluding all these people who may well be superb at the role despite not having a degree in engineering.”

Anne Stevens, Board Trustee at UK children’s charity Over the Wall, recalls one particular multinational she worked for where she decided to hire a deaf candidate. “I can’t tell you how much pushback and questioning of my judgement I got when I hired him,” she comments.

“He turned out to be one of the most successful business analysts I ever recruited, but at that time it was seen as taking a real chance. It took a lot of courage because there’s pressure on leaders to try and get people who fit into the existing cultural norms. You’ve got to be a bit more innovative, creative and also courageous about this stuff.”

However, there’s no point addressing your recruitment strategy if you don’t have a culture which allows diversity to flourish. Jane Furniss, Criticaleye Board Mentor and Senior Independent Director of the Solicitors Regulation Authority (SRA) where she chairs the Equality and Diversity Committee, comments: “As a young woman I was often ‘complimented’ for thinking and behaving like a man. I didn’t want to be a pseudo man but to be accepted as a competent woman.

“It won’t make your organisation more diverse if you recruit some ‘square pegs’ and then proceed to shave the edges to make them fit your round holes. Companies need to embrace the differences and capitalise on how they can improve and develop as a result.”

Graham Maundrell, HR Director at specialty polymer chemical business The Vita Group, comments: “You need to create a platform for a diverse group of people to be effective and successful, otherwise all you do is create guaranteed failure.

“That, to me, comes back to the nature and the mix of the people at the top, and their commitment to building a diversified workforce.”

For Serge Colin, Group HR Director at Lafarge Tarmac, if this shift in culture is going to be achieved executives must be both role models and vocal proponents for change: “Executive leaders’ commitment… to developing an inclusiveness framework and work environment is essential; the crucial thing is for them to communicate it as a business case.”

And that business case, says Margaret, is crystal clear: “If you’ve got diversity high on the strategic agenda, and you allow that to be transferred to operational activity… then commercial benefits will inevitably follow.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeUK

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The Future of the Workplace

Comm update_10 September1

Ideas on what constitutes a fulfilling and productive working environment are shifting rapidly. They’re raising questions about mobility of talent and what it means to be an effective leader as the way in which knowledge is transferred, both within and outside an organisation, becomes more dynamic. Indeed, a perfect storm of new technology, globalisation and changing demographics is blowing away assumptions about how we work.

Lynda Gratton, Criticaleye Thought Leader and Professor of Management Practice at London Business School, suggests that the formal link between ‘work’ and ‘place’ is beginning to soften: “We are already seeing the rise of flexible and remote working arrangements as well as creative hubs where people use workspace as and when they need to.

“It seems to me that as working lives become more of a marathon than a sprint, we are going to see more emphasis on work that excites and inspires people and helps them to grow…These concepts are not just about employee well-being, they are… crucial to the competitive advantage of a company.”

It’s incumbent on leadership teams to get a grip on what is already underway. Stuart Steele, Partner for Human Capital Consulting at professional services firm EY, comments: “There is always competition for good talent and an inability to predict what the work environment will look like in three or four years’ time, I think, can put an organisation at a disadvantage.”

Let’s get digital

From the mills and factories of the industrial revolution to assembly-line car production at the turn of the 20th century, technology has reshaped working practices by reinventing notions of efficiency and productivity.

John Lewis, Chief Operating Officer for communication services provider Airwave Solutions, says: “Mobile working or process improvements are absolutely there for the taking. There are lots of different examples that I’ve seen, such as the creation of collaboration zones and the use of tools for collaborative working.”

How best to take full advantage of this flexibility is open to debate. Susanna Dinnage, EVP and MD for Discovery Networks UK & Ireland, explains: “A great deal of people working on their own, possibly at home, may benefit individuals in terms of family commitments and reduced time spent travelling… I understand that, we have busy lives… but what you lose is the alchemy of teams working together.”

John notes that organisations must be careful not to underestimate peoples’ appetite for interaction. “That can be the biggest challenge,” he comments. “How do you get over the fact that people just sometimes need to spend a bit of time gossiping or just having a reaction with others in their team to help process what’s going on?”

The hierarchy that traditionally existed in organisations is being broken down by the volume of information now available at employees’ fingertips. This is causing leaders to rethink how they engage with employees, encourage collaboration and make decisions.
Julian Birkinshaw, Criticaleye Thought Leader and Professor of Strategy and Entrepreneurship at London Business School, says: “Think back to the traditional role of the leader. Back in the industrial era, he was responsible for squeezing as much value out of his resources – money, people – as possible.

“In the knowledge era, he or she has become used to being an expert… They were also the conduit of information, the person who accesses and then disseminates information across the organisation. But if this information is now widely available, and if there are experts at all levels, the leader of the future has to think about what their value-added role is.”

According to Julian, leadership in this context will entail a more interpersonal role, helping other people to make decisions and avoid becoming overwhelmed by the volume of data available: “Good leadership… [will] be action-oriented; that is, following through with people to ensure they deliver on their commitments. One of the risks of ubiquitous information is that it causes analysis paralysis – there is always an opportunity to collect more.”

Melting pot

A more age-diverse workforce will certainly throw up some new challenges. Susanna says: “I am observing a new generation that is very smart. I look at our interns – they are engaged, they have plans and they have expectations. They don’t come here to stuff envelopes.

“They are not afraid to ask for half an hour in your diary to understand how you got your job – that’s fantastic. I love this confidence they have… [as] they step forward and… are contributing.”

