Governance/CSR

Column: How to wipe out whistleblowing

September 9, 2008 4:58 am by Stefan Stern

What begins as an informal, well-intentioned conversation over soft drinks at a London hotel can end a few weeks later in a lonely act of suicide in an Oxfordshire field. That is a melodramatic but not inaccurate summary of the last days of David Kelly’s life.

Dr Kelly, a UK government biological weapons expert, was certainly letting off steam when he spoke to the journalist Andrew Gilligan towards the end of May 2003. He was unhappy at the way in which unreliable information concerning Saddam Hussein’s arsenal of weapons had been presented to the public.

But Dr Kelly, a respected Whitehall figure, was licensed to speak to journalists to provide important background information. He may not even have seen himself as a whistleblower at all. His frankness, however, was explosive, and the consequences devastating. Last week’s sacking of Tony Goode, a Marks and Spencer employee, for gross misconduct – leaking information to the media about proposed changes to the company’s redundancy terms – may seem banal by comparison. But it is an example of the same problem. How do you respond to a colleague who reveals commercial (or other) secrets to the outside world? Why do such whistleblowers exist, and can you avoid creating the circumstances where this sort of unilateral action seems to be the only option left to a disgruntled employee?

Continue reading: ‘How to wipe out whistleblowing’. Please post comments below.

Posted in Governance/CSR | Permalink

Advice for directors in “complicated” times

August 13, 2008 12:06 pm by Adam Jones

Should directors at stricken companies stay in their posts until the bitter end, even if insolvency is inevitable? Morally, there would seem to be a clear-cut case in favour of staying; reassuringly, an expert panel writing in today’s FT comes to the same conclusion.

Miles Templeman, director-general of the UK’s Institute of Directors, says:

Most directors of distressed companies have been on the board for some time, are party to collective decisions about strategy, and bear some responsibility for guiding the company down the road to distress. It is their duty to stick with the business through thick and thin – even to oblivion.

Chris Higson, a London Business School professor, agrees. But both men suggest it can be okay to resign if a director fundamentally disagrees with the way the company is being run - and has done his or her best to oppose bad decisions. In such circumstances, the director should make sure his or her dissent has been properly documented.

On a similar theme, directors at US companies subject to Delaware law – that means lots of companies, of course - have been reassured that approaching insolvency doesn’t mean that they have to go into backside-covering mode. Davis Polk & Wardwell recently issued advice to that effect.

Rival US law firm Wachtel, Lipton, Rosen & Katz has also issued what it euphemistically referred to as “advice for directors in complicated times”. It reckoned the key tasks for directors in a downturn included:

Evaluating the sustainability of the company’s business model;
Listening to senior managers who report to the CEO as well as the CEO;
Continue reading: “Advice for directors in “complicated” times”

Posted in Governance/CSR, Hard times | Permalink

Capitalism’s new ringmasters yet to win over crowd

August 7, 2008 3:26 pm by Adam Jones

Following the news that companies owned by the state of Dubai have taken a 20 per cent stake in Cirque du Soleil, some fresh research on sovereign wealth funds has caught my eye.

Building on material already published, the working paper – from a pensions research body at Wharton business school - ranks 37 public investment bodies around the world on their governance, accountability and investment policies.

Istithmar World, one of the two Dubai bodies that took the stake in Cirque du Soleil, comes in third from bottom in the ranking, just ahead of the Abu Dhabi Investment Authority and Council and the Qatar Investment Authority, which share last place.

The New Zealand Superannuation Fund comes out best, followed by the Alaska Permanent Fund and then the global arm of the Norwegian Government Pension Fund.

Writing before the circus deal was announced, the authors of the paper - Olivia Mitchell, John Piggott and Cagri Kumru - said sovereign wealth funds “appear to be demonstrating an increasing risk appetite, very little transparency and virtually no clarity of objectives”.

Keen readers of the FT will remember that Cirque du Soleil employs a heckler called Madame Zazou to disrupt its management meetings. If she quotes this research in future subversions then she is a very bold jester indeed.

Posted in B-schools, Finance, Governance/CSR | Permalink

Ex-Bear Stearns CEO said to have nearly died in 2007

August 4, 2008 5:01 pm by Adam Jones

The debate over the extent to which shareholders should be kept informed of the health of CEOs has a new medical drama to mull over: Jimmy Cayne’s apparent brush with death.

Fortune reports that the bridge-playing former Bear Stearns boss was rushed to hospital last September because of a severe prostate infection.

Sharp-eyed investors would already have known that Mr Cayne was not well then. The New York Times disclosed on September 21, 2007, that Mr Cayne had been in hospital “for several days”.

However, the Fortune article, which says it drew upon “a series of lengthy interviews” with Mr Cayne himself, claims that he only had a 50/50 chance of survival when he was admitted.

The hospital stay lasted 10 days, it asserts. Moreover, it claims that he took a Town Car to the hospital instead of an ambulance, partly to protect the firm from a potentially-damaging public disclosure of his condition.

Mr Cayne ceased to be CEO of Bear Stearns in January 2008 but remained chairman. The stricken bank was absorbed into JP Morgan in May. Mr Cayne could not be immediately reached for comment.

Tags: credit crunch, health
Posted in Governance/CSR, Leadership | Permalink

Coke’s Don Keough is The Real Thing

August 4, 2008 12:36 pm by Stefan Stern

You learn more from your mistakes than your successes, the wise old heads say. That sums up the Don Keough view. (I hope he doesn’t mind me describing him as old, but he is 81, has six children and 16 grand children.)

He was also, famously, President of Coca-Cola for 12 years between 1981 and 1993, during which time he oversaw the doomed launch of New Coke. That botched innovation is seen by some critics as one of the all-time great business errors, so we can be sure Mr Keough’s views are based on sound experience.

