So you are the CEO, but for how long?

Booz and Company have for the last 12 years done a survey of CEO dismissals and departures (www.strategy-business.com) at the world’s biggest 2,500 companies.

The 2011 findings indicate that 14.2% of firms (can you have 0.2 of a firm?) changed bosses during the year, up from 11.6% the previous year. The life expectancy of a CEO from that sample is 6.4 years. The current tenure of a FTSE 100 CEO is just under 6 years with Paul Pinder of Capita, the outsourcing Group, the longest serving at just over 20 years.

It is tough (and lonely) at the top. Companies do need new blood and a new sense of direction from time to time and it is, therefore, unrealistic to expect one person to provide this forever. But some executives find it very difficult, if not impossible, to let go.

Nothing quite prepares you for the job. I remember reading an interview with Sir Stuart Rose about his first few years as CEO of Marks and Spencer. He was determined to follow the 100 day rule, i.e. do nothing, speak to all stakeholders, slowly slowly get to know the business, the culture, the values etc; as indeed the business literature teaches you. All this was invalidated by two words…Philip Green!

Green made a bid to acquire M&S and Rose had to devote all his energy defending the bid.

I remember another client who was promoted to the top job, he was formally Marketing Director and he told me after spending two days handing over to his successor and taking over himself that it all went very quiet. He didn’t know what to do, it took him days to get to grips with what the job really entailed.

I also see executives who, once appointed, think that “they have arrived” and believe that the hard work is now over. The trappings of power can make one blissfully unaware of the reactions of the leadership and the real malaise affecting the organisation. As a recruiter once told me, “Jean, we advertise for CEO’s and human beings turn up!”

Do look up the above survey, it is very insightful.

June 8, 2012 at 9:22 am | by sonjasmith | Uncategorized | No comment

How well is your Board performing?

Here are ten simple but searching statements about Board effectiveness. Check how many of them you agree with:

1. We regularly evaluate the performance of the Board
2. We are happy with the composition of the Board
3. The Board agenda is always representative of the issues that we should be engaging in
4. Board meetings are well run and well chaired
5. Non executive directors make a valuable contribution
6. The Board fully understands the company’s vision
7. Every one can easily articulate the company’s vision and what it means
8. Our process of strategy creation would stand up to scrutiny
9. We fully understand our source of competitive advantage and how that compares with competitors
10. We are happy with the quality of financial and management information that the Board receives

May 4, 2012 at 12:19 pm | by sonjasmith | Uncategorized | No comment

“Boards, just like families, are dysfunctional! It’s a case of how dysfunctional.”

While it would be easy to poke fun at the above statement (told to us by one of our clients), it nevertheless highlights a real issue with which organisations often do not grapple until it’s too late.

There are sufficient examples around of Boards not functioning properly, ranging from outright mutiny and never-ending political gamesmanship, to one hundred per cent passivity where usually one person, the Chief Executive, is driving the organisation forward in solo drive.

For years there were no obligations on Boards to monitor themselves.

The recent UK Corporate Governance Code updated the Combined Code and insists, among other things, that Boards should engage in an annual evaluation. At least every three years this exercise should be conducted by an external facilitator to ensure objectivity. And this must be reported in the annual reports.

While the above applies to Listed Companies only, and the independent facilitation exercise to FTSE 350 only, it is nevertheless considered good practice for Boards to commit to this irrespective of size. Numerous Private, Public and Third Sector organisations have found this to be immensely beneficial.

May 4, 2012 at 11:38 am | by garycowdrill | Uncategorized | No comment

Discuss the impact of working in a group on human behaviour

Psychology assessment II by Liz Whitfield

Humans are often referred to as social animals. Through evolution, different species learnt to communicate to keep each other safe. Humans find themselves in groups in most everyday settings from school, family, sport, work, juries, friends and leisure pursuits. Whilst we are all individuals, we can be influenced by the groups we find ourselves in, and change our behaviours accordingly. Further, we tend to orientate ourselves towards groups to satisfy our own need for acceptance, identity, conformity and self-esteem.