There is a sense that the expectations held by millennials in the workplace are, in some respects, higher than of generations gone by. Stuart explains: “There have always been career-focused individuals, with an appetite for rapid progression, however, looking at groups, if you’re 25, your aspirations for broad opportunity and rapid progression in an organisation are typically a lot greater than what a 50-year old person’s was when they were that age.

“Where an older employee may have taken 20 years to progress three-quarters of the way up the organisation, the 25-year old wants to get to that same position in five years or less. How do you balance that? How do you meet their aspirations of rapid progression while not disenfranchising this person, who has delivered good service for the last 20 or so years?”

These are the types of questions which senior leadership teams need to be thinking about and addressing. Stuart adds: “As organisations’ demands for skills and capability change over time, the intrinsic value of the employees with 20 or so years of experience – those with real depth and breadth – changes from a position where one could arguably describe them as a commodity, to a situation where they have become ‘key retains’ focused both on delivery and the development of our younger workforce.”

It calls for a closer awareness of how to bring the best out of a diverse mix of talent. Lynda comments: “It’s clear that encouraging different age groups to work productively and harmoniously with each other can be tough. Those who have made it work often put job design and collaboration at the centre.

“Those that design jobs in an inflexible, linear way have found that they cannot be responsive to a person’s life stage and aspirations…. Right now, companies are struggling with this inflexibility – for example, not knowing how to handle mid-career hires because their processes are all geared towards hiring graduates.”

A multigenerational workforce will require organisations to consider different career paths and job designs simultaneously, rather than opt for a cookie-cutter approach. Specialisation, limited contracts and partnerships are expected to become the norm.

Julian comments: “The workplace of the future I would like to see is one in which people are given a lot of freedom to pursue the work that interests them, with a lot more bottom-up accountability, and far fewer formal bureaucratic systems for co-ordinating our activities. This is the model we see in many start-up companies, but once they go above 100 people or so they often lose this vitality.”

The impact of what is happening in the workplace will be genuinely game-changing and that’s why it’s something boards must take the time to try and understand. Unless they’re thinking about what it means for an organisation’s future, they won’t be able to turn what’s occurring into a tangible competitive advantage.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Say Goodbye to Group Think

Comm update_22 Oct

With growth back on the agenda, it’s time to reassess the strength and depth of boards and to start going on the attack. This entails taking a fresh look at the qualities of directors, deciding whether they possess the knowledge and insight to help break into new markets, while also getting the blend of skills right so risk is adequately managed in what remains a period of great uncertainty.

It’s a case of having the vibrancy and dynamism that nullifies group think while keeping the focus on supporting the executive team, so debate in the boardroom doesn’t become combative and counterproductive. David Shearer, Senior Independent Director of media concern STV Group, comments: “Too many issues through the crisis were compounded by like-minded directors from similar backgrounds arriving at the same and often wrong conclusions.”

Andrew Tallents, Director of executive and NED recruitment specialist Warren Partners, says: “There’s a new generation of chairmen coming through who, as CEOs, demanded more in terms diversity of experience and geography and are [therefore] more empathetic to today’s executives in terms of what they need from their board composition… the make-up of the board must reflect the diversity of its stakeholders, whether that’s through the supply chain, customers or the shareholder mix.”

A fresh perspective can make a world of difference. Allan Cook, Chairman of engineering consultancy Atkins, says: “We’ve a number of people on the board who have little or no engineering expertise but add significant value to the running of the board, providing different perspectives.”

There will be sectors where this won’t be so desirable, but chairmen are beginning to appreciate the need to shake-up the skill-set of the board. Vanda Murray, Non-executive Director at construction and support services company Carillion and formerly Chairman of alternative energy concern VPhase, comments: “Be very clear with the recruitment consultant about what you’re looking for… in terms of skills, and be open minded about the type of person that might be appropriate for your company.”

Kevin Lyon, Chairman of printing concern Wyndeham Press, says: “The challenge is to make sure that between them, the individual directors have relevant experience across all key issues – and that the right atmosphere is created to ensure they all contribute constructively. Challenge and tension bordering on disagreement is great – but no politics or point scoring.”

Global view

The quest to strengthen a presence in high-growth markets is one of the reasons for a changing of the guard in the boardroom. Andrew Walker, Senior Independent Director of filtration and environmental technology concern Porvair, says: “Somebody who has had the experience of going to that country before and has contacts there is certainly useful… even if they don’t know the solution they can say, ‘Try this person’; it’s just a good starting point.”

However, there are, according to Mike McTighe, Chairman of project management consultancy WYG Group, certain realities that need to be considered: “When you’re trying to run ten board meetings a year, which is the norm for a UK public company, it’s impossible to get people who live in, say, India or China, to attend all those meetings… phone calls are not the way to run an effective board [as] already you’re compromising the capability of the board… You need to look for [the] skills and experience but you need to be pragmatic and recognise that a board is a working unit and people need to be available to allow it to work.”

As ever, the threats to the business and its integrity should be front of mind, particularly when a company moves into new markets. Leslie Van de Walle, Criticaleye Board Mentor and Chairman of building material company SIG, says: “You need people that are good entrepreneurs and know how to take risks, but at the same time you need people that are good at evaluating and minimising risk.”

A sound company secretary certainly has a role to play, as does the audit committee chairman. Mike says: “I always look for an audit chair that has the experience to be able to contextualise what they are finding and not just saying ‘look at the numbers’…  It’s what I call ‘the sleep at night factor’, because you’re pretty comfortable that there’s not going to be a significant life-changing event from an accounting and financial point of view.”

