#SupremeCourtJudgment was a “board evaluation” of the Cabinet

Para20

The full Judgment of The Supreme Court concerning the Prorogation of Parliament was, effectively, “a board evaluation” of the Cabinet.

Can you recall the top seven decisions your management or main board took last year? Imagine if 11 experts in corporate governance and best practice leadership behaviour were to sit in judgment on the most important of those decisions? How sure would you be of a judgment “in your favour”?

The Supreme Court Judgment contains a paragraph – Para 20 – which refers to the Minutes of a Cabinet meeting held by conference call on Wednesday 28 August 2019 shortly after the Queen was advised by the Prime Minister to prorogue Parliament.

CXOs/NEDs on management and main boards keen on learning from the decision-making processes of others may find Para 20 in particular, and the entire Judgment in general, of particular interest especially since Cabinet Minutes are usually not published for 30 years.

Para 20 states: “The Prime Minister explained that it was important that they were “brought up to speed” on the decisions which had been taken”.

This implies that the Cabinet was not up to speed and therefore presumably had not entirely or fulsomely contributed, as a Cabinet, to the decision by the Prime Minister to advise the Queen to prorogue Parliament.

Amber Rudd who resigned from the Cabinet, and the Whip, not long after the decision said that “Cabinet ministers had also not been shown legal advice to the prime minister about his decision to prorogue” (BBC News website).

Para 20 continues: “In discussion at the Cabinet meeting, among points made was that “any messaging should emphasise that the plan for a Queen’s Speech was not intended to reduce parliamentary scrutiny or minimise Parliament’s opportunity to make clear its views on Brexit….Any suggestion that the Government was using this as a tactic to frustrate Parliament should be rebutted”.

This means that the Cabinet took a decision on “messaging ” concerning a decision to which it had not fully contributed.

Is this familiar? Have you sat in management and main board meetings and been brought up to speed on decisions already taken and then discussed how these should be “socialised”? I have. Many clients have too.

So what?

The point is that in business and government there has been a falling off in recent years in honouring the role and purpose of formal meetings and in following good corporate governance practice and behaviour in reducing the risk of boards and governments taking poor decisions.

In the Chilcot Report into the invasion of Iraq, the then Prime Minister was criticised for what has become known as his “sofa” style government “which meant that the Prime Minister did not face ‘frank and informed debate and challenge’ over his actions.

The House of Commons Report into the collapse of Carillion states that the “system of internal and external checks and balances are supposed to prevent board failures of the degree evident in Carillion. These all failed…The company’s non-executive directors failed to scrutinise or challenge reckless executives.”

Carillion’s directors would surely have preferred that the company had not collapsed; the then Prime Minister would have preferred the Iraq outcome to have been different, and the current Prime Minister would surely have prefered not to have to been dragged back to Parliament by The Supreme Court.

Since even small changes in decision-making behaviour might have altered those outcomes why is that those leaders and many of the CXOs and NEDs you know, and I encounter in my practice, don’t appear to be sufficiently incentivised by the risks created by their conduct to avoid unilateral decision-making?

The answer lies in their belief that they will achieve better outcomes faster if they hog all the power. Conversely, they believe that if they yield power to others or discussions, that “things” will get “bogged down”.

It boils down to a lack of trust.

In my work, I facilitate members of management and main boards to take risks in trusting each other by yielding power through formal processes and then experiencing, over time, how that trust can pay off in reduced risk events and higher chances of exploiting opportunities that are frequently missed by that lack of trust.

When people on boards for whom distrust is a default mode try out trusting each other, just a little, they connect with a capacity to take better collective decisions and more creative risks in the service of a shared purpose.

Considering the impact on your organisation of your decision-making processes, would your management and or main board survive such a judgement process? Be honest, if only with yourself.

Ciarán Fenton

Boards will ignore Section 5.8 of the LSR Interim Report at their peril

IRLSR

Professor Stephen Mayson published his Legal Services Regulation Interim Report today. He deals with in-house lawyers in Section 5.8 on page 70. The section is notable for its implicit commentary on the current context in which in-house counsel operate as it is for its specific proposals and questions regarding changes in regulations.

In the second paragraph he states:

“Analysis of the legal services market shows that a significant and increasing volume of lawyers (about 20%) and legal services are now in in-house settings. There is little doubt that a tension is inherent in this relationship when the client for legal services is also the adviser’s employer, and the usual notion of ‘independent’ legal advice is often stretched.”

