If GCs waived their long-term incentive plans, would boards make better decisions?

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This article was first published by The Law Society In-House InsideOut Magazine on April 30th. 2018.

If GCs waived their long-term incentive plans, would boards make better decisions?

Board effectiveness consultant Ciarán Fenton argues for a more independent in-house function to enable better board decision-making. 

 

‘The whole world is in a terrible state of chassis,’ says Captain Boyle in the last line of Juno and The Paycock (1924), the play by Sean O’Casey.

He used the word chassis to give the word chaos a more profound and broader meaning, and to capture the madness of the times.

And a state of chassis is an appropriate word to use to describe current times in the world of politics and business. Trust in business is low; corporate conduct is still routinely poor, and political uncertainty, and therefore business uncertainty, is the new normal.

This macro-context presents GCs with a rare opportunity to step into the vacuum created by extremes. They should do so now, before the world returns to the old normal, as it inevitably will.

The current vacuum at the centre of the political spectrum allows the extremes of left and right to set the agenda. But the vacuum also allows hitherto unheard voices to be heard: #metoo, gender pay gap, gun control and other conduct and environmental, social and governance (ESG) issues are being addressed in a manner unthinkable in ‘normal’ times.

Ultimately, these conduct and ESG issues will come to haunt the boardroom, in one form or another.

And now the boardroom turns to lawyers for help, only to find that in-house and external law firms – themselves merely an extension of in-house, hence the name ‘in-house’ – are not in good shape to deal with these problems.

Why? Because ‘the Business’ has neglected Legal for years, and taken all the advantages of having ‘friendly cops’ on the inside without confronting its responsibility to create an environment in which Legal can do its best work.

If anyone doubts the abusive nature that is the Business-Legal relationship, they should read UCL’s Mapping the Moral Compass Report (June 2016) into the ethical pressure that businesses exert on in-house lawyers.

I need no persuading, as I’ve observed it for myself at close quarters over ten years as a leadership and board effectiveness consultant.

But Legal has to face the fact that it has allowed this culture to develop by allowing itself to be bullied and bossed around by the Business, and that perhaps it is compromised in its collusion with performance management systems – the bell curve, in particular – and some bonus schemes and long-term incentive plans (LTIPs).

How can a lawyer be confident that they are not conflicted in giving advice, even unconsciously, if they are to benefit from the outcomes through bonuses and LTIPs?

When I raise this point with lawyers, the reactions are mixed: some counter it, and argue that being treated like everyone else strengthens their position when giving cautious advice, as if to say: ‘I could benefit if we did X, but I’m advising Y because it’s the right thing to do.’

Others feel strongly that they should be allowed to benefit from their contribution to their organisation’s growth like everyone else. But everyone I speak to displays a momentary flicker of panic at the inescapable logic that they may be compromised and at the unthinkable prospect of earning less money for the same work.

But Legal could now name its price, with higher salaries and without any LTIPs, if only it would tell the Business what legal counsel and process it needs, and at what cost to achieve its business goals, but within a defensible ESG framework and that it is non-negotiable.

Legal should present to the business its reframed purpose as follows: ‘To enable better boardroom and executive decision-making.’ Full stop.

Legal should build the function from a clean sheet and not be forced to play catch-up with the business. It should deliver specific interventions related directly to business strategy decision-making. In this way, its role and purpose would no longer be a matter of endless debate at conferences.

The debate could move on to how best to outsource legal process, and how to up-skill in-house lawyers as first-class advisers, some as great leaders of legal teams, even, where the numbers allow it.

The in-house community needs its own statutory body, (say) the Institute of In-House Counsel (IIHC) or something of a similar title, with its own rules, qualifications and procedures. Currently, there are no additional qualifications required to be an in-house counsel.

The IIHC would create an environment in which in-house lawyers could present a united front to businesses and a uniform model for the function, thereby creating an opportunity for lawyers to lead much more fulfilling, less stressful lives.

