Diversity trumps ability?

The wonderful Nell Minow tweeted a link to this article, which cheered me enormously although the paper it links to by Abigail Thompson has too many numbers for my liking. The paper by Hong and Page which Thompson critiques is here but for those of us who struggle with the numbers there seems to be a simpler version of Page's thinking here.

Male, stale and frail

Male, stale and frail - catchy, isn't it? A new stick to beat boards with, more boringly known as board refreshment - which sounds to me like the drinks orders at the dinners they regularly enjoy (and I'll get back to the role of dinners in corporate governance one day).

But while catchily alliterative, it's an insulting little phrase. How does the OED define frail?

Liable to break or be broken; easily crushed or destroyed; weak, subject to infirmities; wanting in power, easily overcome; morally weak; unable to resist temptation; habitually falling into transgression.

Nice. Let's all take a pop at older men.

As the FT article linked to above says: 

"Demands for board refreshment usually explode into the open after a scandal, or when a company’s performance sours, or if there is an egregious example of executive pay." 

Yes, boards must be held to account but at that point it's clearly too late. But too much corporate governance commentary takes the position, explicitly or implicitly, that many boards are not doing a proper job and that it's being left to activist investors to put things right. 

Corporate governance regulation is policy made on the hoof. The academic literature is now huge and in many ways unhelpful for underpinning policy because the results reported tend to be equivocal. But the core principle of non executive director independence has been around for long enough to be tested and, as far as I'm aware, there is still no convincing evidence that independent NEDs can effectively perform the oversight function expected of them. 

They try - my goodness, they try. I've recently been interviewing company secretaries and their accounts of what NEDs do make it very clear that, in many large UK companies, this ostensibly part-time role is hugely demanding. I'm astonished that people are still keen to take it on (and there's another question for research: what motivates NEDs?)

Another insight from company secretaries: increasing regulatory requirements magnify the challenge for boards in managing their time between compliance requirements and the need to focus on strategy. This is nothing new: the Hampel report stated that "the emphasis on accountability has tended to obscure a board’s first responsibility - to enhance the prosperity of the business over time." But there is a danger that compliance means an ongoing preoccupation with board composition seeking to satisfy a range of quantifiable expectations about gender, age and ethnicity, none of which has been shown to affect performance directly. Boards should surely be focusing on how to appoint people with the skills, knowledge and experience (which may reside in individuals of any gender, age or ethnicity) that will combine to make the board effective - a combination which will change over time and should be addressed through the regular process of evaluation.

The FT article helpfully provides a link to this view with which I heartily concur.

The history of the term "corporate governance".

A tweet today led me to this interesting paper by Ronald Gilson "From Corporate Law to Corporate Governance".  The work of US legal scholars writing in this area is always worth reading, although I sometimes find their US-centric focus frustrating. And at first glance, there are points that I might quibble about in Gilson's discussion, although I agree with his conclusion about the importance of recognising change and the need for adaptability in governance arrangements.

But I have yet to read the paper properly as I was brought up short by footnote 8, which begins:

 "Brian R, Cheffins, The History of Corporate Governance in The Oxford Handbook of Corporate Governance (2013), nicely tracks the emergence of the term corporate governance. He notes that the term only came into vogue in the 1970s in a single country – the United States."

In writing the Cadbury book, I thought it would be helpful to explore the origins of the expression "corporate governance" so I did considerable research on this. The first example I could find occurred in a 1953 paper by David F Cavers, a US legal scholar, entitled "The Economic Consequences of Atomic Attack". Cavers was concerned about the need to sustain the US economic system in the event of attack. He sets out in considerable detail where problems would arise and, in the context of dealing with the property of those who might die in such an attack, he stated that "Flexibility in corporate governance would also be needed." (p33) He didn't define the term and this is the only instance of its use in the paper. That suggested to me that the term was already in use, certainly among legal scholars in that era.

The earliest detailed discussion of corporate governance that I found was in the work of a US management scholar, Richard Eells, in his book "The Government of Corporations" published in 1962. In the preface to his book, he wrote:

"During the last ten years, in various studies of the modern corporation and its role in our free society, I have repeatedly had to touch on the subject of the present volume peripherally. But only within the last few years has it been possible to discuss the subject of corporate governance systematically, as I have tried to do here."

Eells, who had a business background, wrote about companies from a pragmatic perspective which may be why his work was largely neglected by later scholars more interested in theory.

I suppose "came into vogue" implies the start of the wider discussion of the term but I do think it's important to know its earlier history. (Encountering Professor Cheffins at a conference, I did challenge him on this but he was airily dismissive.)

BHS (2)

I've just been watching the last half hour of Sir Philip Green's epic appearance before the BIS and W&P committee. The fact that he still uses a Nokia phone and a cheque book is actually quite revealing: for him, and possibly for other business leaders operating in the opaque world of private companies, the constraints within which they operate have not changed in the way that the corporate governance framework surrounding public companies has changed within the last three decades. At one point, when describing a meeting, in a smirking aside he said that that for those concerned about governance there was a non executive director present. Sadly, he did not respond to the question about what the committee might learn from the BHS debacle that could improve public trust in companies.

I was also interested that he made the point that struck me forcibly when watching Dominic Chappell in the same chair: why is it that apparently intelligent professional advisers are prepared to work for these people? It's all very reminiscent of Robert Maxwell: branded as unfit to run a public company, he still managed to surround himself with people who would back further ventures.