This paragraph raises several questions in the mind of, say, a curious Martian were they to land on Earth today and read the report:

  • If there is “little doubt that a tension is inherent in this relationship” why has this tension not been addressed before now?
  • If the “usual notion of ‘independent’ legal advice is often stretched, why has this “stretching ” not been investigated more frequently heretofore?
  • Since the “little doubt” of which he writes is supported by ample anecdotal and written evidence of which most interested parties are aware, not least the UCL Moral Compass Survey 2016 which detailed the extent to which in-house counsel experience ethical pressure, why have boards of directors not done anything about it? 

He goes on to say:

“Equally, those advisers who are professionally qualified would typically prefer to maintain their professional independence, ethics and standards and not bow to any organisational or commercial pressures to modify their advice to make it more palatable to their internal clients. In these circumstances, it is arguable that those with professional obligations might benefit from further regulatory support (see also the discussion of ‘inverse vulnerability’ in paragraph Version: IR Final2 71 4.5.3). This could strengthen their position when dealing with internal clients, and provide an independent benchmark or standard against which to justify their professional advice. In principle, they should not be at risk of dismissal or disadvantage simply for observing their professional obligations.”

The Martian might, therefore, reasonably ask:

  • Are in-house lawyers currently at risk of dismissal or disadvantage simply for observing their professional obligations, yes or no? 
  • If no, what’s the problem?
  • If yes, why have they not by now received “further regulatory support”?

Professor Mayson moves on to governance:

“Further, effective corporate governance should ensure that in-house lawyers are able to function effectively and are supported in doing so. This might entail express conditions in their employment contract, and a direct reporting line to the Board (or to the chairman or a senior independent non-executive director).” 

He references in the footnotes a paper for discussion about best practice: “In-house lawyers and non-executive directors” by Professor Richard Moorhead and others. 

The Martian, equipped as they are with instant access to all data on the subject, might ask:

  • Why do their current contracts not include “conditions”, given the acknowledged “vulnerability”?
  • Since currently, in-house lawyer’s client is already “the board” why has no-one challenged the widespread practice of GCs reporting to CEOs and even CFOs who have unlimited power over their salaries, titles, and performance reviews?
  • And in respect of the latter and in reference to “independence” above why are they allowed to take advantage of LTIPs and Bonus schemes?

It is the final paragraph in 5.8.1 that is most shocking and might take our learned Martian by surprise:

“These are not simply private or commercial matters. As we have seen recently, corporate failures can lead to consumer and societal detriment, and in-house lawyers have to be able to sound alarm bells without the chilling effect of potential reprisal. The public interest in effective and fearless legal representation is engaged in much the same way as it is with private practice.”

The Martian might be forgiven for asking in respect of recent corporate failures:

  • Did some in-house lawyers not “sound alarm bells” because of “the chilling effect of potential reprisals”? And in what instances? Do we know?
  • Did some in-house lawyers sound the alarm bells and in fact experienced the chilling effect of reprisals? And in what cases? Do we know?
  • Since “the public interest in effective and fearless legal representation is engaged in much the same way as it is with private practice” why in respect of recent corporate failures was the public interest not protected?

The report goes on to examine the merits of separate registration and other remedies. 

However, I would encourage boards, GCs, regulators, Larry Fink and the 181 signatories of The Business Roundtable and anyone else interested in ESG to pause at the end of Section 5.8.1 and ask the question that the Martian might, again reasonably, ask:

  • While we may need to wait for a final report to propose new regulations, it’s clear that the public interest remains manifestly unprotected today; surely that can’t wait? What are boards, GCs and the profession/regulator going to do about it?

Whatever changes in regulation are agreed in future, boards would be wise to confront this issue now, before the tumbrils roll. 

There is simmering anger in some quarters in the profession because none of the above is news to them. If they came come together, tomorrow, and had each other’s backs in a manner which defies their litigation training, and demanded immediate behaviour change by Boards, under the current regulations, a good start would be made on this problem.

Boards who are relying on lawyers’ propensity to be adversarial with each other are unwise. Their anger is likely to break cover. This report may see to that. Few CEOs and boards are even aware of the problem. That’s about to change.

Ciarán Fenton

Many CEOs routinely “spiritually prorogue” their boards, and get away with it

Prorogue

Last week Prime Minister Johnson cynically prorogued Parliament. Cynical proroguing is posh parlance for thuggery. Few commentators doubt that he used his power to silence others with the potential to limit his actions.

