Ciarán Fenton
Leadership consultant
Facilitating high EQ & ESG focused executive & main boards
A speech to delegates attending
The IACCM Europe Conference 2019
14 May 2019, Madrid, Spain
Boardroom decision-making under stress: the impact on hard and “soft” contracts
Good morning!
My thanks to the IACCM conference organisers
for inviting me to speak at your conference here in Madrid.
I’ve never been to an IACCM conference before,
and I’m delighted to be here.
The invitation came about because the organisers
had read a speech I gave last year
on how lawyers can become enablers of better decisions
by building better relationships.
In that speech, I also reminded lawyers that,
at a time of extreme right and left wing politics,
and a vacant centre ground,
they are the closest thing, believe it or not,
society has to morality
and society needs them to protect our hard-won democracies,
by people who died in trenches,
in how they facilitate ethical behaviour in business.
Lawyers need their own Greta Thunberg.
Unless there is a fundamental change
in the context in which legal services are delivered
the problems will get worse, not better.
You can imagine how well that went down!
And so with that as background,
I will address that part of the
Foreword to your conference
in which the organisers state that
“Businesses today face not only growing regulatory demands,
but also increased social expectations
regarding corporate behaviour and values.
Contracts – and those responsible for them –
play a major role in maintaining ethical standards…
new approaches, new ideas, new forms of relationship and commitment
are increasingly key to business survival.”
My remarks will also hopefully chime
with IACCMs vision of a “world where all trading relationships
deliver social and economic benefit.”
I should make clear from the outset
that I’m neither a lawyer, a contracts manager
nor a commercial manager.
I’m a leadership consultant
who facilitates behavioural change on boards.
But my interest in contracts started at a young age.
I’m often teasingly reminded by my Family that
in 1969 when I was nine years old
I insisted that my then six-year-old little brother
sign a contract which I bashed out
on a manual Brother typewriter
as to the terms,
and conditions,
under which my bike could be used!
I’m not necessarily proud of this story
but I tell it only because it’s true.
It was about survival in a large family –
I was the sixth of seven;
he was the seventh!
Some might suggest that the contract was driven
from deep envy of the doted upon newcomer.
I couldn’t possibly comment.
I majored in Law in my business degree,
and spent most of my corporate career
negotiating commercial – mainly intellectual property contracts –
and as a consultant,
I have over 15 years’ experience
advising senior leaders and boards,
much of it regarding their relationships,
internal and external.
At university, I remember liking Contract Law the best.
I found that the elements of a contract appealed greatly
as a system which might create order from chaos.
Of the elements which I recall –
Offer, Acceptance, Consideration,
and Intention to create legal relations –
the last captured my imagination most.
I liked the notion of a declaration of intent very much.
And it’s in relation to boardroom decision-making under stress
which impacts their collective EQ
or emotional intelligence
and therefore their contracts
I want to address my specific remarks.
There are many reasons for stress on boards
but they frequently include
- Stress relating to short-term financial results
- Stress caused by a risk event, as the lawyers like to call it
- And stress caused by the behaviour of board members
Now stress relating to short-term financial results
is the single biggest driver of stress on boards.
And the stress is not necessarily
at its worst when the results are poor.
The focus on growth at all costs
causes deep anxiety on executive boards,
even when results are good and often
unconsciously
because growth at all costs is seen as BAU
or business as usual – the norm.
So why would anyone stress openly about it?
And risk events on the other hand,
are highly visible
and so the stress on boards is highly visible.
But stress caused by the behaviour of board members
is often collateral damage from the first two –
financial and risk event stress.
Therefore my focus in this talk is on boardroom behaviour or,
more accurately,
boardroom conduct
which is defined as behaviour over time.
There are three types of board-room behaviour
which impact negatively
on decision-making on internal and third-party contracts.
- Bullying
- Silence
- and Agenda control
Bullying is about coercion. Obviously.
Silence can be about two things:
fear of calling out behaviour which directors know is unacceptable
or it can be happy collusion with the status quo.
