Here we go again!!
Once again, lack of financial awareness manifests itself at board level. Paul (Reverend) Flowers, former Chairman of the Co-op Bank, admitted to MPs this week that he thought the Co-op’s total assets were about £3 billion; they were actually £47 billion!!!
Lack of Clarity on the Reasons for Success
Great CEOs hold their associates accountable for knowing what causes results.
CEOs focus on what to do and let associates take care of the ‘how’, expecting them to understand the activities that lead to success.
The difference between champions and good performers isn’t always that great.
Champions win consistently because they understand what causes a win.
Successful CEOs encourage the use of reliable, continuously improving and innovative methods of getting work done.
Do you know the 3 biggest reasons for your organisation’s success?
Absence of a Clear Vision And How Do The Military Overcome This?
Successful CEOs lead the organisation to where it needs to be and find ways to get buy-in at all levels.
This is hard. After all, if it were easy all organisations would do it well.
If you were to ask an employee what your shared vision is, how confident are you of the answer?
Done right, clear vision can substitute for the field manual, empowering everyone to make crisp decisions in the company’s interest.
An equivalent of this is ‘Commander’s Intent”.
This is a practice used in the military to achieve swift progress where the need for overly detailed instructions is over-ridden by a clear intent which initiates a force’s purposeful activity.
It represents what the commander wants to achieve and why and binds the team together.
The principal result of decision-making, it’s normally expressed using effects, objectives and desired outcomes.
The best intents are clear to subordinates with minimal amplifying detail.
An example would be when attempting to take an outpost.
Rather than minutely detailing the actions as the enemy advances or withdraws, the force knows the intent and is skilled, empowered and motivated to act swiftly and effectively, ensuring the safe capture of the outpost.
Failure to Start With ‘The Why’
Before buying into what to do, powerful leaders know that followers, whether employees or customers, must first buy into WHY to do it.
Steve Jobs of Apple is a prime example of this, “In everything we do, we believe in challenging the status quo and thinking differently.
We do this by making our products beautifully designed and simple to use.
We just happen to make great computers. Do you want to buy one?”
The result? Employees AND customers buy into the Apple vision, happily pay more for a computer (and want to work for a company) that reflects their values.
So, what’s Your Why?
If you don’t yet have yours developed, how do you do this and communicate it effectively?
Balance Sheets’ Unbalanced Views
A Balance Sheet is often referred to as a snapshot and with good reason. It looks at a business on one day of the year and as such can be quite misleading.
Do you ever ask yourself why that company has chosen that year-end? Most businesses will choose a year-end that makes their figures look better.
“Are we making money?” is a statement often heard on Boards. What does that mean? Do they mean profits or cash? Or both?
Profits and cash are different things; a business can be profitable and cash negative, and vice versa. Remember…”You only run out of cash once.”
Ask us about how we can equip you to gain a balanced view.
A very wise statement from Josh Shores, then the biggest overseas shareholder of Olympus, to the Board as the enormity of their scandal was unravelling: “Ignorance is no defence. If you were there and not aware of it, then you were incompetent. If you were there without asking tough questions, then you were negligent. Either way, you need to leave!”
What to expect in 2013?
It is that time of the year again when economic forecasters and other technical soothsayers ponder ahead as to what may happen in the next calendar year.
The actual year itself, because of the number 13, might frighten the superstitious (a word of 13 letters incidentally!)
Apple’s iTunes store and Skype will celebrate their 10th anniversary while the computer mouse turns 50. Morgan Stanley estimates that the number of internet connected mobile devices, like smartphones and tablet computers, will exceed the number of desktop and laptop personal computers. This will mean some serious soul searching for people like Dell, Intel and Microsoft.
The economic surroundings will continue to be tough and demanding with politicians unable to provide clarity and direction. Expect many more European summits.
Finance will continue to be difficult to obtain as banks shore up their regulatory capital bases.
Board conversations will need to continue to focus on whether their current business models are still relevant, or face the fate of Eastman Kodak. In some cases strong and brave decisions will have to be taken e.g. Sony.
2013 also marks the end of the first three year period when the UK Corporate Governance Code requires FTSE 350 companies to have their Board Evaluation exercises carried out externally. We have already seen an early rush.
And to everyone’s chagrin, Greece and Cyprus will not take part in next year’s Eurovision Song Contest because of their economic situation.
Reputation Management a la News Corp…
From the excellent GMI Ratings, a US based Corporate Governance ratings consultancy, comes news of News Corp’s latest Director appointment, one Alvaro Uribe, Columbia’s former President.
His administration was bedeviled with corruption and illegal wire-tapping controversy, resulting in his former Chief of Staff being arrested on criminal charges and another senior official seeking political asylum in Panama to avoid a similar fate.
Perfect for the job then!
The Sunday Telegraph in its ‘Business Reporter’ supplement recently published an interesting article by Tom Nash which included comments from our own Jean Pousson. To read this excellent article see Page 13 at the following link http://business-reporter.co.uk/2011/12/business-execution/
Please have a look at the following questions and answer with a simple “True” or “False”
1. The cash figure in the balance sheet is a very good determinant of liquidity.
2. Return on Equity (ROE) is the best measurement of how a business utilises its capital.
3. If a company has made a loss in the current year it cannot pay dividends.
4. If total borrowings exceed total shareholders’ funds the company is technically insolvent.
5. Acquisition of fixed assets will affect Gross Profit.
6. An increase in turnover will cause a corresponding increase in free cash flow.
7. If we depreciate our machinery by charging against our profits we are in effect saving to replace it in the future.
8. By raising debt levels we actually boost the return to our shareholders.
9. A company with a high level of fixed costs is less risky. At least the costs are known in advance and will not fluctuate with activity
10. EBITDA (earnings before interest, depreciation, and amortisation) is a very good measure of cash flow.
11. A Director’s loan (i.e. loan made to the company by a Director) can only be repaid out of current profitability.
12. Contribution measures the level of contribution towards the recovery of fixed costs from a given level of sales.
13. Working capital is best measured by the amount of liquid resources a company has.
14. David Beckham was never on the Balance Sheet of Manchester United but Wayne Rooney is.
So, how did you get on; did any of these questions cause some concern?
If they did, why not give us a call? We run dedicated and highly customised finance training programmes for directors and executives on an in-house basis. Our consultants are also available to carry out one-to-one technical coaching with executives that can help you navigate through the maze that finance can be!
The answers by the way:
The only “True” ones are questions 8, 12 and 14.The rest are all “False”.