Once the risks and issues around governance are in order, a dynamic board will be addressing questions of strategy and a competent chairman will keep the debate productive. Vanda comments: “You need to look at the needs of the business, the strategy going forward and the type of skills that will be helpful to the board, and you want to put a complementary group of people together.”

Sir Michael Lyons, Criticaleye Board Mentor and Chairman of the English Cities Fund, says: “It isn’t enough to have diversity of views if that leads to ongoing competitive tensions among members of the board… you need to make sure folks have a high regard for each other so that they are capable of working in a collegiate fashion.”

The priority has to be to keep a business relevant and nimble enough to take opportunities. Mike comments: “What you’re seeking to do is to adapt the make-up of the board to the circumstances that it is likely to confront over the medium to long term, without losing the institutional learning and experience. The way most good boards accomplish that is through the staggering of the rotations of directors on and off, so you have a mixture around the table which balances the old with the new.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

A New Model for Leadership

Comm update Faces - 20 augustTraditional leadership and development programmes are dead in the water. In order to identify and nurture individuals with real potential, a heuristic approach is required that is driven with passion and commitment by the top team and tailored to a company’s specific needs and values. It’s surprising how many organisations have failed to grasp this and remain hopelessly out of date in their thinking.

Howard Kerr, Chief Executive at standards and training provider BSI, comments: “Time is always the biggest barrier, but it can be about budgets too. The question might be: ‘Can we really afford to invest in another round of leadership development, where we’ll have managers off on a half-day course or taking time out for coaching others?’

“When the desire is to meet quarterly targets it’s very easy to get mired in the short-term and therefore lose sight of the bigger picture… [But] it’s the role of the CEO to make sure the organisation takes time to look further forward and develop its people, not just for the next job, but to ask instead: ‘Where could those individuals get to?’”

Mike Tye, CEO of Spirit Pub Company, has no doubts over who should be driving leadership development: “One of the few prime accountabilities of the role of CEO should be that there are enough good quality leaders in the organisation.”

A similar point is made by Craig Donaldson, CEO of Metro Bank: “CEOs should absolutely be at the heart of leadership development. That means being part of the programme, working with people that are identified on it to make sure they understand what is being put in place, challenging where necessary and making sure it’s all fit-for-purpose.”

New direction

Given how organisations are radically changing, what are the leadership traits needed to be successful?

“To me, what defines a leader is somebody that’s prepared to embrace a challenge,” says Howard. “Of course, it’s important that an organisation supports that person but it comes down to people accepting increased personal responsibility.”

For Craig, a strong character is essential. “I look for intellect, interpersonal skills and grafters. If you’ve got the skills and the right work ethic, you get on. That means people who are driven, challenging, and who are willing to push themselves and the business forward, but also people who’ll bring others with them – it’s very important that leaders have that ability – as once they’ve set the vision, others will follow.”

So the task is to devise programmes that bring these qualities to the fore. Ella Bennett, Human Resources Director for the UK and Ireland division of global IT systems and services provider Fujitsu, says: “We have a young entrant graduate intake which we see as having high potential at that point, then we have a group called Future Leaders, who may be in their first really challenging role, through to development that is focused more for senior leaders, who we’d expect to be sponsored by more [experienced individuals] within the organisation… The more senior you are, the more tailored the development.”

There’s also the question of understanding what works country by country. Anne Stevens, Vice President of People and Organisation at Rio Tinto Copper, says: “There is no point in trying to take someone in Indonesia, for example, through a formal… [UK] business school programme because it may not make sense to them. You need to be tuned in to the environment they are working in and there are very different requirements based on what the people need and what you need your leaders to deliver…

“The key point is knowing what it is you’re looking for. What is it that your business needs and how do you help your people identify with those competencies and develop them to build their leadership capability?”

Time and patience will be needed before the results can be appreciated. BB Roy, Vice President of Strategy and Business Development at American Express, comments: “Some people are of the opinion that immediate and obvious successes will follow after rolling out [leadership] programmes. Developing a leader is not just sending someone on a course – it is a journey that combines many forms of coaching, so getting the content right is crucial…

“Once the goals are agreed the development team needs to clearly understand what the content and approach should be and ensure that this forms part of a continuous roadmap.”

Ruth Cairnie, Executive Vice-President for Strategy and Planning at Shell, says: “Historically there’s been a lot of focus on just going on a type of ‘sheep-dip’ leadership training programme for a couple of weeks, but you need a more experiential element to your development as a leader to really practice those core skills…

“The challenges that leaders face are ever more complex, so the set of skills that are needed must be honed. You can’t build strong collaboration skills, both internally and externally, in a classroom, you have to learn by doing. Whether it’s with customers, regulators, governments or suppliers, to really drive breakthrough opportunities and change you need to be able to build those relationships.”

Mix it up

A common theme to emerge is that individuals who show promise should be thrown into a range of different situations. Nandani Lynton, Criticaleye Thought Leader and Adjunct Professor of Management at China Europe International Business School, comments: “Overall, cutting-edge programmes need to be experiential and hands-on, exposing the participants to contexts, roles, information and interactions that are unusual for them.

“This engages their hearts and guts as well as their heads. It then needs plenty of reflection time and extremely good debriefing for participants to distil learning, apply it to themselves and their current challenges and – hopefully – to do a trial application of the learning.”

