New old values for corporate governance

Yesterday (15 May) Dominic Barton’s keynote speech at the Tomorrow’s Value lecture series addressed an important issue of short-termism in Western capitalism setup. In his article in the Harvard Business Review he considers the antecedents of this trend – which he assigns mainly to companies’ boards – and challenges our conception of ‘business as usual’. Several other trends were called out by Mr Barton as warning signs for organisational strategies:

  • Rising middle class consumers in Asia and Africa
  • Growth in technology that replaces jobs
  • Resource constraints
  • Ageing population
  • High unemployment rates

Whilst the implications of these broader societal changes on availability of talent and market competitiveness are well-recited, a curious observation made by several panellists in last night’s event, however, is the ownership of the strategic agenda by directors. Ownership was discussed to come in different forms, either traditionally as company shares, or in a manner emerging from family-owned businesses – by creating enduring moral values so that directors can put their money where their conscience is, to rephrase a popular adage.

 

Mr Barton argues that it is not capitalism that has failed, rather the directors swamped by the plethora of regulatory concerns they have to deal with. Without getting into the debate over the value of regulation to better business, a call for professionalization of directors is a welcome one.

 

The second challenge is continuity of organisational leadership. Various analyses place the average tenure of Chief Executives in FTSE-100 between 3 and 6 years. In this context the much needed stewardship – careful and responsible management with a view of handing it over to someone else’s care – may not be a priority for someone measured on the basis of quarterly profits.

 

Mark Preston, Group Chief Executive of Grosvenor (a family business) responds to this challenge by highlighting the role of non-executive directors on boards. They, he claims, are (or at least should be) empowered to ask tough questions, remind the board of the organisational purpose, and tackle the complacency of short-term focus.

 

Drawing on the insights from his Asia clients, Dominic Barton pledges to show the value of his governance as the Global Managing Director for McKinsey and Company in ‘a hundred years’ time’. Whilst some of us will not live to see the fruits of his labour, this long-term thinking is refreshing.

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  • Anonymous
    Anonymous

    The idea that management structure should relate to impact over time has some form in the literature.  Elliott Jaques, once of the Tavistock Institute, developed his Stratified Systems Theory in the 1960s and '70s to argue that managerial structure should map on to the time spans of the longest tasks at particular managerial levels i.e. the time span between taking a decision and being able to evaluate its reults.  At the level of CEOs this would typically run from 20 to 50 years.  Jaques's views were once popular in the UK and still have significant advocates in the US and Canada.  

  • Anonymous
    Anonymous

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