But this would require, however, a significant mindset change in three ways:

  • In-house counsel must acknowledge that they are different to everyone else in the Business: officers of the court first, business partners second, whose purpose is to enable better decision-making; who get paid top salaries, but no LTIPs. If you want to make money, stay in private practice.
  • Legal must tell, not ask, the Business what it needs regarding legal counsel and process to meet business objectives, and how much it costs. If the Business can’t afford it, then it can’t have it. No more ‘diving catches’ by lawyers.
  • In-house counsel must support each other in enforcing the highest standards of conduct in business, with zero tolerance for elevated ethical pressure. Lawyers and the IIHC would actively support colleagues who are being bullied. Businesses just wouldn’t dare try it on. The shocking ethical pressure percentages in the UCL report would be reversed.

Philip Wood QC, soon-to-retire head of Allen & Overy’s Global Law Intelligence Unit and author of The Fall of the Priests and the Rise of the Lawyers, once said: ‘… legal systems are in all their respects the most fundamental source of morality.’

This is not a rallying cry one often hears from GCs – not because they don’t believe in morality, but because they don’t believe they have the power to impact conduct, which is behaviour over time.

They do have the power. All they need to do is to use it. And if they don’t, society will start to call out much more often and much more forcibly than they do now: ‘Where were the lawyers?’.

As in, how could the lawyers let #metoo happen? Well, how? They must have known.

Ciarán Fenton

Why directors should reveal their purpose to colleagues, if they know it

laughing board

Some view the boardroom as a cross between a bear pit and The Coliseum. A place where ritual humiliation can be observed if not savoured. An arena of intricate game playing where the winner gets their way.

Why would any director take the risk of being vulnerable in these circumstances, even if the caricature above is only sometimes true?

The answer to that question is that if you feel that your board is irredeemably dysfunctional, then you should leave it.

But most boards are remedial, because most directors, bar psychopaths and extreme narcissists, are in search of meaning to their lives, even if they might not admit it or indeed be aware of it.

The downside of the current obsession with “board effectiveness” is that it almost anthropomorphises boards. Boards, per se, can be neither effective nor ineffective

Only directors can be effective, and so, ideally, director effectiveness reviews should replace board effectiveness reviews.

But don’t expect directors to be all clamouring to be personally reviewed, even anonymously, anytime soon because they would feel exposed.

Their weaknesses would be laid bare. Their insecurities revealed. Their lack of clear purpose and direction a potential embarrassment.

Many readers will scoff at this scenario as a wild generalisation. They will protest that they have a singular focus, probably based on some external measure of success.

But many too would if given a chance to explore it, acknowledge a gnawing sense of internal purposeless wholly at odds with their frenetic and often stressful external personae as directors.

How can boards possibly achieve their potential if a context isn’t created to enable its directors to achieve theirs?

The best-kept secret in business life is that organisations are merely a loose collection of individuals for a brief period and not a unitary body which acts like some corporate robot programmed by a unanimous board.

It’s a nonsensical construct. But we all collude with it because we see no alternative.

But what if it were possible for directors to be themselves at their board meetings? What if they could share with colleagues their journeys towards meaning and fulfilment?

How much more powerful therefore would their collective decision-making processes acting as a group of searching people sharing in a joint endeavour?

It will never happen on your board, you may say. But are you sure? What do you know, if anything, about the interior lives of your colleagues?

What do you know about your own interior life? What if you mustered the courage to make just a small change in how much you reveal about yourself to your board colleagues?

If you do, then watch and notice how, if you change, they’ll change. I’ve seen it done and it works.

Ciarán Fenton

I help directors relate better: with themselves, their colleagues and their organisations by exploring personal and organisational purpose, strategy and behaviour – Personal/Organisational PSB

Does your board have a shared WHY-HOW-D0 statement?

boardroom

It’s not surprising in these times of extreme left and right political activity that “the meaning” industry is flourishing.

Simon Sinek is one of its leading experts. He has made the word “why” his own. That’s an achievement that merits awe, if not envy.

Then there is the “purpose” movement which takes an academic approach to the question of why an organisation does what it does.

It draws on philosophy, religions and academic research to help organisations to become more “purpose driven”.

Between the why people and the purpose people there is a broad spectrum of thinkers and speakers who address the reason why organisations do what they do in a variety of thoughtful ways.