It’s about taking people out of their comfort zones. “One of the big things we do is involve [potential leaders] in critical business issues,” says Ella. “We’ll stretch them by putting them in cross-organisational projects, where they are involved in some of the nuts and bolts of the real issues that face leaders in the organisation…

“For example, there might be a particular issue around how we learn lessons both from bids that we have been successful on and where we were unsuccessful: how do we integrate those lessons back into the organisation? We have a group taken from across the business looking at those issues and thinking about how we might solve those problems differently.”

Gary Kildare, Chief HR Officer for Global Technology Services at IBM, says: “Our Corporate Service CORPS programme takes our leaders and potential leaders out of their day jobs for six weeks, puts them in groups of 20 and moves them around the world to work on a specific pieces of work, whether that’s commercial, charity, or with NGOs in emerging markets… It’s experiential leadership alongside their international colleagues, working with them in a locality to solve a real problem in the time that they are there.”

For the most part, a programme has to be practical as it’s the only way to discover how somebody reacts and adapts under pressure. Craig says: “You need to allow people to grow and put them into environments where you know they are going to be stretched and you can support them through it.

“For example, we’ve just made a 31-year old a Regional Director, which is pretty senior… We took him out of his day job and put him into a six month role where he received intense development in commercial lending. After three months, he’d done really well so we gave him the region to manage.”

Peak performance

Running a business would be easy were it not for people. It’s why the best companies invest and see the value in putting a structure around nurturing high performers. Others lag behind, losing employees and spending heavily on ineffective recruitment. They fail to see how putting time into individuals, so their business and people skills are set on a foundation of values-based behaviour, is a recipe for long-term success.

Yvonne Sell, Director and Head of UK Leadership and Talent at consultancy Hay Group, says: “One issue in many organisations is the availability and consistency of feedback that people can get on their leadership behaviours. It’s a lot easier to have a conversation about whether or not you met hard objectives, like delivering on sales targets, rather than assessing whether you managed your team in the right way…

“Organisations that do this well give a broad range of people the capacity to engage in leadership roles early on in their career. They understand that not everyone strives to be a leader and help people to recognise where they are going to be most satisfied and can do their best.”

Programmes have to come from the top, be customised, collaborative and embedded so that what’s learned doesn’t get forgotten once immersed in the day-to-day of regular work.

As Gary says: “Developing and having the right leadership talent remains one of the hottest challenges facing organisations today. It’s critical to have the full commitment of the senior leaders so they can be the role models of behaviour, to offer their time to be coaches and to be personally invested in the future of the business through the development of new leaders.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Is the Feel-Good Factor Back for Boards?

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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 Role of the Chairman in an IPO

Community Update Faces - 25 june 2013Why companies leave the appointment of a chairman until the last minute of an IPO is a mystery. It’s the key hire for a business, greatly enhancing the prospect of success as the chairman is tasked with building an effective board, coaching the senior management team and calling on years of experience to ensure the story a company sells to the market is both compelling and real.

“A company has to figure out what it wants in a chair,” says Stephen Davis, Criticaleye Thought Leader and Associate Director and Senior Fellow of Harvard Law School Programs on Corporate Governance and Institutional Investors. “The decision should be a part of the ordinary process of planning an IPO but frankly it’s usually an afterthought or comes late in the process.”

As IPO activity picks up, it’ll be interesting to see if the new issues have learned from the mistakes of their predecessors. John Allan, Chairman of Dixons Retail and global card processing company WorldPay, says: “It could easily take a year for a chairman or chairman designate – as he doesn’t necessarily need to be identified in the role of chairman straight away – to build a public company board. If it’s going to be compliant, it should be headed towards a majority of independent non-executive directors whereas a typical private company often doesn’t have any.”

There is plenty for an incoming chair to put in place, assess and, where necessary, fix. David Vaughan, UK&I Head of IPOs at Big Four firm Ernst & Young, says that “the task for the chairman is to set the tone at the top and to say what you want the organisation to be, establishing good governance and making sure the business has the right corporate reputation in its community”.

Chip Goodyear, Non-executive Director of oil and gas concern Anadarko, says: “The chairman will need to have a collegiate personality and be somebody who can work well with a board. My view is you do want a board who will be able to challenge management but you want it to be done in a constructive way; somebody who can bring that together is very valuable. You also want somebody who is not trying to be CEO and is comfortable in the role of chairman.”

There will be sectors where industry know-how is desirable, such as defence, financial services and oil and gas, but essentially it’s the knowledge and gravitas garnered from a stellar executive career, followed by being a seasoned Plc NED, that count the most. Jamie Pike, Non-executive Chairman of plastics manufacturer RPC Group, comments: “In general, I would say chairmen are fairly interchangeable but there are special industries where a lack of knowledge could frankly prove pretty risky. You would certainly want the chairman to have Plc experience, such as dealing with the institutional investors.”

Debbie Hewitt, Non-executive Chairman of Moss Bros, comments: “As well as complementing the executive team, the experience of the chair probably needs to reflect the timing of the IPO. The closer the IPO the more important his/her industry knowledge is. If it is some way off, an experienced chairman will have the time and capability to get to know a sector. No matter what the timing, the City and institutional investor experience are vital.”

It’s categorically not a role for the uninitiated NED, even if they are a big name. “You need an excellent board and the chairman has to make sure the governance is absolutely right,” says Dame Helen Alexander, Non-executive Chairman of media company UBM. “The last thing an IPO needs to focus on is the make-up of the board or the quality of governance. The selling process should be about the business – potential shareholders shouldn’t need to ask about compliance.”