We’re not surprised that he did so because we have come to expect cynical behaviour. Society tolerates it.

In boardrooms, where most people’s work is regulated and controlled, we have come to expect the routine silencing by CEOs of others.

In business, CEOs don’t prorogue board meetings, literally. They don’t “suspend” them. But, at times of their choosing, they may as well have done. They, effectively, silence others.

You may argue that directors on boards who remain silent have only themselves to blame. They should and can speak up. And you’d be right.

The unwritten rules of board behaviour make this problematic. It’s a spiritual silencing, not a literal one.

You and I, I’m sure, have witnessed CEOs silence others in meetings. They succeed because the silenced fear losing face, promotion, their jobs or all three.

In over 35 years of my working life, some of my standout memories are of witnessing and, sometimes experiencing, brutal acts of silencing on boards and on senior teams.

CEOs can also silence others by less brutal but frustratingly effective means: manipulating the board agenda in terms of order or content or both; doing a “Sir Humphrey” on the minutes; delaying or not sending out papers in advance, not voting on motions, and crucially, by having a weak Chair.

Since most power resides on Operating Boards, not on most Main Boards, then the CEO is the most influential person in the room because they chair operating board meetings.

So far, so what? It’s been ever thus I hear you say.

But things are changing. Cracks are appearing in the heretofore unassailable stone walls that powerfull CEOs can erect in front of those who want to challenge them. They can “prorogue” open debate as much as they like, but society is fighting back.

It’s early days, but the movement towards fairly balancing environment, society and governance with profit is gaining ground.

While the amoral behaviour of, for example, Prime Minister Johnson and President Trump is tolerated by their “base” and by those who hold their noses while applauding the outcomes of their actions, they nevertheless are creating a pressure cooker effect on those who shake their heads in disbelief and frustration.

Robert Shrimsely writes in the Financial Times (31/08/19): “Sometimes breaking a code can have greater consequences than breaking a rule. Future governments will consider the unwritten codes to have changed…the principle of “whatever it takes” is gaining supremacy…[But] there are reasons conventions survive. All sides know that the boot will one day be on the other foot…what goes around comes around”.

He’s right. Sooner or later, the bad guy gets his comeuppance.

If next week you are heading back into a work situation in which “spiritual proroguing” is systemic in your organisation or profession to the extent that you don’t expect any change any time soon, then think again.

If you have given up, don’t. I know it’s not easy, but there is hope. You can do something about it. I have witnessed and have had the privilege of facilitating previously unthinkable turnarounds in behaviour.

Society gives businesses a mandate to make a profit but not at any cost. And certainly not at the expense of your dignity, mental health and your right to a fulfilling day at work.

You are not on your own. Find others who feel as you do. Join forces with them. Share stories: feelings, needs and possible actions. Work together to find a better way. But above all: protest.

Without visible protest, we silence ourselves.

Ciarán Fenton

First 100 Days: 7 Steps for new leaders, and Mr Johnson

Boris

Pic: inews

Step 1 Google “leadership”  

Leadership is about helping other people to shine. Leaders make a lasting impact through others.

A fruitful read on this topic is HBRs 10 Must Reads On Leadership: Goleman, Drucker, Kotter, Heifetz & Laurie, Goffee & Jones, Bennis & Thomas, Collins (Jim), Rooke & Torbert, George/Sims/McLean/Mayer and Ancona/Malone/Orlikowski/Senge. 

They can’t all be wrong. 

Mr Johnson may also benefit from reading or re-reading Cabinet’s Finest Hour: The Hidden Agenda of May 1940 by David Owen. 

Whether you read the leadership books or not, remember that if you behave as “Head Of” you will have a different outcome than if you behave as a leader. 

Step 2 Know, well, the people you lead

Each is unique. So each has different needs in order to thrive. Know their needs and their personal purpose. Your leadership will thrive too. 

The assumption that bosses have rights and no obligations towards the unique characters they lead is one which lands many leaders in trouble, often to their own surprise. 

Step 3 Publish your personal purpose 

Tell everyone why you want to lead them. Be clear and honest about your personal motivation. Otherwise, you won’t gain their trust. 

And without trust, you can forget about receiving discretionary effort. 

Without discretionary effort, your leadership is doomed. 

Step 4 Agree on a shared team purpose

Don’t rush this.

