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.

 

 

7 Small Changes to Achieve Better Board Effectiveness, Conduct & Leadership

ChangeThese are the seven steps I use to facilitate better board effectiveness, conduct and leadership on main and operating boards, executive committees and senior function teams:

Step 1: Acknowledge uniqueness

You and your colleagues are unique individuals. No two board members are the same. If you behave as if they are you cannot expect to get the outcomes you want. If each board member is unique it follows that your board is unique. Why would you use generic processes for a unique situation?

Step 2: Understand uniqueness

At work, the components of your, and each of your colleagues’ uniqueness are their skills and experience, reputation and emotional intelligence. Whilst many share aspects of these, no two board members share the precise mix. Why, therefore, would you treat yourself and your colleagues as human capital assets?

Step 3: Understand emotional intelligence (EI)

The most important components of emotional intelligence are empathy, self-awareness and the ability to negotiate needs productively. All three are important. While organisations may perform well for a while without these in harmony in each director, research suggests that organisations that fail to foster these, often struggle to develop long-term capability. In which case, why would your board ignore individual EI problems, even if those colleagues with issues are delivering good results in the short-term?

Step 4: Understand the negotiation of needs

Experts tell us that if your ability to negotiate your needs productively and safely was frustrated in your formative years then you will have taken a decision to deal with that frustration in a manner that was appropriate at that time. However they also tell us that humans have a tendency to extend formative years decisions into adult life. Even those people who experienced little or no frustration in having their needs reasonably met in their formative years suffer when they encounter those that did or when they experience significant stress in later life. The productive negotiation of needs as between members of boards and teams is key to success. Why would your board not pay attention to creating an environment in which members’ needs can be negotiated productively, even if this involves painful confrontation of personal issues?

Step 5: Reveal hidden potential through small changes

Experts also tell us that no one escapes emotional pain. Everyone carries one outstanding emotional painful experience. By outstanding I mean more than all other painful experiences. We compensate for these in different ways but these strategies invariably hide our potential. If this is true, it means that your board’s hidden potential is more than the sum of the hidden potential of you and each of your colleagues. The route to revealing the hidden potential of each director is for each to negotiate small changes in behaviour with each other. In aggregate the sum of the small changes is greater that each in terms of their impact on board effectiveness and conduct. Conduct is observed behaviour over time. Why would your board not seek to reveal the hidden potential of each member over time?

Step 6: Share your personal purpose, strategy and behaviour plan

You and your board colleagues each have, or should have, a personal purpose or objective at work, a strategy to achieve it and a personal behaviour plan to implement that strategy. Some do this process intuitively; others plan it whilst others drift. The more these issues are shared openly between board members, the more likely it is that business purpose, and strategy and behaviour will be successful.

 Step 7: Make personal and business purpose interdependent

The tension between the personal purpose of each of your board members and the purpose of the business negatively impacts performance and the development of long-term capability. It follows that these are interdependent and if so it further follows that it is worthwhile paying attention to the interdependence of personal and organisational purpose. It also follows that not doing so increases organisational risk and reduces opportunities.

I use three well-known emotional intelligence tools to help directors implement these steps:

Tool 1: Feel/Need/Do?

Regarding specific issues or behaviour or exchanges at board meetings what do you feel?; what do you need in relation to that feeling?; what are you going to do to meet that need?

Tool 2: Are you selling or buying?

In almost every board interaction you are either selling or buying. Know which and know how.

Tool 3: Are you in Parent, Adult or Child mode?

In almost every boardroom interaction you and your colleagues will, at various times, be in Parent, Adult or Child mode. Do you know which you frequently occupy and when? Do you know how to get yourself and your colleagues into Adult-Adult mode?

The steps and tools above together constitute The Fenton Model® which is a registered trademark of Ciarán Fenton Limited.

Ciarán Fenton

October 2017

Leadership: why directors should not imitate Mr Mourhino and Mr Ferguson

Soccer players in action on sunset stadium background panorama

Jose Mourhino is the current manager at Manchester United Football Club and Alex Ferguson is a former manager of the same club. Both are famous. To some, that’s an embarrassing understatement.

But not everyone knows and loves football. I don’t love it. But that doesn’t mean I don’t like it or understand it.