Built to last

The chairman will have to decide if the management team, particularly the CEO and CFO, are fit to take a company public. Mike Turner, Non-executive Chairman at engineering concern GKN, says: “In the first three months, you should be comfortable with whether the CEO and CFO are up to leading the business but equally important is to get a sense of whether they can convince the City.

“They will have to spend a lot of time going round the City, which is something you don’t do in a private company, and they will need to be convincing about the strategy of the business and its future.”

If they do have what it takes, the chairman ought to prep them for investor roadshows and what to expect once public. Chip says: “For the chairman, there is always an element of coaching of the senior leadership team. But with regard to the public side, particularly if the chairman has had that experience, being a counsel to the management team would certainly be an important thing.”

Remuneration will have to be examined via the hire of an excellent Remco Chair together with the recruitment of an Audit Committee Chair, along with succession planning and an assessment of the quality of the people in the organisation. “It is very important that the chairman goes round the senior management team, especially at the executive committee level, to see what it’s like and that there is good bench strength,” says Mike. “You need to know what talent is available below the level of the CEO and CFO.”

The quality of the advisors has to be watched too. According to Helen, if a chairman comes in and they’re not happy with those already appointed, he/she should have the power of veto to bring in ones who are of the right calibre.

This is where reputation and prior knowledge make a difference. “A chairman has to understand the capital markets and listed vehicles and it certainly helps to have strong contacts and a network of tried and trusted advisors,” says Debbie.

It means treading a fine line as a non-executive. “It’s helpful if the chairman does know how to communicate and deal with advisors, brokers and investment banks, especially if it’s a company where the CEO doesn’t have much experience… Again, it’s important that they’re not seen to be able to try and lead the company,” says Chip.

Behind the scenes, the pricing of the business will be sense-checked too. A canny chairman will figure out who might profit by shorting on the IPO, making it difficult for game players to mess around with the stock but at the same time making sure the investor mix will generate enough liquidity.

Jamie says: “Liquidity in markets is very important. Therefore, if you’re buying and selling, you need people who will be selling the day after they’ve bought shares on flotation. I had this drummed into me during an IPO some years ago as it’s easy to get on your high horse but the market does need liquidity and that means buyers and sellers…

“What people often fail to understand is that when you float a business you are selling it and bringing new owners in; some of them may be short term while others may be longer but they do have rights. You cannot mess the market around and these owners must be taken into account, meaning their needs and objectives are factored in to how you run the business.”

It will vary on a case-by-case basis, but the chairman of an IPO will have to get their hands dirty if the Prospectus is to be signed with confidence. Stephen says: “The chair coming into a new public company has to exercise different skills than one joining an on-going public company, since for the latter you don’t have to re-invent everything.”

Many chairmen swear by the recruitment of a company secretary as a safe pair of hands to deal with governance and risk management. The run-up to an IPO is frenzied, intense and reputations that have been established over the years can be decimated in a flash if it goes belly up.

That’s why you spend time finding the right chairman and bring them in early.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk 

Time to Get Creative about Talent

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Companies need to be bold about how they tackle talent. In order to identify the weak links, high performers and future stars, there has to be more joined-up thinking between HR, the executive team and beyond. There is a strong argument for organisations to have flatter structures which allow for better integration, alignment and a greater understanding of the diverse range of skills needed to drive success.

Finding the right people is continuing to prove difficult in competitive and fast-changing markets. “While it sounds simple, often businesses get themselves into situations where they have to react very quickly because they haven’t properly planned for those emerging yet necessary skills, which requires some good insight and analytics,” says Peter Cheese, Chief Executive of The Chartered Institute of Personnel and Development (CIPD).

Gareth Jones, Group HR Director at institutional and retail fund manager M&G Investments, comments: “The challenge is in recognising that you don’t always know what the future looks like that you are preparing people for. Therefore, adaptability is one of the key things we’ll look for in people, which we also look to nurture through our leadership and talent programmes and the mentoring process…

“The whole aspect of people management has become far more critical. If you talk to our senior fund managers they will tell you that a key part of their role is to develop talent, so the ownership has shifted away from something that HR initially took a lead on, to being embedded within the way the business thinks about what it needs to succeed.”

Companies need to be smarter about how resources are deployed. Catherine West, Head of Global Reward and Organisation Design at World Duty Free, says: “A simpler solution is required that enables line management to practically take ownership of talent management as well as HR… [while] also finding a way to influence managers to be open about relinquishing their own high performers to somewhere else for the greater good of the company.”

A more open and organic approach is needed. Ursula Morgenstern, CEO of IT provider Atos UK, comments: “While we make sure we focus on hiring tomorrow’s talent through our graduate programme, we complement that by bringing in specialists or working with our partner suppliers, because you cannot always get the right talent internally. Working with experts in this way helps us while we are re-skilling our own organisation, because there will be talent available in those niche suppliers, small development houses and consultancies which we can hire in for projects and our internal staff can learn from them.”

Dominic Emery, Chief Development Officer at BP Alternative Energy, says: “We need to be in a position to react to changes in the market. Within our corporate venturing area, for example, the main change we are progressing is to move away from pure cleantech technology venturing, given current IPO and general market performance. We are now securing capable people into our team who know more about venture capital and corporate venturing in the core BP businesses: oil and gas.”

“By having people with transferable financial and commercial capabilities, such individuals are able to move within the team as our investment strategy changes to support one technology over another.”

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Forward thinking

Planning for the future can be problematic when you’re unsure what’s going to happen next week in your industry, but it’s imperative that the skills required for a business to be successful in the years ahead are thought-out.