If given pen and paper, we can all come up with acknowledged benefits of working in groups such as widening our knowledge and learning from each other, by gaining different views and beliefs and understanding of different values. Indeed when we find ourselves in new situations, we look to others to check how to behave and this is called informative influence (Davey (2004)). There may be other occasions when we want to fit in with the others to appear ‘normal’ and this conformity is called normative influence. However there are many examples throughout history of where working in groups can have a detrimental effect. Following the banking crisis of 2008 and the current global recession, there is a spotlight on corporate governance procedures, specifically in the UK on FTSE 350 boards. The spotlight encourages independent and diverse thought around the boardroom table.

Over the last 100 years there have been a number of well documented experiments in understanding the impact of group influence over human behaviour and specifically since the Second World War. The experiments have tested conformity and obedience. In 1932, Jenness asked subjects to estimate the number of beans in a bottle and found that in a group setting, the answers converged towards the group norm. Three years later, Sherif tested conformity by asking participants to quantify movement of light which was in fact stationary, but appears to move due to eye movements, the autokinetic effect, described by McKenna (2001). Again in a group setting, the answers converged. In 1951, Asch conducted a study asking groups of 8 male students to match the length of one line to 3 others shown (per McKenna (2001)). The experiment was rigged with 7 confederates who gave wrong answers. “One third of the time, the genuine subjects were prepared to deny the information being conveyed by their senses and shifted their judgments, thereby making an error, so as to conform with the group norm or standard” (McKenna 2001, p.309) thus demonstrating the power of a majority influence. In 1969, Moscovici used groups of 4 female participants with 2 confederates to see how a minority can influence behaviour (Davey (2004)). Participants were shown 36 slides of different shades of blue. The confederates said all or some were green which influenced the participants (against a control group) to say green up to 8% of the time.

In 1971 at Stanford University, Philip Zimbardo conducted his infamous prison experiment (Davey (2004)) to study effect of the setting/environment on individuals. Indeed, the ‘prisoners’ and ‘guards’ did behave according to their stereotypes with the guards enjoying their power and the prisoners suffering varying amounts of depression. In 2002, the study was re-worked for the BBC, with the opportunity to change from prisoner to guard. In this situation, those motivated to move groups behaved independently in their desire to be selected. When told that they were not selected, those individuals responded negatively, and behaved as a part of the group.

After the Nuremberg trials in the early 60’s where Eichmann said he was “just following orders”, Stanley Milgram (who had been assistant to Asch) conducted a notorious experiment on obedience which was disguised to the volunteers as an experiment on learning, involving a teacher (participant), a learner and an overseer (both confederates). The teacher and overseer sat together in one room with the learner in the next room on a phone. The teacher asked the learner a series of questions on the phone and instigated an electric shock for wrong answers. The shock machine ranged from mild to dangerous. A number of participants “though troubled by their participation, accepted the experimenter’s logic that it is legitimate to administer electric shock to a learner who makes mistakes” (McKenna 2001, p.312). In 1966, Hofling experimented with nurses to act under his orders to give overdoses against protocol with a shockingly high result. Again in 1995, Mees and Raajmaker experimented with continuing to ask stressful questions of job applicants (confederates) causing them to break down. Many of these experiments have been ruled unethical and would not conform to guidelines these days.

However, we do not need to simply rely on these experiments to see the impact of groups on human behaviour. At the turn of the 20th century, Millicent Fawcett and Emmeline Pankhurst started the Suffragette movement which slowly gathered momentum with women getting the vote in the 1920s, thus showing the impact of minority influence. Nelson Mandela overturned apartheid in South Africa after decades of peaceful lobbying and imprisonment. The most obvious example of obedience in groups, despite personal misgivings, was the impact Hitler had on Germans and their persecution of the Jews in the 1930s and 40s. More recently, the London, Birmingham and Manchester riots in summer 2011, showed the strength of working in groups and the impact of the mob on individual behaviour with widespread looting. The previous year in the UK, we had the student uprisings with people acting out of character such as Charlie Gilmour, who acted violently and defiantly out of a sense of injustice.