Both are deadly.
Agenda control is about board members ensuring that
matters which should be discussed
don’t even reach the agenda.
By way of a useful, if shocking, case study example
of stress and behaviour on boards,
in May 2018 a joint committee of the United Kingdom’s Parliament
published a report into its inquiry
into the tragic and now notorious collapse of Carillion,
a construction and facilities business
with 43000 employees.
The report, which is available online,
sets out, as you might expect,
all of the appalling failings
not just of the board –
with the notable exception of one NED
who demonstrated that it is possible to call stuff out –
but of external parties
whose behaviour also led to the collapse.
But nowhere does it say that the board was under stress!
That would be tantamount to an excuse,
would it not?
However, in the last of the 52 recommendations
and lessons in the report
there is a hint at the deeper malaise in business
which is permitted by society:
“Carillion was the most spectacular corporate collapse for some time.
The price will be high, in jobs, businesses, trust and reputation.
Most companies are not run with Carillion’s reckless short-termism, and most company directors are far more concerned by the wider consequences of their actions than the Carillion board.
But that should not obscure the fact that Carillion became a giant and unsustainable corporate time bomb in a regulatory and legal environment still in existence today.
The individuals who failed in their responsibilities, in running Carillion and in
challenging, advising or regulating it, were often acting entirely in line with their
personal incentives.
Carillion could happen again, and soon. Rather than a source
of despair, that can be an opportunity. The Government can grasp the initiative with
an ambitious and wide-ranging set of reforms that reset our systems of corporate accountability in the long-term public interest. It would have our support in doing so.”
Don’t hold your breath.
The regulatory reform can occur only by the will of the people
and the will of the people isn’t yet sufficiently consensual
to demand the regulatory change required.
But the most interesting line in the paragraph is:
“The individuals who failed in their responsibilities,
in running Carillion and in
challenging, advising or regulating it,
were often acting entirely in line with their
personal incentives.”
And of course, these incentives were perfectly legal.
Indeed they were contracts.
Which demonstrates that contractual context is key.
The intent is all.
But we will be waiting a while for good intent
to become core to
post-contractual behaviour.
Meanwhile, however, if you are interested
in understanding how a high EQ/ESG focus
might mitigate some of the risks
associated with stressed boards and
their poor decision-making behaviour
a good start is to refresh your memory
on behaviour which indicates high EQ.
This includes:
- Empathy
- Self-awareness
- And an ability to negotiate needs productively
And it’s the process of negotiating needs productively
that suffers most
when boards are under stress
and it is that very factor that impacts
on contractual negotiations most negatively.
Marshall Rosenberg
in his bestselling book Non-vViolent Communication
amongst other writers
has an antidote to this needs negotiation problem:
He recommended that in negotiations
we first ask what we FEEL – “The F Word”!
then ask ourselves
what we NEED in relation to that feeling
and finally what range of action options
do we have to meet the need
to address the feeling – DO
The problem for many board members
and contract negotiators
is that they act, knee-jerk fashion,
before connecting with their FEELINGS and NEEDS.
Rosenberg gives the example of the busy business executive
who said he absolutely needed a divorce from his wife
who, he asserted, never appreciated his hard work.
Rosenberg pointed out to him
that while a divorce was one option,
the heart of the matter was that
he FELT unappreciated,
he NEEDED appreciation
and not necessarily divorce.
This was confirmed by his wife who FELT lonely,
and NEEDED to see more of him
and, given the chance,
he might have heard more appreciation from her
and she more intimacy from him
Society and therefore the market
is increasingly saying YES
to high EQ in decision-making.
Witness the 20% weighting given to ESG factors –
environment society and governance –
in the ranking of the TOP 100 CEOs
by Harvard Business Review.
Over time this weighting will increase.
Or witness the massive increase
in so-called ethical investments
which require
nuanced emotionally intelligent decisions
Of course, the growth in ethical stocks
is becoming embarrassing
as it logically implies
that all other shares are unethical.
