Boardroom decision-making under stress: the impact on hard and “soft” contracts. My speech @IACCM Europe Conference 2019 in Madrid, 14 May 2019.

2019-05-14 09.51.31

 

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

 

  1. Stress relating to short-term financial results

 

  1. Stress caused by a risk event, as the lawyers like to call it

 

  1. 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.

  1. Bullying

 

  1. Silence

 

  1. 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:

  1. Empathy
  2. Self-awareness
  3. 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.

 

 

 

 

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