Why boards should use HBR’s list of Best-Performing CEOs in the World 2017 with caution

Sports podium

Harvard Business Review has recently published its annual Best-Performing CEOs in the World rankings.

Pablo Isla, Martin Sorrell and Jensen Huang are in first, second and third place respectively. Sean Boyd, Jean-Laurent Bonnafé and Ian Cook are placed 98th, 99th, and 100th.

Does this mean that your board should favour the first three over the last three as benchmarks for your CEO? The rankings suggest that you should. I disagree.

HBR has ranked CEOs using a weighting system, which favours financial performance over the other factors using an 80/20 ratio. “To calculate the final ranking, we combined the overall financial ranking (weighted at 80%) and the two ESG rankings (weighted at 10% each), omitting CEOs who left office before June 30, 2017”.

By two ESG rankings, they mean environmental, social and governance analytics as reflected in two scores: Sustainanalytics and CSRHUB. Directors who are shareholder-value merchants, red in tooth and claw, might wince at the inclusion of such wet factors. I argue the opposite: the weighting for the ESG factors is not high enough.

For example, Pablo Isla, CEO of Inditex, headquartered in Spain, is in first place while Ian Cook, CEO of USA based consumer goods company Colgate-Palmolive is in 100th place.

Let’s look at their comparative rankings: Isla scored 18, 76 and 142 for FINANCIAL, Sustainanalytics and CSRHUB respectively, whereas Cook scored 186, 167 and 89.

These suggest that while Pablo Isla outperformed Ian Cook in FINANCIAL and Sustainanalytics scores, Cook outperformed Isla in CSRHUB scores significantly. So what?

Let’s look closer at the providers of the ESG scores: “Sustainanalytics is a leading provider of environmental, social and governance (ESG) research and analytics that works primarily with financial institutions and asset managers and with CSRHUB which collects, aggregates and normalizes ESG data from nine research firms and works mainly with companies that want to improve their own ESG performance”.

CSRHUB is obviously the “softer” of the two ESG scores. Why has it the same weighting as the other ESG score? Why is governance, a crucial internal board matter conflated with environmental and social matters, both external issues?

Who decided on the 70/10/10 ratio? Why not 60/10/20? Or why not split out governance and give it a score of its own? Surely any board would link good corporate governance with risk reduction and maximizing opportunities?

Would you not be a tad miffed if you were Paul Polman, CEO of Unilever, ranked 82nd with a 177/168/17 score? His CSRHUB ranking of 17 comes as no surprise. He is famous if not infamous for his focus on non-financial performance factors. It was he who refused to report to the market on a quarterly basis.

Should he not be further up the “performance” rankings? He is, by all accounts in the financial press, trying to balance performance with developing capability and with ensuring sustainability in all its forms. But did his financial score suffer because of his CSRHUB score?

And what are we to make of his Sustainanalytics ranking of 168 against Pablo Isla’s score of 76? On which environment, social or governance (ESG) factors did he underperform his betters in the rankings?

Isn’t it the case that these rankings should be taken with a large pinch of sodium chloride? Should HBR not use just one crude financial performance score and not attempt to take account of the ESG factors at all or look again at how it addresses non-financial performance?

I have sympathy with HBR’s dilemma. Society is increasingly vocal on behavioural matters. It’s right that HBR should reflect this. But their rankings will continue to be flawed unless and until boards catch up with society and incentivise their people on behaviour as much as performance. This shift would be reflected in the rankings since these merely mirror back what boards value. What’s measured gets delivered.

In work I do with boards, I find that those whose financial performance is strong, often suffer from hubris. Perhaps HBR should include a hubris score in their next rankings. It would be useful, if not amusing, to see what that would do to the current list.

 

 

CEOs: learn from Mrs May, disband your inner circle today

Many CEOs have, like Mrs May, an inner circle. It’s lonely at the top. You need people around you that you can trust, to tell you the things you need to hear or, if you’re weak, what you want to hear.

There’s nothing wrong with these inner circles provided they are informal and counterbalanced by a board with a formal governance process and in which power truly resides. The issue here is the location of power, not just leadership style.

