Sustainability Secret – What Company Directors and Executives Miss Out

We are faced with some of the most difficult times in the corporate world which has led to some of the  biggest failures.

My main purpose for this blog is to reveal what I consider to be the missing ingredient for many organisations. This is simple yet powerful. It can be achieved with ease yet business people don’t make the relevant changes to drive their organisations back on track.

Sometime ago, I was Chairing a hospital board on a Governance facilitation and the first thing I learnt was that the directors present didn’t understand the processes thoroughly. Sadly discussions were not well coordinated and were short sighted. We have witnessed a big name, Kodak filing bankruptcy.

This article is applicable to all small, medium and large organisations. What I would like to reveal can change the face of how you operate. I list the 4 fundamental know how which all directors and executives must have.

1) Strategy-

Many directors do not have a full grip of strategy. If at any time, you feel isolated as a director from a company or you feel your points do not sound valid to the rest,  you have not coordinated and linked long term with short term goals. You have not been part of the team managing  to permeate the message to the managers who in turn would be able to empower the rest of the team. But what actually do I mean by, understanding the strategy fully? There is a whole list of what you need to do, but I will give you two important points. Have a brief or summary of the strategy which you have gone through FULLY at least 7 times in a span of 3 weeks . Take out time and understand the strategy completely page by page. Make notes and refer to the detailed strategy. Within 6 months, you must master your detailed strategy. If you can at the very least do these two things, you are on the path of achieving progress for your organisation. Finally, make a list of relevant questions leading to new thinking as you will start picking these very easily. These may be for Management(or for the board depending on the size and complexity) but are important starting steps.

So what happens if you don’t have a strategy? Well, you need to learn the full process and functions, mapping your existing resources with care and construct a future based plan. ( You could use a consultant to help).

The whole idea is for you to forge ahead with your resources acting as drivers.

2) Risk Management-

Risk management is crucial to your overall processes. There can be internal risks such as staff utility, machinery and infrastructure issues, succession planning, failure in execution as well as a myriad of  activity challenges leading to adverse performance shifts.  External risks can be strenuous. Regulatory changes, currency and commodity price change risks, political commonly impact an organisations overall performance.

A few years ago, a client of mine was facing a high cost exposure as operations were decentralised with varied locations. Rentals were high and coordination and communication was a big problem. We laid out a 10 year plan to centralise in one location and noted that benefits outweighed costs in the future. Unit executives were called in and I lead the discussion on what the overall benefits would be. I also discussed a few challenges and how we would be able to overcome these as a group. The level of energy went from low to high as executives saw that no one would step on each other’s toes. Rather, there would be synergy and bigger incentives both personal as well as for the company. The result was that the operations went on to improve and increase significantly.

It is extremely important for boards to explore all aspects of risk . This can be done using either a risk committee or a risk expert or officer, again depending on the size of the organisation. Risks can either be qualitative or quantitative. A point to note, is that discussions of material substance needs board attention and intervention. They have to discuss all points impacting any management decision and collectively support a motion which is meaningful as well as exhausting all alternates and Plan B’s. Learning everything you can relating to executive risk management for your organisation will enable you to switch into a better connectivity and linkage with long term.

3) Finance:

If there is one area which all executives and directors MUST know is finance. After all, finance is the lifeblood of all organisations. Knowing financial statements, working capital movements, Key Performance indicators and what they mean for your organisation is crucial. Astra Zeneca in the UK announced about 7,300 job cuts globally due to patent expiry out of which 350 is from research and development. Whether this move is justifiable or not, I am unsure but it surely raises questions. Did the board and the executives not see this coming in their long term plan? Compare this with Apple which has competition from Sony, Motorola, Samsung and other companies who have similar products. Yet Apple dominates the mobile phone and tablet markets and build capacity instead of reducing capacity. I am aware that this may not be the right comparison but wish to make a point. Was there something different that Astra Zeneca could have done which would not result in job losses? I am sure if we ask their executives– what would you have differently if you could turn back the clock? they would have a whole load of missed out opportunities which may be right in front of their eyes.

The point I wish to make is to be bold enough to make the right decisions and be a driver towards company growth. This can come through having a thorough know how on your organisation’s financials.