A client recently sent me a link to an article about these two managers because he felt that I would be interested in the story from a leadership perspective. He was also clearly assuming that I had no interest in it from a football perspective.

To be fair, he has grounds for this assumption: he knows from our sharing of respective life stories that I was not sporty at school, was always last pick in playground footie and my nick name was “four eyes”. You get the picture.

But in my advancing old age I’m now getting tired of the assumption by friends, colleagues and clients that I know nothing whatsoever about football, rugby and cricket. The reverse is the case.

I’m a veritable walking-encyclopaedia of sporting trivia. Why? Because I get invited to major sporting events where, because I’m not deaf, I have to listen to endless punditry and I pick things up.

I’ve also spent a lifetime in pubs with blokes, quietly nursing my pint, whilst they willy waggle about their sporting knowledge as in: “ …no mate, you’re wrong..t’was the Forwards wot won it”. Occasionally I would get a sideways pitying glance but never asked for my views.

I would quietly think things but not say them: a) t’was hardly the Backs that won it for them b) why the necessity to collapse into Estuary English? The speaker was posh and had a First from Oxford and c) the Forwards, er, need the Backs.

I know lots about sport, actually: I could bore for England on “the slope” at Lords; I know, because I’ve been told a million times, exactly why England won the Triple Crown a million years ago – t’was because they were made to watch dots move on a laptop.

And, because I’m a closet Arsenal fan – I can’t come out because you have to be following a club ”man and boy” to have any street cred – I know and indeed agree that their forwards have an irritating tendency to “fanny around” the goalmouth.

But I will never be taken seriously on sporting matters. Indeed one mate was so outraged with envy when he heard that I was invited to a major rugby international he said that “I had no right to be there; that I know nothing about the game and that I simply do not understand that sport is tribal”. Yeah, tribal. I let it pass.

I enjoyed the game but didn’t lie awake reliving each phase.

I also know a bit about leaders in sport. Enough to know that they are poor models for leadership in business.

I read Alex Ferguson’s first book and concluded that he was a genius at understanding and nurturing world-class football talent. But for me he was not a leader business people should emulate and for three reasons.

First, his context was exceptional. Most leaders are not dealing with uniformly world-class talent and in the public eye.

Second, and to state the obvious, managing a football team is not the same as running a business and Mr Ferguson did not run the business side of the club.

Third, and I may be wrong, but I got the impression that he used persuasion techniques that would not entitle him to membership of The World’s Top 20 Emotionally Intelligent Leaders.

I also know a few facts about Mr Mourinho. He too is a talented football manager but I won’t be sending any of my leadership clients to sit at his feet and learn how to lead. A resolutely unsmiling persona works well on the touchline, but not in the boardroom.

The link that my client sent to me was to reported comments by Jose Mourinho saying that the Club had not evolved since Alex Ferguson’s departure and was stuck in time. My client was making the point that organisations need to evolve too.

I agree with this and also agree that one personality can dominate an entire organisation, even after they leave. Culture is reflected in conduct which is observed behaviour over time. And it takes time for behaviour to change. And in that, football and business are alike.

But just as the rules of football don’t apply to business, neither do the rules of business apply to football. And this applies to the timings of the departure of leaders. In business they should serve short terms, develop and then make room for others.

Sport is different. And in this regard I believe that Arsene Wenger has been right to hang in there. He is the Obama of The Premiership. He believes in the supremacy of people being the best they can be over winning. And, despite what my mates say, winning isn’t everything. But what do I know?

http://www.ciaranfenton.com

 

 

 

 

 

 

 

How to turnaround an unhappy board of directors in three steps

With apologies to Tolstoy, all happy boards are alike; each unhappy board is unhappy in its own way.

Unhappy boards consist of unhappy directors. This is obvious. But since people speak of boards as if they are people – anthropomorphism, to give this behaviour its technical term – they need reminding that they’re not. It’s the directors who are unhappy, not the board.

Happy boards outperform unhappy boards because unhappy, stressed and frustrated directors don’t perform as well as those who are content, energised and empowered.

The reasons for unhappiness will vary from director to director. But directors share one systemic grievance, also shared by their workforce, which is that work in the 21st Century is often not very fulfilling, at all. The happiness at work surveys, which make for grim reading, bear out this assertion.

If directors can address the systemic issues between themselves on the board, can you imagine what they can do for the rest of their workforce?