Ian Wright, Corporate Relations Director at Diageo, says: “You want the right talent for the future, rather than the talent that’s necessarily got you to where you are. This is a particularly tough challenge for smaller companies because the need to modulate and change has to be balanced against the disruption of making that change, and the potential lost experience of those that move aside in order to create those opportunities…

“There’s also the very real fear of getting it wrong. That’s why you can’t do this on instinct and you must have a really cold-eyed assessment of what you think you will need over a three to five-year time horizon.”

Ursula says that the company is obsessive about examining what skills will be needed as technology evolves over the next five, ten or 20 years as it helps to make informed decisions about how to map out where to specialise and what is likely to become obsolete. “That’s something we constantly monitor in our organisation,” she says. “While it’s never an easy thing to achieve, the art of talent management is to do it continuously.”

Without question, there has to be some hard analysis. David Turner, CEO of Webhelp TSC, an outsourced contact centre company, says: “We plot our management talent on a version of the Boston Matrix, which looks on one scale at performance and on another scale at potential… we’re looking for those that fall into the top boxes as forming our talent pool, which makes up about 15 per cent of our people.

“But we’re always looking at the bottom quintile of our business too, which makes up about 20 per cent, and the norm is that about a quarter of the people in that quintile just never make it. You have to be honest with those people and admit that, while you can coach and mentor them, you’ve probably not got the right behaviours in that bottom quintile to be able to move them on.”

Gary Kildare, Chief HR Officer at IBM’s Global Technology Services in New York, says: “Growing talent has to be deliberate, considered and planned. It doesn’t work if it’s random or ad hoc. Retraining and re-skilling of current resources also has a role to play and, if done well, in time and in the right way, an investment in retraining can help engagement and keep recruitment costs in check.”

When it comes to identifying the high performers within the organisation, there has to be involvement from the top. Lucy Dimes, UK CEO of telecoms concern Alcatel-Lucent, comments: “Companies can often be quite mechanistic about talent identification and management. I’ve found it’s as much about making sure you’re spotting the right people and personally engaging with them to enhance their emotional engagement.

“In my experience, having come through a talent pool myself, it’s rarely about money and more about feeling that the company has plans for you and that your ambitions are more likely to be realised by staying than going.”

It’s why retention plans and development programmes help to keep people if their ambitions aren’t going to be realised as quickly as they would like. “People need to feel it’s worth the commitment,” adds Lucy. “You do this on a personal level by talking with them, sponsoring them and through active mentoring.”

Moving target

Businesses are struggling to get their talent strategies right because to do so is complex and the answers are constantly changing. For smaller companies, it can require an enormous gamble and for larger ones there will invariably be years of cankerous legacy issues to clear away.

And yet, the question of effective talent management is going to haunt businesses until they are more creative and innovative when engaging and developing their employees (this includes succession planning for the top team).

“As chief executive, you need to decide whether you see people development as a cost or an investment. I have always felt it is an investment… but you must also have a culture that commits investment toward growing and managing talent,” comments David.

Peter says: “If we can’t recruit oven-ready employees then we’ve got to do a much better job of building the skills we need inside the organisation and this is a critical area of strategic focus for businesses in the future.”

Don’t Let Good Talent Go to Waste

People may well be the greatest asset a business possesses, but that won’t count for much unless the skills, knowledge and potential within the whole organisation are fully utilised, especially when operating globally. That’s why the manner in which talent is identified and developed is proving to be a hot topic in the boardroom as it’s evident that too many companies are not getting the most out of their best and brightest.

Rudi Kindts, Non-executive Director for technical recruiter Matchtech and former HR Director for British American Tobacco, says: “Talent management is rapidly becoming a leadership issue. For too long, it has been dominated by process, methodology, technology and best practice. It has become a tick-box exercise: competency framework developed – tick; state of the art recruitment and selection – tick; efficient online development – tick; performance management system in place – tick… And still the same old questions are being asked and the same old responses given.”

It’s no longer good enough. Bruce Cox, Managing Director at Rio Tinto Diamonds, comments: “Talent management has to be built into the management processes of the leadership teams within the organisation. We undertake formal quarterly reviews to discuss key talent, from each of the operating businesses, cascading up to the executive committee of the company.

“These reviews are designed to ensure that our key professionals are being developed to their full potential. Success can only be fully achieved, however, if the business leaders are sharing their talent across the business.”

This is where the real challenge lies, as managing talent effectively tests the culture and trust within the different parts of an organisation, which is why such programmes need to be led from the top. Jon Dymond, Director at business consultancy Hay Group, says: “A failure to articulate the value in your people [across the globe] is a leadership issue. The better companies clearly own their talent globally… [and avoid] people getting shifted to meet emergency, short-term-needs, preferring instead to opt for early workforce planning that is connected to the business.”


The Big Picture

Basic talent logistics is one thing, but aligning the goals of an individual so their ambition segues into the overall purpose of a multinational business is something else entirely as this requires vision, leadership and communication. Sarah Murphy, Group HR Director at international food business AB Mauri, says: “[Your approach] has to start with understanding what the business is trying to achieve, before setting the framework for what the right standards should be for individuals in each role type.

“That becomes your central spine and a common reference point to go back to, and only then can you be clear on any gaps… If you don’t have the standard, managers will assess against the last ‘best’ that they had, whereas what we are trying to look at is the ideal, not just the best that we can find.”

Rudi explains: “It requires the careful management of a challenging paradox: on the one hand it is paramount to increase efficiencies through simplification and standardisation of processes and methodology; on the other, [best] practice should allow you to personalise as much as possible.”

