Tuesday 21 February 2012

Typical Leadership Mistakes

Some time ago, I watched a saga involving a candidate for a position of City Councillor. The candidate challenging for the position needed help in their campaign to canvass their ward. This wasn’t forthcoming for a number of reasons, namely lack of: vision, leadership and selling.

Vision:
• Difficult to say what the vision was. It seemed to be extinguishing the controlling party’s majority. Good idea, but what else, like “This is what we could do if we got the seat.”

Leadership:

• Team: The candidate needed a campaign manager and a team, but seemed to be organising everything on their own, as well as getting out there to canvass. This may have been due to the suddenness of the by-election, but the sooner a real team could be set up, the better.

• Purpose: There was a plan in place with deadlines, but no sense of who did what as there was no team.

• Timeline: There was no indication originally of when the all-important by-election would be, so no idea of how “urgent” this was. This came out one week later announcing “5 weeks to go”.

• Timing: The candidate was canvassing on two working days in the evening – a difficult time to get support from people who work all day. At least all the other contenders were in the same boat.

Selling:

• Some potential helpers received only a “Round Robin” email from their Area Coordinator saying that the candidate needed help and to contact them direct. No endorsement, request for help or suggestion that the Coordinator was really on board. There were a lot of people on the list and perhaps everyone thought that “someone else” would take up the cudgels.

• Support From The Top: The candidate didn’t seem to have the support or endorsement of those who could influence helpers (i.e. fellow councillors, district chairmen, personal friends, the local MP). If those “in authority” weren’t on board, no one else would be.

• “Hearts And Minds”: There was no effort to win people over. No personal message from the candidate, just their “plan”. If you’re asking a bunch of strangers (even members in a common cause) to assist, better win them over.

• Empathy: Follow up messages from the candidate were to the effect of “If we don’t see more people helping, we’ll lose”. Hardly surprising, considering how little effort was made to plan and win people over. Threats usually don’t get people to participate willingly.

In short, this was a text book case of not leading people by:

• Having a common, shared vision;
• Getting support from the top and from peers;
• Winning the hearts and minds of potential supporters;
• Getting the right information out to those who needed it.

Suffice it to say, the candidate wasn’t successful.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

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Wednesday 15 February 2012

Short-Term Focus May Mean Long-Term Damage

With the current debate about bonuses, many people may not remember Sir Terry Leahy’s comments in 2010 which echo my observations on our markets in my posting on “market efficiency” in 2010. I’m not saying that scrutiny by investors is a bad thing, but as Leahy puts it, pressure on boards to “do what is right for the market” can be counter-productive as short-term focus on returns doesn’t always coincide with the general long-term good of the company.

During the 13 years that Leahy was Chief Executive of Tesco, its entire market capitalisation was traded more than 15 times (which is apparently low compared with other FTSE companies). “Market capitalisation” is the total number of shares in the company multiplied by their price. This means that, during his tenure, the value of sales and purchases of Tesco shares exceeded the market value of those shares by 13 times. If we assume that a company’s shares are bought because it is considered a good buy (i.e. “successful”) and sold because it is considered as “not successful”, then market perceptions of Tesco changed more than once a year during Leahy’s time, suggesting that investor time horizons were, on average, 10 months...

A diverse spread in share ownership is good, as it gives access to capital, makes companies more transparent and accountable and ensures for the most part that managers are selected on merit and not on the basis of connections. However, what we often see is that a few institutional shareholders who between them account for large stakes in a company can influence its direction. In light of the comments on time horizons above, investor horizons run contrary to the timeframes required to develop and prove a strategy.

Look at the markets now, and you will see that buy and sell activity is often more “sector based” than company based. In other words, if one company announces poor results, shares in all companies in that sector fall across the board. Markets seem to be saying that all will announce poor results, and that none are fundamentally strong enough to deal with it and create a “self-fulfilling prophecy”, at times egged on by a feeding frenzy of media speculation and hype.

When a company announces that its revenues/profits grew 10% instead of the expected 13%, this is a disaster and its shares fall. So much can happen to impact growth, especially exchange rates now that so many companies are "global".

Tesco outperformed its rivals (ASDA, Morrisons and Sainsbury) in terms of market share, investing in new markets and new businesses such as banking and insurance. Interestingly, Morrisons seems to have outdone Tesco in terms of share performance.

In conclusion, “markets” could be doing more harm than good in terms of corporate performance, egging on top management to take risks to secure their bonuses. It takes courage to persist in the face of criticism by shareholders and market analysts, but in some cases, it’s necessary.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

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Thursday 9 February 2012

Executive Pay - Abuse or Merited?

It’s that time when executive pay is in the headlines as companies report their yearly results and bonuses. Arguments have been raging for a long time, as rewards at the top often appear not to be linked to results and the gap between the top and “the workers” continues to increase.

This causes continuing resentment, erupting in anti-global protests, in the anti-capitalist “camps” recently seen on Wall Street and St Paul’s and in personal vendetta against “fat cats”. Politicians and the media are increasing their rhetoric and a distinctly “hostile” atmosphere prevails.

I believe in “the bigger the job, the bigger the pay” and that the person(s) running a company, taking the risks and making strategic decisions should be paid more than the worker who (say) just packs the boxes. Both jobs are important, but the skills required to pack a box are less than those required to run a company. Therefore, the box packers are paid less.