I believe the world of work can be fulfilling. Not 100% of the time of course, but I believe in the 75% rule that three-quarters of the time you should be able to say: I’m happy at work. But the world of work is still not what it could be especially for those who sit on boards.

We have only ourselves to blame. In the 20th century we permitted a framework for work to develop which created three components that ensured people became and continue to be trapped on a treadmill:

  • The maximisation of shareholder return as a primary purpose
  • Human capital management designed to serve that purpose
  • Exploitation of human and other resources as the main focus of boards

But the movement towards a new model has been building for some time. Everyone knows that the shareholder framework is no longer fit for purpose but have struggled to break its grip.

As far back as 1994 Charles Handy published The Empty Raincoat to set out a “…philosophy beyond the impersonal mechanics of business organisations…if economic progress means that we become anonymous cogs in some great machine, then progress is an empty promise”.

Even mainstream human capital writers like Jon Ingham were trying to humanise thinking in the early part of this Century in his book Strategic Human Capital Management – Creating Value through People, recognising that value can’t be created through any other means.

In what has been considered a “ground-breaking book”, Frederic Laloux’s Reinventing Organisations (2014) set out a thesis that “a new shift in consciousness” is underway which could help us invent “a more soulful and purposeful” way to run our businesses.

He sets out what he calls a “Teal” approach to this new way. This includes self-management rather than cumbersome management structures, bringing the whole person to work and what he calls ‘evolutionary purpose” focusing on what society wants from the business and not on the bottom line.

These are just three of many writers addressing these issues. Their work has been augmented by the growth of “not just profit” movements, which sprung up after the Global Financial Crash in 2008. These include Blueprint for Better Business (of which I am one of several advisers); B Corporations and Tomorrow’s Company.

Many of these use “top down” approaches that have strengths and weaknesses. My contribution to this canon is to take an individual rather than a corporate approach. I believe in individual change as an agent of, so called, organisational change, using the following steps:

First, while I agree with others that the purpose of organisations should be to make all stakeholders equally happy – shareholders/other risk takers, workers, suppliers, their families, their communities and future generations through the proper use of the physical environment involved in the business – I nevertheless believe that they will do so only if directors unilaterally grant themselves permission to do so.

The block so far is that directors are afraid of the investor. But if investors are educated to understand that they are not getting as good a return on investment without conceding to equal stakeholder happiness, then they are likely to give it. The first step, therefore, is to take responsibility for enlightening them.

Second, It has always struck me as odd that companies motivated – red in tooth and claw as it were – by profit, continue to allow their workers, especially their highly paid directors, to leave large chunks of their value at reception because boards have failed to create an environment which encourages them to bring their whole selves to work not just the part circumscribed by their job description or, more often, by the culture of the organisation.

The reason of course for this is linked with the first step, but also because they may not know how, precisely, to deal with the whole person. As one delegate quipped rhetorically at a people conference: “Do we really want people to bring their “whole selves” to work? Really?”

Third, is what I call the “paradox of small change” which is that small changes lead to big outcomes. Changing just ten interactions out of every hundred is just 10% change.

That’s small change. But it’s hard to do. You must start with yourself if you want others and your world of work to change; then you must accept that organisations don’t exist, except in law and in the minds of people who work in them, save that they are groups of individuals who are struggling to be who they should be.

If your board is unhappy and you’re serious about doing something about it, start by demanding equality of return for every stakeholder in the business; then find out what each director needs to be happy, 75% of the time and, finally, negotiate the behavioural small changes required to create an environment in which these are met. That’s it. Simple.

Three steps to unblocking road blocking behaviour on your board of directors

Last week The Times reported that the term “roadblock” was used to describe a surgeon at the centre of a shocking medical malpractice case in the north of England.

Colleagues, apparently, had to “work around” him and concerns about his behaviour were either ignored by him or buried by others. The case reminded me of how prevalent this story is in business.

Although the roadblock cases we all witness on boards may not be as devastating as that one, they can nevertheless cause grievous harm to people and businesses.

But what can you do? These are often bright, effective and key people in the business. They may be robust in their dealings with colleagues but charming with clients and, crucially, they deliver results.

Challenging them is difficult. They are powerful and don’t use, shall we say, Queensbury Rules during difficult exchanges. In short, they bully.