Mrs May, allegedly, relied on her inner circle to the exclusion of everyone else. The cost of this error will be high. But it’s not as if she didn’t know that her leadership style was a matter of concern for many. Indeed she revelled in her reputation as “a bloody difficult woman.”

And she was not alone in her approach. The ink is barely dry on The Chilcot Report which highlighted Mr Blair’s “sofa style” decision-making as a contribution to the errors in the Iraq war.

So why do many leaders persist in making this unforced error? The answer is that they have no incentive to change. They believe that their behaviour got them to the top, so why change it?

Mrs May didn’t become a micro-manager overnight. It’s part of who she is and how she got to be Prime Minister.  Her identity must be bound up with distrust of others. In that respect, she is typical of many leaders I encounter in the course of my work.

If the cause of the behaviour is easy to diagnose, the cure is less so. It demands behavioural change, and that’s hard unless it’s taken in small steps.

So, if you’re a CEO with high emotional intelligence (EI) and therefore the self-awareness to know that you are behaving like Mrs May or Mr Blair, and know you should stop it but don’t know how then here’s how:

Step 1: Assemble your full operating board and ask each member to acknowledge their outstanding behavioural weakness. Start with yourself. If some less emotionally intelligent members are struggling, play “the least likely to say” game. That will soon flush it out.

Step 2: Start trading behavioural change deals as in “I’ll micro-manage 10% less if you acknowledge your mistakes 10% more”. Then legislate for the breach of these deals.

Step 3: Announce that, in future, no major decision will be taken without full discussion by the entire board and at which meetings and by rotation one member will act as Devil’s Advocate with full permission to question the rationale for each decision.

“Pigs will fly”, I hear you mutter in response to these steps. Not true. This process works. I have facilitated it many times. It works because there is an incentive to make yourself vulnerable, to change and to move to a higher level of leadership behaviour. The latter is the real prize because it feels good and it makes you a better leader.

And let’s be clear, micro-managers don’t enjoy micro-managing. They find it exhausting, energy sapping and time-consuming. Most of all it hides latent greatness. One micro-managing CEO I worked with and who did reduce his meddling behaviour using my small change approach, reported that he had more time, a happier team and, I believe, developed higher levels of trust.

I’m sure that there’s a different, more trusting, softer side to Mrs May. One that we have not seen, although one hears that the 1922 Committee had a glimpse of it during her belated mea culpa. See what I mean about incentives?

If I had my way, every leader would have to spend a minimum of one year at Emotional Intelligence School (EIS). There they would undergo mandatory weekly psychotherapy to process formative years’ experiences; they would study psychology and behavioural science, and above all, they would have to pass a boot camp type test on the benefits of good corporate governance. That would teach them never to rely on an inner circle, ever.

How unresolved issues between your board members are impacting your business, and what to do about them

Why not have a facilitated emotional intelligence workshop at the end of your next board meeting?

  • Your board meeting is finished, the agenda covered, and the minutes taken but what about the unresolved relationship issues that are never minuted? My clients tell me that these are the biggest barriers to effective boards and which effectiveness reviews don’t address.
  • The future of your business depends, largely, on the quality of interactions between your board members. If there are problems or a lack of clarity, they matter because they impact the bottom line. Your board is unique. So yours needs bespoke attention, not generic change management solutions.
  • We avoid these issues because they are difficult to address. My workshop provides a framework to address them, incrementally, safely and with a high chance of success in three steps:
    • Supporting the acknowledgement of the behaviour on your board you would you like to see changed and by whom
    • Exploring the positive impact on your business of the changes
    • Tools to assist the behavioural change
  • You may feel that people just don’t change or won’t on your board. But people can and do change behaviour if incentivised to do so.  What better incentive than knowing that if you change your behaviour, every other board member will do so too? It’s simple and it works.

For information on case study examples and costs, you can arrange an exploratory telephone call by  emailing me at cfenton@ciaranfenton.com or text me on 07966168874

CEOs and boards: how tension between directors can be put to good use to improve performance

Frustration in the boardroom

I constantly hear stories of tension between board members causing exhaustion, frustration and even depression. The bullied feel humiliated, the eager unheard and the anxious unsupported. Slights, real and imagined, are harboured; baseless assumptions inform action, or worse, inaction. Unconscious behaviour abounds.

