Is Your Board Good Enough?

Kodak, Woolworths and Game have all paid the price for not adapting quickly enough to new market dynamics. Criticaleye speaks to executive and non-executive directors to find out how to root out complacency within the boardroom

www.criticaleye.net 1 A toxic combination of weak non-executive the CEO has built an extra set of doors to stop directors and steadfast denial on the part of people getting into his office – honestly, I’ve the CEO invariably means a business won’t seen that happen several times.” react in time to new market dynamics. This remains a big problem as seemingly bullet- BE BRAVE proof brands continue to be usurped by innovative rivals – so how do you prevent the The answer is to erase complacency and rot of complacency setting into your business? to continually kick the tyres of a business. “Review, review, review,” states John Kelly. First off, realise that no-one can afford the “Never think a strategy is ‘done’. Assume luxury of over-confidence in the current it’s wrong and work diligently to make it climate as the margin for error is ridiculously right, then assume it’s wrong again and small when it comes to losing customers. repeat the procedure.”

John Kelly, Non-executive Chairman of rail ticket retailer and information provider The So even if the writing is clearly on the wall, the Trainline comments that “companies lose culture within a business may be such that touch with customers when they become Some boards people simply don’t know how to react. Julian arrogant and believe they are the market.” Birkinshaw, a Criticaleye Thought Leader and are so Professor of Strategy and Entrepreneurship Jon Moulton, Chairman of turnaround at London Business School, says: “Kodak’s company Better Capital, admits to having executives saw digital technology was coming seen “every kind of incompetence you can dominant that back in the 1980s and they recognised it was imagine”, including CEOs who can’t count, an a threat to their core business. But they were inability to spot a new competitor, a refusal to still very reluctant to push digital because it look for efficiencies in production, allowing the non-execs needed a lot of investment, it offered uncertain products to become outdated and using returns and it threatened to cannibalise the obsolete marketing and sales techniques. company’s existing cash-cow business.” “Sometimes you get all of this together, but are afraid not usually,” he says. That kind of denial continues to see businesses tailspin into oblivion. David says: “Companies CHANGING TIMES hate cannibalising their own products. That’s Simon Johnson, UK Managing Director of why the traditional media companies have Simon Burke, Chairman of arts and crafts publisher HarperCollins, says: “Be paranoid declined so rapidly; they didn’t embrace company HobbyCraft, comments that and continually question your company’s digital as they didn’t want to take advertising executives sometimes just “don’t notice how right to earn a profit in the value chain. Keep revenue from their papers and magazines.” their companies are changing and they carry monitoring and reacting to the competitive on doing the same old thing and suddenly market forces on the horizon and defend Julian adds that “the solution is to actively they find they are out of date and out of step and improve your position even when times experiment with a new opportunity, typically with the market… are good… Don’t get too carried away either in a separate unit and to aggressively pursue by short-term success but instead set and it, even if it means taking business away from “The problems that companies had, like celebrate long-term goals and incentives.” other parts of the company.” Virgin [Megastores] which became Zavvi and eventually went bust and HMV, which has Although many companies pay lip-service Simon Burke wholeheartedly agrees: “You nearly gone bust, is that they simply haven’t to saying they create an environment which can’t hold back and cling to a business that done the work in the early years to prepare encourages tackling tough questions and you know and love; you have to take the themselves and they haven’t been aggressive being receptive to fresh ideas, very few plunge. There used to be a philosophy that in being in that market in a meaningful way.” actually do it well. David Soskin, Chairman being in business meant taking risks every day, of price comparison site mySupermarket, whereas now a lot of owners and managers of Whether it’s Kodak, Woolworths or says that large companies in particular have businesses are very risk averse. You have to the army of ‘zombie’ companies in the a lot of politics and bureaucracy, both of be prepared to experiment and gamble – in retail, media and technology sectors, it’s which prevent boards from seeing the wood a calculated way – so that you ensure your evident that somewhere along the way from the trees. business keeps up and that can mean putting the executives and NEDs have become existing business at risk.” estranged from the organisation and how it He explains: “People in large companies tend can connect with customers. to get in a mindset that what they’re doing It’s here that NEDs often need to step up too. is the right thing and pursue their own path John Kelly says: “Challenge should be in the Jon says: “When a business gets close to even when they’re beginning to fail or don’t DNA of the company. You should only recruit death, the most common thing you see is the exit fast enough as they invented it and it’s NEDs who are brave enough to challenge the separation of the chief executive from the embarrassing to say ‘we got it wrong and a executives. They should occasionally throw a company. I have seen extreme cases where competitor got it right’.” grenade into the board debates, even if it’s