It’s not easy to tackle this problem but it’s not impossible. In fact the issue itself is simple: how to deal with bullying behaviour. The problem is in mustering the courage and enlisting support to deal with it. I use a three step approach in my programmes which I hope you find helpful.

Step 1: Ensure that each director, including the “roadblock”, has a shared, and agreed, understanding of the objectives and strategy of the business.

More often than not, I find there isn’t such a shared understanding save that everyone wants to make as much money as possible. That doesn’t count in my book. That’s like breathing. It goes without saying.

Ask each director to come up with a more sophisticated objective than making money and a strategy to achieve it. The outcome can be surprisingly positive, productive and unifying. At the very least it will clarify any misunderstandings.

It’s crucial to ensure that the “roadblock” signs up to the strategy too. Don’t move to the next step until they do. You may find that this process leads to some softening by the offending director. Or not.

Step 2: Check that there is unanimity amongst all the directors on the roadblock issue. Unless everyone is saying the same things, the problem could be something, or someone, else.

If there is unanimity then agree that everyone on the board not only has the right but also the duty to call out the behaviour on the next occasion it arises. Then, crucially, the person who does call out the bad behaviour must be backed by the others.

This is not about “ganging up” but an important step in reinforcing the agreed approach in dealing with the roadblock which is about always coming back to business strategy and objectives, not personality differences. This is good corporate governance, not corporate politics.

Step 3: Is to make a small change in how everyone deals with the roadblock at board meetings. The principle here is that the other person won’t change unless you change first. A commitment to small change in behaviour, over time, is easier to secure than so called “transformational” change which is a lesser spotted occurrence than some commentators would have us believe.

On the next occasion and at a fully attended board meeting – ideally an operating board meeting, not a main board meeting because procedures tend to be more formal there – when roadblocking behaviour occurs, then one director must muster the courage to enquire how that behaviour helps implement the strategy to achieve the agreed objective. I say “must”, intentionally.

The response is likely to be a strong, if not brutal, push back or to obfuscate or both. Each director should in turn ask the same question or otherwise indicate that they back the questioner. It’s as simple as that, even though it may not feel that simple.

Unless you have chosen the wrong battle to fight or someone lets you down in the room, this approach should work, over time. You will find that on each occasion the other party is challenged to explain the link between their behaviour and business strategy to which, after all they have signed up, they will struggle to maintain the roadblock behaviour in the face of such ongoing unity of purpose.

If their behaviour is unconscious they may even see the light. On the other hand, if they are successful narcissistic bullies they will try everything to bully their way out of the challenge.

If every director sticks to their guns and quietly and calmly return, each time they are rebuffed or traduced, to the agreed business purpose and strategy the other party will have to relent, ultimately.

And if they don’t then the directors have a choice: either to remove the roadblock or become part of it themselves. Sadly, too often the latter is the case but it doesn’t have to be so, if everyone has each other’s backs.

Why non-banking CEOs and boards should bother reading The Banking Standards Board second annual review

Last week The Banking Standards Board published its second annual review which received page two coverage in The Financial Times with the strange headline: “Bankers battle with ethics versus career quandary”.

The headline was strange not only because it implied that there are circumstances in which career considerations could trump ethics but also because, given that the 2008 crash resulted from unethical behaviour, these shocking results should have been the headline, not the quandary they seemed to present.

As reported by the FT, some of the results of the Review based on a survey of 28,000 employees at banks and building societies are jaw-dropping: “more than a third fear negative consequences of voicing concerns…one in eight had seen instances where unethical behaviour had been rewarded…[a large number saw] a conflict between their organisation’s values and how it did business”.

The impact of this environment on ethical decision-making must be grave, making another crash a certainty, if not highly possible. Certain because the results were not front page news; certain because we have become immune to such behaviour and, above all, certain because permission to behave well in banking is still not ubiquitous.

If the banks are heading towards another crash – so be it. But you and your board can avoid risks just as grim by giving your directors and their team’s permission to behave ethically. How can this be achieved?

You could start simply, by announcing that there will be zero tolerance on your board for the three behaviour examples below:

– the rewarding of unethical behaviour

– experiencing negative consequences for voicing concerns

– failing to confront conflict between our values and how we do business

The first of these might seem obvious, but if as much as one in eight has seen instances of such behaviour in the banking sector, the chances are that some of that behaviour is happening in your business and without challenge.