Having addressed the issue of why, the next logical step is how? Fortunately, this is not a new area of reflection. How is about strategy and strategy is a multi-billion dollar business.

The strategy thinkers are impressive. They include Michael Porter, Jim Collins, and Clayton Christensen. Their books will never go out of print.

The strategy businesses are also impressive. McKinsey, BCG and Deloitte to name three. Then there’s a myriad number of boutiques.

When your board has sorted its why and its how it then has to decide what to “do”.

Do is about conduct. And conduct is defined as observed behaviour over time. I use the word behaviour and not the plural behaviours – the most commonly used form – deliberately, not pedantically.

Behaviour is a plural noun and means “the way in which one acts, especially towards others”. The word behaviours is a coined word and usually implies poor behaviour.

I’ve never heard anyone in a business situation say “there are some very positive behaviours on our board.”

Behaviour is neither poor nor positive, but complicated. That’s why the plural noun captures the context best. The use of language in this context matters.

Behaviour, or behaviours if you must, is also a growing industry best exemplified in the growth of the study of emotional intelligence – EI or EQ.

Daniel Goleman had cornered the EI market brilliantly. Like Simon Sinek, he has wrestled this topic to the ground and made it his own. He communicates tricky issues, simply. This is high art.

The EI movement is, in my view, an offshoot of “therapy”. The less well-known geniuses of therapy include Moreno (Psychodrama) and Perls (Gestalt). The popular ones include Tolle and M. Scott Peck.

There you have it. A three hundred word precis of the Why-How-Do market. So why can’t your board just get on with it?

The answer is that it’s hard. And the reason it’s hard it because it involves change. And change is hard because it consists of a stretch. And, ask any athlete, a stretch is hard.

Moreover, it involves not only your board changing but each of your board members changing their behaviour because your board is merely a coalition of the individuals on it for a short time.

And each member can’t change their behaviour unless they confront their personal Why-How-Do issues. And that’s not just hard; it’s painful.

And that’s why boards frequently don’t have a shared Why-How-Do statement. It’s painful for the members to write their own, let alone agree on a collective statement.

But once achieved, there’s no stopping that business. Do you know who on your board, consciously or unconsciously, might prevent it from framing its Why-How-Do statement? Is it you?

Start by addressing your Why-How-Do statement. Then, if you change, they will too.

Ciarán Fenton
I help directors on boards relate better to themselves, their colleagues and businesses

 

#ESG50 is the solution to the pay scandal

Pay gap

 

 

 

 

 

“Pregnancy is a sign of wavering commitment,” writes Suzanne Moore in The Guardian (6 Apr) in a piece about “the structural inequalities in the system”.

I believe that her accurate assessment will not be corrected unless and until Environment, Society and Governance (ESG) issues are given equal ranking with Return on Investment (ROI) issues.

The current backlash against inequality is rightly focused on mobilising against pay injustices including, what Suzanne Moore calls, “socialisation, what we think we are worth, and how we ask to be paid”.

But this will not be sufficient to bring about a fundamental shift in attitudes which requires the full integration of family life into business decision-making because it’s right, and not because it might be good for business or compliance reasons.

Why should any business thrive at risk to the environment, society and good governance? Equally, why should an investor risk their capital without reasonable incentives to do so?

These two forces are interdependent. Without families, there would be no customers, employees or organisations. Without risk-capital businesses would not exist.

The current model is no longer fit for purpose. Business decision-making will have to move towards a 50% ROI – 50% ESG model if the backlash from those forgotten is not to create bitter conflict.

There are signs that sentiment is moving towards an #ESG50 model. For example, Harvard Business Review gives a 20% weighting to ESG factors in its Top 100 CEOs rankings. I presented a paper on this point at The University of Bologna last month.

I wonder what their rankings would look like if HBR recalculated them using a 50%, instead of 20% weighting, for ESG factors?

That would be a fascinating exercise. Which CEOs would move down or up the list? And what would it chase out about pay inequality issues?

You can download that paper here.

 

Ciarán Fenton

Board Effectiveness Consultant

I help directors on boards relate better: with themselves, colleagues and organisations