Later, when team conflicts arise, as they will, you will resolve these faster if the process for agreeing your team purpose is rigorous and genuinely shared by all without exception and without pressure. 

Step 5 Agree on a shared strategy 

Spend as much time on strategy as you do on purpose. It’s difficult for people to whinge later if they coauthored the strategy.

Don’t confuse a strategy with a plan. A strategy is about how, in headline terms, you achieve your shared purpose. A plan is about how you implement your strategy.

Step 6 Agree on conduct principles 

Conduct is the collective behaviour of you and your team over time in the implementation of your shared strategy to achieve your shared purpose. 

The highest risk you face is conduct risk. Mitigate it by agreeing on a tough code of behaviour from the “get-go”. Legislate for its breach. 

Conduct Risk should be No 1 on your Risk  Register. Make sure your GC owns the Register. If the GC doesn’t understand business risk, teach them. Don’t separate business risk from legal risk. They’re interdependent. 

Step 7 Track and RAG your relationships 

List your key relationships. RAG these regularly against your shared team purpose. You are likely to have at least one Red and several Amber relationship events in the early weeks of your First Hundred Days. 

The manner in which you convert your first Red event to Green and prevent your early Amber events from turning Red will be key tests for your leadership longevity and success.

So how does this apply to Mr Johnson?

He believes that he has a clear purpose shared by his new cabinet. 

But “leaving on 31 October” isn’t a purpose. Neither is it a strategy. It’s a policy. So our new PM – whose duty is to the 100% not just the 52, has articulated no purpose at all for his government. Therefore he has no strategy 

He leads, whether he likes it or not, all the other MPs in his party. He cannot cherrypick who he leads. He will neglect those at great risk. 

Crashing out of the EU out requires nothing more strategic than having the neck to do nothing. 

His speech was silent on post-Brexit purpose and strategy other than optimism, which is neither a purpose nor a strategy. It’s a feeling. 

It will be his conduct (and his cabinet’s) that will do him in, based on past form. It’s merely a matter of when not if, he misbehaves. It gives me no pleasure to write this because we will all suffer. 

If you are a new leader this month, what’s your prediction for your First Hundred Days? 

You can exert more control over those crucial days if you commit to linking personal and organisational PSB – purpose, strategy and behaviour.  

You and Mr Johnson should carefully manage your “B” if you want to achieve your “P”.

Make sense? 

Ciarán Fenton 

 

Coverage of Deutsche’s woes exposes the “purpose” movement’s dilemma.

“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.

“Sad”, Tom? Are you serious?

I felt sad when my daughter’s goldfish died. The word “sad” in this context doesn’t quite cut it for me, let alone I suspect for any one of the 20,000 – since recalculated at 18,000 but, hey, what’s 2000 jobs, give or take? – who will lose their jobs.

“Relief”, really? Will the German taxpayer be “relieved” that they may be better off because 18,000 people are losing their jobs?

I suspect a German taxpayer who happens to work for Deutsche Bank and is about to be “made redundant” may indeed have mixed feelings about these words, to put it mildly.

But journalists are not to be blamed. They reflect only the norms that society share. These norms are highlighted again today in the FT as it ran the story on its front page, this time with the emphasis on the “bad bank” angle. The human toll, although still noted, slipping in importance.

Try as I might, I couldn’t find any reflective opinion piece on the job losses on the inside pages.

I suppose that’s to be expected, given the implicit assumption that the “radical overhaul” has market approval, albeit “scant comfort to investors who have sunk €30bn into the bank…only to see its share price plunge – and confirmed that it would not pay a dividend for the next two years”.

The CEO, Christian Sewing, said the “sizeable workforce reductions” will require uncomfortable decisions…Today we have announced the most fundamental transformation…[to] restore the reputation of Deutsche Bank”.

“Uncomfortable decisions” for whom? I hope he means the 18000.

“Fundamental transformation”? Does he mean that the bank which will soon have 74,000 employees instead of 91,500 will be “fundamentally” different in behaviour terms from the bank that exists today and had, for example, “643 employees earning more than €1m last year”?

It looks like the market and the FT views letting go of 18,000 people, setting up a €74 bn ‘bad bank’, and a target of €6bn in “cost cuts” as a recipe for “transformation”. No need for editorial comment. Job done.

That would be understandable if at the same time many well-known gladiators of capitalism are not currently focused on the importance of “doing business with a social purpose”.