And this will persist if you do not support the second rule by encouraging people to speak the truth to the powerful. Of course, the best way to ensure an ethical culture is to create an environment in which people feel that they can speak up on normal issues i.e. those which have nothing to do with ethics or the law.

If your people feel comfortable challenging you on normal business issues, then they are more likely to feel comfortable calling you out on bad behaviour.

My guess is that those banks where people are afraid to voice concerns are also afraid to voice just about anything else which might not meet with approval from on high. Where this becomes seriously mad is when people start assuming what will and won’t be approved and are wrong. Then you have a truly sick organisation of your own making.

Emotionally intelligent boards can create emotionally intelligent businesses that are more likely to make ethical decisions which are right in themselves and also reduce risks and increase opportunities.

One way of creating emotionally intelligent businesses is to have zero tolerance for shaming language. Shame is a great mental killer in business, especially amongst men. Guilt means I’ve done something bad. Shame means I’m bad.

Over the years I’ve observed shaming language at its worst in many contexts. Once I worked in an organisation where the “D word” was the shaming weapon of choice at meetings, as in: “Joe Blogg’s quarterly results were very disappointing, indeed.”

This would be said as if Joe was not in the room. He was of course and would die a thousand deaths in that boardroom and had nowhere to go because of kids, mortgage and all of that.

Another example of shaming language is when a powerful person is reasonably challenged on a strategy or routine issue by a less powerful person as in: “Joe Bloggs, I think we need a bit more light than heat on this issue”. Withering.

Have you ever been that Joe Bloggs? I have. And I can tell you that there’s nothing more certain to discourage someone from voicing concerns about ethical or legal matters if they are shamed for voicing concerns about issues that are perfectly legal and ethical and, please, remember where you first heard about the next banking crash and its causes, if you read it here first.

Three reasons why #Boards should consider an informal behaviour review alongside their Board Effectiveness Review #governance

boardmeeting

Board Effectiveness Reviews are now commonplace. Their outputs are included in annual and other board reports.

But are they designed to assess underlying behaviour – good and bad? Will they flush out a tyrannical board member or a culture in which it’s difficult if not impossible to “call out” unacceptable behaviour? I doubt it.

There are three reasons why #Boards should consider an informal behaviour review alongside or after their standard effectiveness review.

First, a behaviour review will deliver a higher return on the investment in the Effectiveness Review process because it will address underlying behavioural cause, not just symptoms. Even a small change in behaviour is likely to lead to better commercial and sustainability outcomes.

Second, on a divided board – which is more common than often acknowledged – the effectiveness review is a good excuse to sort out damaging board conflict without further fuelling discord.

Third, behaviour reviews are not just about dealing with the bad behaviour but replicating the good. Since effective reviews are strongest in their highlighting of er, effectiveness, then a process which captures, replicates and enhances that behaviour must be good for the business.

Many boards carry out formal Effectiveness Reviews because they feel they must. A bit like CSR. Of course many do so for the right reasons but they are likely to be the least in need of remedial action.

So, hard-as-nails CEOs are unlikely to welcome any scrutiny of their behaviour which might suggest that they should change it. Unless of course – psychopath CEOs aside – they might welcome an excuse to do so, especially if they can see a link between their behavioural change and improved commercial and personal outcomes.

In my experience even those CEOs and NEDs who exhibit low EQ often secretly harbour a desire to improve it but don’t know how.

The process for an informal board behaviour review – note lower case and the importance of informality – is straightforward:

Step 1: one to one interviews by an external party with each board member. They would be invited to comment on the best and worst behaviour of each of their colleagues using real examples.

Step 2: a facilitated plenary session or sessions addressing organisational purpose, strategy and behaviour and how it fits, or not, with the personal purpose, strategy and behaviour of each of the members of the board.

Step 3: the facilitation, mediation and supported implementation of behavioural change agreements between board members as well as, gently, legislating for their breach.

For some readers the likelihood of their CEO agreeing to such a process might seem laughably remote. In which case the weakness of their formal Board Effectiveness Review is already exposed.

Ciaran Fenton

January 2017

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Want to talk leadership? Contact me through my website or call me on +44 (0) 207 754 0335