Further experiments, analysis and control work into the above experiments, suggest that there are a number of variables over the extent of the impact of working in groups on human behaviour. Findings suggest that women are generally more influenced than men and more susceptible to conforming (Moscovici experiment). The larger the group, the bigger the influence and the harder it is to not conform with the majority. Minorities can still exert influence as we saw with Moscovici experiment, the Suffragettes, Nelson Mandela and Martin Luther King, if they are consistent with their message. “An independent and confident minority – eg non-executive directors – is valuable, more so when faced by majorities who encourage convergent, shallow and narrow thinking” (McKenna 2001, p.311) The closer the influence, in proximity, the bigger the impact and again the harder it is not to conform, for example, in the learner experiment, where the overseer was in a different room, the teacher stopped administering shocks at an earlier stage. Further, Milgram found that where colleagues of the teacher were present, this “gave subjects encouragement to do likewise in most situations” (McKenna 2001, p.313). Strong personalities are less likely to be influenced and in particular highly moral individuals will resist obeying orders eg conscientious objectors during the war. Where individuals believe they can move out of groups, they are more likely to act individually this was evidenced in the prison experiment and can also be seen in every-day settings such as school class-rooms with de-motivation manifesting itself within lower streamed children or in the work place with lack of promotion opportunity.

The Jenness, Sherif, Asch and Moscovici studies demonstrated convergence of opinions in groups. By definition, these experiments were not ‘real life’ and used volunteers and strangers. In real life, however, there are many group situations where convergence of thinking is established. Where beliefs and values are left unchallenged, they become deeper rooted, for example, many couples grow systematically more ingrained in their thinking as they each support their shared beliefs. Similarly, a close knit group where members are from similar backgrounds will become more rigid in its views where there is no outside influence eg families and religious groups. In 1972, a social psychologist Irving Janis named this phenomenon, Groupthink. In the business setting, Groupthink, arises where certain ingredients are present (Davey (2004)) namely, an autocratic leader, a strong bond together, a feeling of invincibility, negative views of competitor groups and a firm belief in the “sanctity of group consensus” (McKenna 2001, p. 319).

Over the past 10 years, with a toughening background of corporate governance, there has been a measurable shift in the composition of boards in FTSE 350 companies. According to the Grant Thornton Corporate Governance Review (2011), until 2006, there was a majority of executive directors on boards. Under the FRC Corporate Governance Code (2011) there now there needs to be at least 50% of the board (excluding the chairman) comprising Independent non-executives. Independence is defined by the Code with reference to such matters as material business interests, but also with regard to time served on the board (not more than 9 years), thus specifically guarding against the potential for Groupthink. Following the Davies Report (2011) all FTSE 100 companies must report on diversity (again to avoid the similarity of members and Groupthink), specifically with regard to women with a guideline of 25% female composition on the board by 2015. The FRC Corporate Governance Code (2011) provides guidelines on board effectiveness suggest that “boards should not be a comfortable place with challenges ………..an essential feature…….. breaking down a tendency towards ‘group think’”

When Edward de Bono (1999) first published his Six Thinking Hats in 1985, it was revolutionary. He took four people describing a house from 4 different sides and then asking them to walk around the four sides together describing each side as they went. His Six Thinking Hats is useful in group discussions as each person is asked to give an opinion from each of 6 ‘sides’ giving voice to risks, opportunities, processes, facts, benefits and emotions. This model reduces the influence of egotistical or dominant members of the group and encourages wider thought and discussion. It is a model to guard against the dangers of conformity and groupthink.

In the Asch and Milgram studies, it was shown that where the subject had a supporter in the group, they found it much easier to give the right answer and voice their opinions. This thinking can be aligned to Women on Boards. There is talk of tokenism in seeking to increase the numbers of women on boards, and much debate around the impact they can have. The Davies Report (2011) has set a guideline of 25% representation by 2015 for FTSE 100 companies. However, in 2010, Sir Win Bishoff, Chairman of Lloyds Banking Group and Sir Roger Carr, Chairman of Centrica, grouped together to form the 30% Club (http://www.30percentclub.org.uk/) which now has support from the higher echelons such as Downing Street. The 30% club is so named, as it is believed that for women to have a ‘voice’ there needs to be a 30% representation on the board. Indeed, the Eversheds Board Report (2011) found that ‘Better performing companies had a higher proportion of female board directors’.