“Ethical investments” are all the rage. Soon we will be in the embarrassing position whereby ethical investment funds will be bigger than, er, the others.

If you sit on a board, no matter how small or large, how should you read Deutche’s news and its coverage in terms of its value for you?

I suggest that you start by being honest with yourself first, if not with your colleagues, that nothing fundamental will change in your business unless and until your “license to trade” includes a requirement to satisy environment, society and governance factors before profit considerations.

ESG costs money. If it didn’t, we’d all be at it, ages ago.

Unless and until this approach becomes the norm, all the talk about business with a social purpose is just that. Talk.

In Deutsche Bank’s case, an ESG approach to decision-making might have confronted what Tom Braithwaite referred to in his piece as “an enduring Deutsche problem: ‘If you don’t have $100m by the time you’re 40, you’re a failure”.

This is a board decision-making behaviour issue. Nothing else.

Had Christian Sewing announced that “we will transform the bank by addressing the behaviour that led us here” then I suspect the FT might have been shocked into writing an opinion piece. The market might have been stunned.

But, to be fair, he is doing only what is expected of him.

He didn’t do otherwise. And until CEOs and boards like him and his, and you and yours do, then – sadly – the purpose movement is destined to spin its wheels.

Leadership in politics, business and religion: the missing ingredient

images

 

Recently a friend, having listened to me sounding off about behaviour in high places, stunned me into silence with an excellent question:

“So, what one thing is missing?

I huffed and puffed a bit, but quickly surrendered. I didn’t have an answer. I went away and reflected. I think I’ve figured it out.

Recent events in politics, business and religion, share a straightforward theme: leaders at the top are letting us down.

But what one ingredient would they all possess to ensure they didn’t? That was my friend’s challenge.

The answer is appropriate levels of empathy. It doesn’t roll off the tongue. I know, but here’s the rationale:

Empathy is the ability to share someone else’s feelings or experiences by imagining what it would be like to be in that person’s situation.

It’s different from but related to compassion – a strong feeling of sympathy and sadness for the suffering or bad luck of others and a wish to help them and from but related to kindness – the quality of being kind.

Empathy involves an initial internal action – imagining. Kindness and compassion emanate from existing feelings, not that either can’t be learned.

Imagining what it would be like to be in another’s situation requires an ability first to be kind to oneself.

Might the narcissistic politician so lack personal boundaries that their interior lives are a living nightmare masked by a “resting bitch face”?

Might the bullying business leader live in mortal dread of being found out for the imposter syndrome they inevitably suffer but figured thuggery was the only way to survive?

Might it be the case that some religious leaders in their formative years and training were required to be so very hard on themselves, they hardened their hearts horribly to others?

Not that all three, on a good day, have no empathy at all, it’s just that it’s not enough for the needs of the moment.

Very few politicians and none with power are displaying enough empathy for both sides of the Northern Ireland backstop issue. They don’t have to agree. Just demonstrate that they understand, enough.

Not one of the CEOs in all the recent corporate scandals were able to imagine, enough, what impact their actions would have on others or else they would not have taken them. Jamie Dimon could not bring himself to empathise, enough, with his lowest paid employee when cross-examined by Katie Porter.

The various church leaders responsible for child sex abuse, and other violations yet to be adequately addressed couldn’t imagine, enough, the pain they had failed to prevent. Had they done so, they would not have put the reputation of their churches above the suffering of their victims.

These are “front page” examples. However, I bet they’re not that far off what you are experiencing at work, in your boardrooms and teams.

So what do you do?

If you have power, use it to encourage small changes in behaviour to improve EQ at work.

EQ at work is a function of self-awareness, the ability to get one’s needs met productively and empathy.

But what is the incentive to do this?

It’s clear that society is struggling with the current model. It’s not melodramatic to predict severe national crises, more corporate collapses and the disastrous abandonment of churches and some charitable organisations by their more moderate membership. If that’s not incentive enough, I don’t know what is.

There are rays of hope:

Rory Stewart, when asked by Nick Watt from the BBC if he agreed that his performance on TV was “lacklustre.” He agreed. A sign of someone comfortable being honest about himself without fragmenting.

Business leaders are at least engaging with ESG, even if they haven’t yet made peace with the fact that it means, usually if not always, lower profits.

The priest, leading the Lyra Mckee requiem service galvanised politicians with his empathetic homily.

But these are oases in a desert of vitriol. What small changes can you make, today?

Ciarán Fenton

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.