In the long run, there are significant benefits to adopting a strategic approach to talent management, both in terms of using resources effectively and running a business on a more efficient basis. Gerry Skelton, Human Resources Director for the UK’s Air Navigation Services Provider NATS, says: “Without the ability to cross-fertilise between different business models or agendas, organisations are gravely disadvantaged in a competitive marketplace.”

And he should know. NATS has recently evolved from two countries of operation to 29, significantly reviewing and revamping how it uses and develops people within the organisation. “We wanted to address key issues at the executive level, just to have the latest updates [on where talent is within the business], their capability and our bench strength and quite frankly, it’s been eye-opening,” he says.

The result has been to create a framework where staff can move into different areas of the business and apply their skills and experiences in new markets, rather than before, where a career would largely be a vertical progression within a particular division. “Cultural legacy has been the greatest challenge we’ve come up against,” says Gerry. “People don’t like change. You get someone who has been there ten or 15 years, and the next step up would be theirs by tenure, and now you’re talking about changing that.”

It won’t be possible to please everyone and attempts at overseas appointments, placements or even just promotions are never a sure thing, regardless of how good the company’s strategy and communication might be. Sarah says: “You might have a plan but you’ve got to be quite pragmatic about it because it depends on the individual’s life circumstances, and there is no guarantee that an individual will move to a location that for two years you have been grooming them for, because life doesn’t happen like that.”

Overall, in a global market, the company that can align its vision, values and strategy at a Group and local level will be better positioned to get the best out of employees. Annette Burgess, UK Commercial Director for Publisher Baker and Taylor, says: “There is a need for a broad ownership… Global shared values and a global talent pool are needed [alongside] local talent pools. Managing talent can become complex at the global level, so we need to have a better understanding of cultural differences, legislation, demographic trends and labour laws.”

How this is achieved will vary from business to business, but it is not something to be ignored. Indeed, those that get it wrong, or don’t recognise that a different approach is needed, will suffer harshly in the international marketplace.

Leadership – A Social Network

Networking outside your sector is a vital way to source honest, creative and valuable perspectives on your business. In a time of fast-paced change and financial pressures, it’s a means to break silos and draw the inspiration and innovation needed to breathe new life into your thinking.

Mark Wilson, Managing Director of BoTian and Chairman of BoCheng, two of AB Sugar’s businesses in North China, says: “Networking is about opening your mind; it’s about understanding what others are thinking then allowing it to enrich your own ideas… when speaking with people outside my industry and sector, it tends to produce original concepts and hybrid solutions.”

Steve Cooper, Managing Director of Business and Personal Banking Solutions at Barclays, agrees: “If you are at the top of an organisation you generally only get told what people think you want to hear, so [it is difficult] to know what’s going on… and get enough different views and perspectives to triangulate your feelings with what people are experiencing. When you reach the top, networks become more important than ever.”

To coin a phrase, it’s about ‘thinking outside the box’. Gayle Hares, CFO, General Business at IBM, explains: “Each organisation has its own culture and may, from time to time, tackle issues in a specific or similar fashion. Discussing shared experiences can open up a fresh perspective and allow you to discover a new way to tackle a problem.”

Ursula Morgenstern, CEO of IT services provider Atos, says: “The main benefits of cross-sector networking, especially if you are a service-based business, are understanding your clients’ industries and what is important to them, then using that to give you ideas for new partnerships or supplier relationships you could offer to your customers.

“Another benefit is learning from each other… [and] how things are done in different industries generally challenges your approach to management, while some industries as a whole can teach expertise in certain disciplines, like contract management, design, or supply chains.”

Kath Knight, Group Human Resources Director at property and construction services provider Mace, adds: “It is important to not restrict yourself to your immediate environment – we think that we are one of the top-performing companies operating in the construction sector, so to benchmark ourselves with organisations that have equal aspirations, [we need to look] both outside our industry and globally.”

A Two-Way Street

Those who really ‘get’ the value of networking appreciate and enjoy the chance to give something back. Geraint Anderson, CEO of global electronics provider TT electronics, says: “One thing that took a while to sink in [for me] is the importance of reciprocation… It is incredibly important to remember that what goes around comes around… [and] my experience of networking is that you never know where these conversations are going to lead.”

Don Hunton, former Head of Europe for Paramount Pictures and MD of Don Hunton Consulting, notes: “One of the early things that was said to me, and has been repeated since, is that over 80 per cent of new roles never get advertised or go through search companies.

“I will never get over meeting a senior headhunter who said: ‘I’m the biggest player here, and I only see four per cent of the market, so you’ll need to go elsewhere for the other 96 per cent.’ Whether you are self-employed or going up a corporate ladder, your connections are the most likely route for you to pick up new roles.”

For those who are seeking new opportunities, the connections they have built up over a career really comes into their own. Chris Merry, CEO of RSM Tenon, says: “You never quite know where the next job is going to come from and therefore the volume of networking [necessary to land that role] has to be worth it, because you only need one contact to produce something fruitful.”

It’s not just about your next role, of course, and if you only attempt to network when you fancy a move you will get a short return. Don explains: “You can be surprised how fulfilling it can be to impart your knowledge; it’s a lonely place at the top of the tree.”

Herminia Ibarra, a Criticaleye Thought Leader and Professor of Organisational Behaviour at INSEAD, says: “Strategic networking opens people’s eyes to new business directions, but almost all executives underutilise it.”