The Eversheds Board Report (2011) showed that “only 55% of directors interviewed, positively thought that diversity for its own sake was beneficial for board and company performance”. This suggests ingrained Groupthink thinking which inevitably requires legislation to make changes and achieve cultural change (as with smoking in public places, drink driving and the
wearing of seat belts). Under the UK Corporate Governance Code, June 2010 (2011), listed companies should undertake a rigorous annual review of the board and its performance. Further, for FTSE 350 companies this review should be externally facilitated at least every 3 years. This puts the board and individual directors under the spotlight in terms of their performance, decision making and compliance to corporate governance. The most alarming finding of the Grant Thornton (2011) report is that only half of FTSE 350 companies complied with the Code and its reporting requirements in 2010/11. Maybe the directors of the other half are ingrained in Groupthink?

In conclusion, there is a wealth of information to support the fact that working in groups has an impact on human behaviour leading to convergence of thinking in line with the group norm. Individuals can be swayed by majorities due to our human desire to conform. We can be swayed by minorities where they are consistent and confident in their opinions. It has been found that females are more susceptible to conforming. Humans have been brought up to abide by rules, be obedient and conform. There are examples of strong personalities or highly principled people who will consistently stick to their own opinions without being swayed, but they are in the minority. The impact of the group is particularly strong where the members are from similar backgrounds, with a strong culture of togetherness and invincibility. Indeed illogical decisions can be made unwittingly by cohesive groups dominated by a directive leader under the influence of Groupthink. In order to reap the benefits of working in groups (avoiding Groupthink and social loafing) models such as the Six Thinking Hats can be used.

In the current economic climate, there is a microscope over corporate governance and the behaviour of boards of listed companies. Outside of world of psychology, the phenomenon of Groupthink is understood if not labelled as such, and there are a number of safeguards in place to ensure diversity and independence of thinking and decision making. The UK Corporate Governance Code 2010 (2011) specifies the guidelines, but there is evidence from the Grant Thornton report (2011) that these are not being adhered to. Groupthink can be thought of as a culture. To change culture takes many years and inevitably requires legislative changes to gain momentum. The current topic of conversation around UK plc boardroom tables is that of compliance with the UK Corporate Governance Code, or in other words, the breakdown of Groupthink and the Old Boys Network.

References

1. Davey, G (2004) Complete Psychology, London: Hodder & Stoughton
2. McKenna, E. (2001) Business Psychology and Organisational Behaviour. A Student’s Handbook. Third Edition, East Sussex: Psychology Press
3. de Bono, E (1999) Six Thinking Hats, London: Penguin Books
4. FRC (2011) The UK Corporate Governance Code. June 2010, www.frc.org.uk: Financial Reporting Council
5. Grant Thornton (2011) Corporate Governance Review 2011,A Changing Climate, Fresh Challenges Ahead
6. Lord Davies of Abersoch, (2011) Women on Boards. London: Department for Business Innovation and Skills www.bis.gov.uk
7. Eversheds Board Report (2011) boardreport@eversheds.com Eversheds

Bibliography

Hill, G (2009) AS & A Psychology, Oxford, Oxford University Press

AS Psychology DVD: Camrose Media Ltd

May 4, 2012 at 8:47 am | by garycowdrill | Uncategorized | No comment

How old is your board?

A reader of the Investors Chronicle magazine recently wrote in to mention that the Board of Directors of Fresnillo the silver miner has a combined age of 932 years. They have 14 directors (average age 66.6). Not wishing to be ageist (I’m 55 myself) but two quotes come to mind that we regularly ask our clients to think about.

The first is from Gary Hamel, strategy author and consultant, “experience is great as long as the future resembles the past”.

And the other from David Garvin of Harvard Business School ‘someone with thirty years’ service doesn’t necessarily have 30 years’ experience. It’s more like one year thirty times!”

Enough said.

May 3, 2012 at 10:29 am | by jeanpousson | Uncategorized | No comment

Nothing is for ever

We continue to observe Nokia’s demise as Apple eats into its smartphone and handset business with its share price now down 94% from its 2000 peak. The CEO last year commented that their problem wasn’t about price, brand, competitors, positioning, distribution etc. but rather that their entire ecosystem was under threat. This is a question that we always ask our clients to consider when embarking upon any strategic discussions: Is your business model still relevant? Far too often this is taken as given and all the subsequent discussions take place within the confines of that erroneous assumption.