I spoke to him on the phone last week, before he headed off to Tuscany for a summer vacation with all of the above-mentioned family. He may have been demob happy, but there was still time for a brief but serious discussion on business disasters and how to avoid them.

Mr Keough has just published a book, The Ten Commandments for Business Failure. It is an enjoyable and succinct read (although my colleague, John Gapper, offered a slightly crisper assessment in this FT review). It was a pleasure to have the author take me through its contents in a kind of fireside management tutorial.

Continue reading: “Coke’s Don Keough is The Real Thing”

Tags: Coca-Cola, Warren Buffett
Posted in Governance/CSR, Leadership, Marketing/sales | Permalink

Pick of the week

August 1, 2008 5:39 pm by Adam Jones

Steven Kaplan has been blogging about research he co-authored suggesting that a chief executive’s success depends more on execution-related abilities - aggression, speed, persistence, etc – than interpersonal, team-related skills.

The main findings have been widely disseminated. Yet I found something intriguing in the detailed assessments of 316 very senior executives that underpinned the research.

The stats suggested that the biggest weakness of these managers was a tendency to hang on to underperforming employees. And this was in spite of the execs ranking highly on other macho measures.

Did this stem from a squeamishness about jettisoning a predecessor’s dud hires? Or did it reflect a stubborn loyalty to one’s own flops? I asked Professor Kaplan. He said: “Probably a little of both, but more the latter than the former.”

Elsewhere:

McKinsey says some Asian companies are giving a masterclass in managing big capital projects;
A nifty interactive guide to common forms of accounting fraud (while this was published a little while ago, I thought it would be a handy follow-up to my recent post on accountancy’s invisible ink).

Posted in B-schools, Governance/CSR, Leadership, Strategy/ops | Permalink

Pick of the week

July 25, 2008 2:55 pm by Adam Jones

The shareholder is king, says Anglo-American management dogma, so run your company for his benefit. I’ve often struggled with that one. Kings? Those people scrambling for the egg sandwiches at the end of the annual meeting? That automaton running the index-tracker fund?

Freek Vermeulen of London Business School also has trouble with this truism. The Dutchman argues persuasively on his blog that employees should perhaps be a greater priority than investors – and throws in a boozy anecdote about the late Sumantra Ghoshal to boot.

John Thornhill sagely extends a similar line of thinking in a column about the people-centred – as opposed to profit-centred – model of capitalism often found in continental Europe.

Elsewhere:

The Chippendales brand gets a fresh coating of oil rubbed into its pecs;
Why cash-hoarding European family companies suddenly don’t look so stupid;
Which country’s bosses get as many as 18 weeks of annual holiday? (Clue: not France.)
How to start a mentoring program;
What publicly-traded companies are up against when trying to retain executives tempted by private equity.

Posted in B-schools, Corporate culture, Governance/CSR, Managing others, Marketing/sales | Permalink

Don’t be fooled by accountancy’s invisible ink

July 23, 2008 5:14 pm by Adam Jones

Anyone who oversees accountants would do well to read details of a freshly-settled fraud complaint in the US.

The SEC had accused Scott Hirth – a former divisional CFO at ProQuest, a producer of electronic databases of archived information – of fraudulently boosting recorded revenues and under-reporting costs.

Without admitting or denying the allegations, Mr Hirth has agreed to pay a fine and be barred as a company director. ProQuest, which is now known as Voyager Learning Company, has also consented to settle SEC claims of lax controls without admitting or denying the claims, but it does not have to pay a fine.

Two things in the 24-page complaint filed by the SEC struck me as particularly fascinating. The regulator alleged that Mr Hirth had covered up his spreadsheet manipulation by using hidden rows and entries in white text on a white background.

That’s right: we’re talking about the accountancy equivalent of invisible ink.

Continue reading: “Don’t be fooled by accountancy’s invisible ink”

Posted in Finance, Governance/CSR | Permalink

Governance vigilantes holster guns amid slowdown

July 21, 2008 6:54 pm by Adam Jones

RiskMetrics, the owner of corporate governance adviser ISS, has just delivered its assessment of the latest round of annual shareholder meetings in the US, also known as the proxy season. Its verdict?

Simply put, the bear market mauled the 2008 proxy season… The collapse of Bear Stearns on the eve of the season let most of the air out of the shareholder activism balloon.

Deteriorating economic conditions meant shareholders were more likely to back management and refrain from ousting directors, while activist pension funds and unions sensed which way the wind was blowing and decided to rein in their demands. RiskMetrics also said companies were getting better at talking to investors on contentious issues.

Yet it added that one type of investor has been pursuing its own agenda in muscular fashion during the market turmoil. It pointed out that many boards - including those of The New York Times Co and Tiffany – have in recent months agreed to yield one or more seats to hedge funds unperturbed by the choppy waters.

Posted in Governance/CSR, Hard times | Permalink

Pick of the week

July 18, 2008 1:30 pm by Adam Jones

The liquidity crisis in the debt markets led to credit rating agencies being put under the spotlight. Now research from Stanford University questions the usefulness of corporate governance ratings applied to businesses by specialist advisory firms.

Media coverage includes an intriguing quote attributed to Robert Daines, one of the authors of the study:

[Good] governance is a little bit like porn. I can spot it when I see it but it is hard to say what it is.

Not much one can add to that, really.

Meanwhile:

AG Lafley of Procter & Gamble talks about involving consumers in innovation at the prototype stage;
Tips on staging meetings that resolve rather than create conflict from the senior mediator at the Church of England’s Lambeth conference;
Three MBA students announce the imminent launch of a social networking site aimed at fostering links between students at elite schools;
A Spanish take on managing Generation Y.