www.criticaleye.net 2 not valid. Outrageousness should be made a organisation so that everyone understands the virtue and laziness and complacency should organisation’s vision, mission, strategy, plan be firing issues.” and success measurements.”

Simon Johnson comments: “The culture must be one that continually encourages Companies experimentation, combined with the rigour to learn effectively about what works, and then you need to be able to scale quickly. Although lose touch perhaps counter-intuitive, rigour and clarity in process helps as creativity thrives under with customers clear constraints.” As ever, it’s execution and delivery that really matter and that’s where an organisation has when they to have the people to be ambassadors of new ideas and the will to question old ones. Andy become Dunkley, CEO of Lee Cooper Brands, says: “We have to ensure that we are constantly challenging our team by asking: are we relevant?; do we really know what our business arrogant Featuring commentary from: is offering the consumer?; do they value what we are delivering?; can we keep our existing Julian Birkinshaw Remuneration and bonuses also have to be customers happy? Professor of Strategy and considered. He continues: “Most boardroom Entrepreneurship, London Business executives are rewarded on short-term “The main focus has got to be to continually School objectives and innovation equals risk… Private challenge your own and your team’s Simon Burke equity is so much better at attacking these assumptions. What you think is safe ground Chairman, HobbyCraft issues than publicly-listed companies. Maybe can change very rapidly and you need to it’s simply because that rather than encourage consider how this could affect the business.” bravery, [too many plcs] promote safety Andy Dunkley through overweening corporate governance.” Jon Moulton makes a similar point: CEO, Lee Cooper Brands “The relentless and tedious setting and Simon Burke comments: “NEDs are in a very management of objectives is a very good good place to promote some of this stuff discipline to make sure that companies don’t Mary Jo Jacobi because they can get a perspective that maybe get complacent.” NED, Mulvaney Capital it isn’t possible to gain if you’re in the thick Management of running a business… Sadly, I think some Volatile financial markets and fast evolving boards are so dominant that the non-execs are industries mean that both larger and Simon Johnson afraid to provide a challenge; they feel they entrepreneurial businesses with the right UK Managing Director, are rocking the boat and will be ushered off at people and attitude can do extremely well. HarperCollins the next opportunity. That’s a huge waste of “Never waste a good recession,” says Rob talent and also you’re not really doing your job Wirszycz, Non-executive Chairman of John Kelly as a non-exec as you’re not just there to vote IT company Datrix. “It’s the time to steal Non-executive Chairman, The through the remuneration report.” business from competitors who are in denial.” Trainline

CREATIVE STRUCTURE That may be easier said than done but the Jon Moulton chances of succeeding are greatly enhanced Chairman, Better Capital The culture has to be right if a company is if the executive and non-executive team join to effectively attack new markets.Mary Jo forces to stamp out complacency. David says: Jacobi, a Criticaleye Associate and a Non- “Innovation has to be put at the centre of any executive Director of Mulvaney Capital corporate strategy, no matter what industry David Soskin Chairman, mySupermarket Management, says: “The key is having strong you’re in; you’ve constantly got to question glue that holds it all together inside the what you’re doing and make the necessary organisation: clear, measurable performance steps to change.” expectations and an understood and Rob Wirszycz embraced culture, plus defined operational Non-executive Chairman, Datrix parameters and accountabilities. “All of this must be underpinned by consistent, simple internal communications, not only Contact the contributors through www.criticaleye.net from the centre but up, down and across the © Criticaleye 2012

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