It’s a point taken up by Jackie Dubery, Human Resources Director at the Agriculture and Horticulture Development Board: “Networking gives you insight as to where there might be tensions and stresses, [and tells you:] ‘I am not the only one going through it.’ The network can become a support mechanism, because you have other people who you can talk things through with and they have no baggage or judgement to make.”

In times of dramatic change and volatility, it’s not always easy to step back and survey wider market forces with real clarity. Steve says: “The benefits of networking broadly are huge: you can get a perspective you might not have thought about yourself… [particularly] for identifying future trends that are going across industries.”

Geraint agrees: “The key is… gaining from other people’s experiences in various sectors and industries that relate to your business, even though they can be quite different. A lot of the issues are very similar, and to gain that know-how from others can be very valuable indeed… especially issues around remuneration, compensation, talent management, change management – the sort of things many companies are having to face on a daily basis.”

Developing a thriving cross-sector network need not be hard. Bill Payne, VP, CRM and Industries, Global Process Services, IBM, explains: “It’s too easy in the digital age to forget the ‘network’ we make through face-to-face contact with colleagues, collaborators, competitors and clients alike. [Networking] reminds me that business, commerce, and life works through personal contact, not just the technology-rich world in which we live.”

Leaders mustn’t be afraid to step away from their comfort zones, as even those that seem to offer you the least immediate reward can help unlock new parts of yourself and your business.

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 Your NEDs Good Enough?

The best non-executive directors have a keen eye for governance and process, but the ones who add real value to the boardroom possess the influence and insight to help a business grow successfully. Finding those individuals isn’t necessarily the easiest of tasks.

John Kelly, Chairman of ticket provider The Trainline, says: “I am very much a ‘hands-on’ fan, provided the clear blue sky between exec and non-exec is maintained. NEDs need to understand the issues being confronted by the management team and can only do this by involvement. The degree of involvement must be a matter of judgement and the stewardship of the chairman.”

All too frequently, that objectivity has become an excuse for NEDs to behave in a dilettantish fashion. Terry Stannard, Chairman of luggage supplier Antler, says: “Some management teams have had to face a downturn for the first time and NEDs have needed to ensure management adjusts to the short term conditions while redefining the strategy for growth. This has, in some companies, demanded more involvement with the business, perhaps the banks and, if required, management change.”

Colin Mayer, Professor of Management Studies at the University of Oxford’s Saïd Business School and a Criticaleye Thought Leader, comments: “NEDs now have to be a combination of two very different functions for today’s businesses. One is for shareholders’ oversight; the other for executive advice. It’s difficult to juggle both but a really good candidate will be able to ask penetrating questions that will really help evaluate performance without appearing too threatening to executives.”

The level of involvement and engagement in a business will vary dramatically, especially when the differences are factored in of being a NED of a public company as opposed to one that’s private-equity backed. Colin adds that “during the financial crisis a lot of board members found that the time commitment they had to make was substantially greater than they expected”.

Vanni Treves, Former Chairman of testing and certification organisation Intertek Group, says: “Every company has its own culture, history and needs. Even with highly experienced NEDs, businesses need to be very self-critical in terms of what the company requires. There has been a tendency to believe that because someone is ‘good’ and has lots of experience they must be good for you, and that is absolutely not true.”

According to Marie-Louise Clayton, Non-executive Director of foam maker Zotefoams and formerly Chairman of Forth Ports, the process for identifying NEDs who can bring the necessary diversity of thought into boardroom debate needs addressing in many organisations: “People are judged for behaviour and appropriateness through word-of mouth. I don’t see why identification isn’t conducted much earlier, through psychometric tests, conflict management tests and so on.

“Why aren’t headhunters using these techniques to sift the people coming out of the executive world who haven’t got their heads in the right place? There are people who are clearly not suited to it, but it’s often not obvious on a CV.”

It has to be seen as a real job with genuine responsibilities. For Vanni, a tick-box approach makes sense as it means rationally assessing the strengths and weaknesses at the top level: “You are looking for the ideal, in experience, attitude and skills. The more ticks you have the more likely you are to have someone around the boardroom table doing what you want.

“There are whole groups of people you might not need, and other groups every company will need. Every company needs at least two people with the financial fluency to advise the remuneration committee and challenge the FD and auditors, while a business with major responsibilities in Asia would be foolish to have too many around the board with no business experience there.”

Given the value provided by good NEDs, it’s somewhat baffling to see companies accept anything less than motivated and engaged individuals. Vanda Murray, Non-executive Director at outsourcers Carillion, says: “You can’t expect that a NED reading a few papers before a meeting will make it fine. You need to go out to sites and talk to people throughout the company. That must be part of the role.”

Leslie van de Walle, Chairman at consultation and building concern SIG and a Criticaleye Associate, says: “Non-execs need to get much more involved in risk assessment and internal audit. The big challenge is that they are pushed by governance to be more active and involved, but they shouldn’t cross the line in being engaged or active executives. The best NEDs are the ones that suggest, influence, mentor, monitor, but don’t do. That border is becoming increasingly blurred.”

Vanda agrees: “It is about asking the right questions, understanding the issues and providing the appropriate level of challenge in a positive way – but we’re not policemen.”

It’s a complex position, which is why the necessary due diligence – on both sides – has to be taken seriously before a role is taken. Colin says: “Non-executives have to be much more aware of their liabilities to ensure that they are performing appropriately. The pressures are coming from social responsibility, investors and from greater pressure on shareholders themselves to ensure proper non-executive performance.”

As Leslie puts it, “the time of non-execs showing up for a board meeting, looking intelligent and leaving is gone.”

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