The problem is that
despite all the huffing and puffing
by those who are desperately
trying to make a business case for ESG,
there isn’t one.
If there was money in ethics, we would all be at it.
The fact is that doing the right thing costs dosh!
Carillion would have paid fewer dividends
had it made more prudent decisions.
When society decides
that business should be about
making as much money as it can
because profit and ROI is essential
because we need people
to take risks with their capital
not least because we need jobs
and we need to fund our hospitals,
schools
and police forces
but that in future we will not do so
at the cost of damaging the environment,
unequal pay for women, for example,
and unethical governance.
There is NO business case for
paying women the same as men,
because it costs more.
But society only RECENTLY decided
that you cannot have a license to trade
without paying women the same as men and
in future that will be the cost base t
on which to run a business.
Let’s be honest here –
women would have been treated fairly forever
if there had been a business incentive for doing so.
There wasn’t.
Now society is saying :
suck up the cost or else!
And quite right too!
In my work with executive and main boards,
I help them mitigate behavioural risks
in their decision-making and
therefore in their contracting
by focusing on three situational components:
purpose, strategy and behaviour ;
PSB for short.
First, I facilitate board members
in agreeing on the PSB of their organisation.
It’s surprising the number of organisations
that struggle to articulate its purpose,
other than making money
which is like saying a person has to breathe
to stay alive.
Maximising profit is a collateral benefit
of becoming the best
at whatever product or service you sell.
Once directors have permission
from society via regulation
to talk about an organisational purpose beyond profit
then they can take decisions in a new way.
But that PERMISSION is key.
You would also think
that most organisations have a fully thought through strategy –
one of the most abused words in the business lexicon –
but often this is not the case
because frequently they have a strategy only
for short term profitability which is not sustainable.
Therefore the decision-making
and contracting behaviour, or B in PSB,
usually matches a short-term profit-only-Purpose,
and a short-term strategy.
Second, I encourage individual board members
to articulate their personal purpose
strategy
and behaviour
or Personal PSB.
Organisations are merely
a coalition of individuals
for a brief period.
It follows that their
personal purpose
and their organisational purpose
are interdependent.
So why not bring that out into the open?
Finally, I facilitate board members
to negotiate with each other soft contracts
in what, I call, small behavioural change
that’s just changing ten interactions in every 100.
That’s only ten per cent or small change.
I also help them legislate
for the breach of their soft contracts with each other.
For example one client
whose CEO was a notorious micro-manager
agreed to reduce his micro-managing behaviour
by 10% in return for one of his directors,
a notorious denier of mistakes
agreeing to own up to errors more often by 10%
and to legislate for when they failed each other.
The micro-managing CEO was so competitive
that he reported a 20% reduction in micro-managing
an increase in morale – Quelle surprise!
He had more time – no kidding!
Micro-managing is a time-consuming monster
But I suspect the greatest change was an
appreciation that he could trust people more
and take more risks
The CEO acknowledged
– a mark of his high EQ-
that his micro-managing
was a result of his formative years’ experiences
during which he was absolutely NOT allowed
to fail
If we don’t allow our children to fail,
we will create micro-managing CEOs
One of the best ways to reduce
decision-making and contract risks
and increase decision-making and contract opportunities
is appoint an Executive Devil’s Advocate
by rotation
at each executive and main board meeting
with permission to say out loud
what everyone is thinking but not saying.
In time I predict
that Executive Devil’s Advocates
will be commonplace
Had Carillion had one
It would almost certainly be alive today.
And surely, if that’s the lesson from that saga,
it can’t be a bad one.
Thank you.
“What is sad for 20,000 bankers and traders, compliance and support staff is good news for investors who have seen their shares fall 80 per cent in 10 years. It should be a relief, too, for the German taxpayer, who has remained the ultimate backstop for this hulking “too big to fail” institution” wrote Tom Braithwaite in the Financial Times last week.