4) Best Practice: 

At present there is big discussions on governance and how it impacts organisations. Companies are asked to be owner accountable and more focused and disciplined, owning up to failures. The key to good governance and best practice is to have a set of principles which are carefully set out with the company’s core purpose at its centre. The other key element is to ensure that Values are central. Ethics plays a key role and dynamic discussions are called for. It is not only about having a chairman or a lead director, but to have a group of individuals who are passionate to drive the organisation further through contributing and attending meetings. Some company cultures and behaviours need to change and this can only be done through engaged discussions and respect for all directors and executives. Information must be very clear and succinct and to the point. There has to be oversight mechanisms which are meant to improve measures and operations and not act as a  watchdog protocol. A winning company is one which has shareholders and stakeholders who trust the custodians of the organisation and who are confident and stand by the company’s good as well as challenging times. This can only happen is they have full faith in the organisation. This applies to smaller companies as well who can use similar practices to build upon their existing standards.

In summary the four areas which will drive company excellence is to have deeper insight, deeper understanding and clarity for directors and executives in Strategy, Risk, Executive Finance and Best practice. These four, if properly coordinated will drive your company to a stringer structured company.

Vijay Mistri assists Directors, Executives, CEO’s and professionals, sharpen their executive competence and have world class standards of excellence enabling them to build stronger companies, performance and brands.  He is the CEO and Founder of Rentadirector. www.rentadirector.com – email: vijay@rentadirector.com

 

CEOs can stop learning well

Of course, once infallible, there’s no more to learn, and a CEO may quietly stop learning. Without daily oversight and high quality feedback on how she does her job, she can mistakenly believe her actions lead to success. In reality, she may be doing the wrong thing, but her staff may be working around the clock to cover for her.

Furthermore, sins of omission aren’t penalized. A CEO who does an adequate job, but far less than she could/should have done—goes unnoticed. In hindsight, XYZ Software could have had a $1 billion market niche, and gone public with a valuation of tens of billions. Instead, it stuck to one product, had little understanding of its markets, and ignored competition. Yet it still went public in a $300-million IPO. Was management penalized for a lack of vision and market responsiveness? Hardly! The top managers walked off with $60 million apiece, reinforcing the notion that they had done a great job. Yet with a slightly grander vision, the company might have been 10 or 100 times its size.

Setting vision is the CEO’s job, but nothing tells her if her sights are too low. She isn’t penalized for missing the grander vision. Such sins of omissions are a CEO’s worst enemy. She can be lulled into mediocrity by not knowing what would have been possible. The four-minute mile was considered impossible…until Roger Bannister ran it. Now, it’s commonplace. Likewise, a CEO may limit herself by not realizing she can do her job better.

Though salary benchmarks are common, performance benchmarks are surprisingly rare. Quality learning demands a CEO benchmark herself against other superb CEO’s. Her central learning question is not “are you doing a good job?” but “are other CEOs doing a better job and if so, how can you learn to measure up?

 

First time CEOs – Learn Finance

“You need to learn about finance. Why? Because that’s how companies are run and how business works. Period.”

Most first time CEOs lack any understanding of financial statements. This is truly a hindrance to budding entrepreneurs. Why, because venture funding is driven by financial experts and money managers.  Financial statements are their language of communications.

As a first time CEO, if you do not understand financial statements you will not be able to talk intelligently to angel investors or venture capitalists.  This will be a red flag and more than likely hurt your chances of securing venture funding. So in order to interface with the financial community, as a first time CEO you need to take the time to know and understand financial statements including the balance sheet, income statement and statement of cash flows. You not only need to learn these statements and how they interact, but you need to understand the specifics of your own start-up company’s financial statements.

More often than not world be, first-time CEO’s do not know the details of their own start-up company’s financial statements.  This will not impress your potential investors. So during the process of writing your business plan take the time to understand financial statement. It will broaden your skill set and allow you to make more effective decisions for your start-up company.

 

In the UK, Finance is a must for CEO

Recruitment firm Robert Half has come up with amazing analysis and below is a report based on the research which was published on Bnet.

• The Find: If you want to get to the top of a large UK company, stay away from a new-fangled interest in soft skills and stick to mastering finance.
• The Source: An analysis of the career paths of the CEOs atop the FTSE 100 and Standard & Poor’s Global 100 companies byRobert Half.
  

The Takeaway: Of the 200 CEOs analyzed by recruitment firm Robert Half, 32 percent have a background in finance, includingBritish Airways CEO Willie Walsh, who was Group Finance Director prior to his appointment to the top job and BP’s Tony Hayward, a former Group Treasurer. Coming in second for the FTSE is a path that runs though marketing communications: Nine CEOs came up that way. For the S&P, engineering backgrounds were next most popular.

The findings give you the sense that, at least in the UK, all the focus on soft skills and creativity may be more of a bit of a side show. Phil Sheridan, managing director of Robert Half, sums it up: “Our analysis shows the world’s leading companies continue to put a high significance on financial skills when choosing their boardroom leaders, and in the current economic environment this is unlikely to change.”