An interesting new book that raises the subject of innovation ecosystems using Nokia as one of the case studies, is Ron Adner’s ‘the Wide Lens’; well worth a read!

May 3, 2012 at 10:28 am | by jeanpousson | Uncategorized | No comment

Tesco’s ‘woes’

Much has been said (and in some cases sensationalised) in the press over the past few weeks about Tesco’s woes. True the performance of the UK business has been disappointing by their historical standards, there has been some management upheaval since the departure of long time CEO Sir Terry Leahy and the US based business is still in loss making territory, although the losses have been reduced.

So yes, some of these trends do give cause for concern. However, we also like to look at the hard facts and do not get swept away by the tabloid-type reporting. This is a multinational business with annual revenues of £72bn delivering a profit before tax of £3.85bn.This translates into a Return on Capital Employed, which is a key measurement of management utilizing the capital entrusted in it by shareholders and other providers, of 13.3%.This is well above the current inflation rate and also above Tesco’s cost of capital, estimated at around 10%.

Some woes indeed!

May 3, 2012 at 10:26 am | by jeanpousson | Uncategorized | No comment

In the news………

There was press coverage this week about the decision by Encyclopaedia Britannica to discontinue the printed editions. First published between 1768 and 1771 in Edinburgh, it grew in popularity as the definitive compendium of knowledge and was once described by Time magazine as “The Patriarch of the library”. The size has remained roughly constant over 70 years with about 40 million words.

Information obtained from Wikipedia!!

March 21, 2012 at 12:18 pm | by jeanpousson | Uncategorized | No comment

My mentor watches MTV, South Park and has never heard of LinkedIn; should I be worried?

Over the years I have had the pleasure of mentoring executives and senior managers. On one occasion I was mentored myself. I have also spoken to many mentors and mentees (is that the right term?) in my years of consulting.

In almost every case the mentor was older. He/she was the sage, the oracle, the custodian of wisdom, and, by and large, did a very good job in guiding, advising, counseling and sometimes even coaching. There is nothing wrong with that practice, indeed it is to be encouraged.

What I am referring to in the title above (a hypothetical case by the way!), is the need to also engage in reverse mentoring, i.e. get a mentor who is (considerably??) younger than you. How else can you stay connected to generation Y? They may well be your customers both present and/or future.

There is considerable learning to be had from this, and please do avoid saying the following:

“In my day” “When I was your age” “When I first started out”

These are guaranteed passion killers; nostalgia doesn’t sit well with generation Y, so don’t go there.

Good luck!

March 21, 2012 at 12:15 pm | by jeanpousson | Uncategorized | No comment

Board Evaluation. Less oversight more foresight.

Far too often we sense reluctance from Chairmen and other Board members to subject themselves to a Board Evaluation review. The feeling is that this is another stick that we could well do without.

Yes, part of a Board Review needs to have within it elements of checks and balance; that’s only natural. For example, the following are the type of questions posed:

How well is the Chairman performing?
Do non executive directors add a positive contribution?
Is the agenda well managed?
Are Board papers circulated well in advance?
Is the Board composition adequate?
Is there a healthy balance of cohesion and challenge?

However, in practice, our work extends beyond this; we also like to pose more searching questions:

How are you creating value for your stakeholders?
Are you happy with the level of strategic conversations that take place?
Within the Board is there a culture and practice of constructive challenge, i.e. hard on the issue but soft on the individual?
Is the Board sufficiently outward looking?
Are you happy with the strategic aims set?
Is your Business Model regularly challenged?

If you haven’t done so already, we highly recommend you read this year’s letter to shareholders from Warren Buffett (www.berkshirehathaway.com) Here is a very short extract:

“The primary job of a Board of Directors is to see that the right people are running the business and to be sure that the next generation of leaders is identified and ready to take over tomorrow”.

March 12, 2012 at 12:00 pm | by jeanpousson | Uncategorized | No comment

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