The “market” argument goes like this: “Talent is scarce”. Another is “Top people have more to manage than ever”. The other favourite is “A CEO or Chairman can be sacked at any time, therefore he/she needs to be rewarded commensurately”.

Scarcity is a myth propagated by those whose interests it serves. No one is indispensable; if the CEOs of the Fortune 500 companies were to disappear overnight, the markets might wobble, but replacements would be found quickly either from within or without. Corporate governance requires that companies have a succession plan for all top management. When the search is on for a new CEO or Chairman, the press can field several names (when Eric Daniels stepped down from Lloyds Banking Group they managed 10 and at least four when Stephen Green stood down as Chairman of HSBC). Talent is not scarce.

On the rare occasions that a top manager is asked to leave before the end of their term or contract due to poor performance, there is usually a “sweetener”. The CEO of BP who presided over the Deepwater Horizon oil rig disaster wasn’t sacked, merely re-assigned to Russia with a handsome cash payoff.

We all have more to manage in our lives, and modern education should be geared to this. The head of a large company has considerable support in his/her efforts. How much of any large company’s success is due (at least in part) to its brand rather than to the individuals at the top? Equally, how much is due to the hard work of the people on the “front line” who deal daily with the customers who pay for the company’s product?

Bonuses come out of profits – money that would stay in the business as retained profit or be paid as dividends to its shareholders. The “main” shareholders tend to be institutions – pension funds, insurance companies, hedge funds, asset managers. The size of their shareholdings allows them to exercise disproportionate influence. Highly rewarded top executives oversee the rewards of other top executives – can this be truly objective?

Remuneration at the top should come in two parts. First: a salary that reflects the skills needed to run the organisation “competently: acting as a “good steward”, managing the assets of the business “sensibly”, taking neither excessive nor insufficient risk (risk will always be part of growing a business). It should reflect that the incumbent can be replaced. Given the number of MBA graduates appearing every year, we should be experiencing a “glut” of talent to act as a control on prices.

Second, if the business grows, that success must be rewarded equitably in proportion to the perceived contribution of each member of the team. What may happen is that everyone gets a percentage of their salary or of a “bonus pool”. However, the problem is that 5% for someone on £50,000 means a £2,500 bonus, whereas 5% for someone on £500,000 means £25,000. Who has worked “harder” or made “more contribution”? These and similar questions are asked by David Bolchover in his book Pay Check.

Penalties for failure must be proportional to rewards for success. If good results see high rewards, poor results should see “claw backs”. You can’t have all upside and no downside. “Unfair” some will say, “how can I help it if my great performance is impacted by the incompetence of others or by the vagaries of the market?” The answer is simple – if it’s impacted by the incompetence of others or poor market conditions in bad times, the same applies in good times. Therefore the bonus should be reduced to reflect the “support” received from others/benign market conditions…

Buying a top executive is not dissimilar to buying a high-spec car. As the former will cost more, so will a top executive due to the accumulated skills and experience they have amassed. However, when your high-spec Mercedes Benz breaks down, you repair or replace it. They aren’t scarce; so it is with top people.

Unless there is a massive shift in market perceptions, the top people will continue to benefit from what others see as excessive rewards. Political and media hysteria over this risks being seen as “anti-business”, driving away good talent from markets seen to take this stance. This can only result in mediocre performance at best.

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Tuesday 7 February 2012

Manage Customer Complaints Effectively

Customer and corporate needs are often opposed. Nowhere is this better illustrated than a recent case with Apple’s “App” Store.

Apps” are proliferating in the market and offer various functions ranging from the banal to the highly esoteric. Nowadays, you can find an “App” for almost anything. Some are free, some you have to pay for.

One “App” lets users read books published in “Kindle” format. “Kindle” is an electronic book (or “eBook”) reading programme for Amazon’s “Kindle” eBook reader. The Kindle device can store thousands of eBooks – handy when you go on holiday and want to minimise bulk and weight.

Amazon realised that to achieve the volumes to make money from selling eBooks, they needed more than just their own eBook device. Their answer: produce a Kindle “App” that could be downloaded free onto smartphones or tablet devices. Problem was, some of these were the Apple iPhone and iPad, and Apple has its own competing iBook “App”. Until last year, the Kindle “App” allowed users to purchase directly from the Amazon Kindle eBook store by pressing an icon (picture) on the screen of their mobile device.

The "App" changed and stated clearly that the icon to the Kindle store had been removed. This didn’t stopped people downloading it and then writing outraged reviews about how Apple was “stifling competition”. The fact that you could save the link to the Kindle bookstore (as at least one person pointed out) somewhat negated the cries of pain. Equally, Amazon’s Kindle doesn’t permit downloading any other eBook “Apps” or of eBooks in other than Kindle format – surely just as “anti-competitive”?

The point is that some users of Apple’s devices felt hurt that an “App” that they knew and love had been altered to satiate what they saw as corporate greed.

Once the outraged cries had died down, what happened? Apple clearly upset a small number of fans. Did they abandon their Apple iPod Touch devices, iPhones and iPads? Probably not, but Apple risked being seen (albeit by a noisy minority) as concerned only with profits.

Could this have been managed better? Of course – with just a simple note on the “App Store” as to how to get round the problem. Someone didn’t think about customer loyalty…

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

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