My clients tell me that the most significant barrier to working productively together are “personality issues”. They feel hopeless that the conflicts, which frequently simmer under the surface, can’t be fixed.

Unacknowledged personality issues hurt the bottom line

Some directors I meet are blissfully unaware of these issues; others are not but shy away from these problems because they don’t know how to deal with them.

But the costs and opportunity costs to the business of not confronting behavioural issues are incalculable. I would be a very rich man if I had a pound every time a director said to me “If only we would do x, we could save y cost or avoid y risk or generate z revenue”. Why don’t you?, I ask. “He/she/they won’t wear it,” they assume. Delete as appropriate.

Behavioural issues are notoriously difficult to address. So, we avoid them. But what if there was a way to address them, incrementally, safely and with a high chance of success?

Least Likely To Say

Your business could outperform its targets, get more done and with happier employees if every director, without exception, improved their worst behaviour. Let’s call it their DWB – Director’s Worst Behaviour. No one I’ve worked with fails to understand what this means and what impact it has.

By worst, I mean that outstanding behavioural weakness that we all have and that drives everyone else on the board mad because it adversely affects them but which we struggle to acknowledge, let alone change.

I find that a good way to get an accurate list of the individual DWBs on a board is to facilitate an exercise, at a plenary session of the board, called “Least Likely To Say” preceded by a series of 1-1 sessions with each director to build trust.

In this exercise, each director tells each colleague what they are least likely to say. For example, the micro-manager is least like to say “Just get on with it, no need to check in with me”; the person who talks over people: “What do you think?”; and the solo player “How can I help?” And so on.

This exercise rarely fails to generate the embarrassed laughter of recognition which we are more familiar with in the company of true friends, who rarely let us get away with anything. In my experience, the degree of consensus on the DWB list surprises no one. If done with a light touch and kindly, the impact can be pleasantly cathartic.

Moreover, by avoiding the shaming language often used in board rooms directors can encourage colleagues to confront tricky behavioural issues which they otherwise would bury.

People don’t change, do they?

“This is all pie in the sky”, I hear you say. “Leopards don’t change spots. It’s dog eat dog in the boardroom. People just don’t change. This stuff won’t work on our board.”

Agreed, if you use traditional change processes. That’s because either they don’t work or if they do, they don’t last because, under pressure, everyone tends to revert to type.

But people can and do change behaviour if incentivised to do so. And what better incentive than knowing that if you change your behaviour, every other board member will do so too? It’s simple. It works. I’ve witnessed it.

Small Change

In my Small Change Programme, I focus on helping each director to acknowledge to their board colleagues their worst behaviour – i.e., their DWB. Then I support each to agree and implement, over a period of six to nine months, an unwritten behaviour contract undertaking to change just ten interactions in every hundred about that behaviour. That’s just 10% change, hence small change. But even small change is hard to do, and so my programme is designed to help CEOs and boards do it.

For example, one micro-manager I worked with undertook to micro-manage ten times less out of every hundred interactions.

The micro-manager, who proceeded to change his behaviour as agreed, courageously acknowledged that never being allowed to fail in his early years was probably the cause of his behaviour, and was pleasantly surprised at how more motivated his team was, how much more time he had and what new things he could do with the time released from his micro-managing. No wonder he did, given how much time he had wasted micro-managing.

Free Offer

I’m offering a free one-hour telephone or video workshop on my Small Change Toolkit to help you start the process yourself. The toolkit is a set of concepts and models which you can take away from the one hour workshop and use with your colleagues. I offer this as an incentive for you to engage in a conversation with me with a view to persuading your board to sign up for my Small Change Programme, but if you don’t, that‘s fine too, you still get your free workshop.

If you would like to arrange a free one-hour telephone or video Skype workshop with me, please email me on cfenton@ciaranfenton.com or call me on 07966168874. You can read more about me and my model on http://www.ciaranfenton.com