Banks, leading legal firms and the Big Four accountancy firms lend credibility to such people. They could do their own reputations some good by resisting the lure of lucrative fees and refusing to act for those who have benefited from business behaviour which has been to the detriment of employees, pensioners and all those who lose out when a company goes to the wall.

If Sir Philip makes good on his promise to sort out the BHS pension problems, I'll be impressed.

Sparks

The professor has recently been deeply irritated by the M&S loyalty scheme, Sparks. so irritated in fact that she wrote to the new CEO, Steve Rowe. The ensuing correspondence is reproduced below.

Email, 3 May 2016:

Dear Mr Rowe

Many congratulations on your new job. 

I am a loyal M&S customer. I have some questions and observations about the Sparks loyalty card and would be grateful for your comments.

1. Benefits to Sparks members?

I signed up for Sparks when it first launched. I receive emails about offers but they don’t seem to differ from what is already available in store and on line, and offer little advantage. For example, the recent invitation to see sale offers ahead of non Sparks members was limited to only a few hours before the sale began – by the time I was able to log in, the opportunity had already expired.

I have just checked my offers. 20% off dresses looks useful – but looking at the web site it appears that every customer is entitled to 20% off at the moment. Where’s the advantage to me? Can I actually get 40% off?

2. Technical issues.

Today I have received an email telling me that I may be able to compete for tickets to the Chelsea Flower show. To find out if I have enough Sparks, I have to log in. Why can’t the emails show my Sparks balance? The technology must be available: messages from Virgin Flying Club show my accumulated air miles. Indeed, why do I have to log in at all? Why can’t the messages include a link directly to my Sparks account?

It appears that I don’t have enough Sparks to enter the competition although I have a total of 12684 which sounds quite a lot. I'd like to be able to use this balance when shopping, as a Boots Advantage card allows. Or to exchange the Sparks for air miles as the Tesco Clubcard allows. 

I shop for food in M&S every week and buy clothes and other items about once a month. I've been doing so for a very long time: the Sparks card has made no difference to my pattern of spending. And I shall probably continue to be a loyal customer. But I’m really disappointed that M&S have introduced a loyalty card which offers so little to customers, compared to other retailers' schemes, because I think this damages the company's reputation. 

I'd very much like to know how far you think that the information gathered via the Sparks programme is worth when set against the costs of introducing the scheme and the possible negative effects of damage to the brand name.

Best wishes.

-------------

Reply, 3 May 2016:

Hi Laura

Thanks for emailing Steve Rowe about our new Sparks scheme. As a member of the Executive Office; I’m replying on his behalf.

I’d firstly like to assure you that Steve is aware of your email and has read it with interest.

We’re really excited about our new Sparks scheme but that being said, it is still a relatively new scheme. This means that we are still learning about the scheme and identifying what does and doesn’t work.

Our Sparks member’s club is going to help us understand, in more detail than ever, what our customers are inspired by and what items they love. From this, along with customers contact us directly, we’re able to inform our Sparks team more accurately what offers ours customers want and also what they expect from the scheme.

At the moment, the only way to access your points balance is by logging into your account. I agree and personally do quite like the idea of your balance or statement being on each offer email we send. I’ve sent this suggestion over to our Sparks Development team, who are using customer feedback as inspiration to improve the service.

Some offers can be used in conjunction but unfortunately, some can’t. The terms and conditions differ for each offer, so it’s always advised to check the details section of the offer. That being said, I want you to know that all your comments are being made available for our Sparks Development team to review and consider.

Sparks points have no monetary value but instead can be used to unlock different rewards and experiences. The more you acquire, the higher the level you progress to, which then means better offers and exclusive events.

We know that the scheme is being continuously improve, so with some hard work from us, I’m confident you’re going to start seeing improvements - no more of the same and boring offers but ones that are useful and tailored to you.

I’d like to assure you all your thoughts have been passed to the relevant people across M&S and all are being considered for our future plans. I really hope you’ll see some big improvements with our Sparks scheme soon.

Kind regards

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Now, I didn't expect a personal reply from Mr Rowe (although I did send the message from my university account so that anyone reading it would know that I wasn't just any batty old M&S customer but a batty old professor...) But I did expect something rather more coherent, written in good English, and I could have done without the patronising tone.

But over the weekend I became irritated once more and sent this:

Dear Mr Rowe

I wrote to you recently about the Sparks loyalty card. For your information, I attach below my original email and the reply I received from your office.

I am prompted to write to you again after receiving on Friday an email telling me that my "new offers have arrived." (I noted in my original message that having to click and login to reach the details flagged in such emails is irritating: I do hope that my earlier comment has indeed inspired the Sparks development team...) My offers appear to be the opportunity to purchase a bottle of champagne for £10 and a bonus offer of a free pack of kiwi fruit (ah, not just *any* kiwi fruit, M&S *gold* kiwi fruit, sorry) worth £2. To claim the fruit I must first "claim" the offer to register it on my Sparks card: I can't just collect my fruit in store. 

In Waitrose yesterday morning I was offered a taste of some delicious cheese: the young lady at the cheese counter asked if I had a mywaitrose card, pointing out that if I did I would get a 20% discount automatically at the till when buying the cheese. In Boots, I was asked at the till if I would like to set my purchases against the balance accumulated on my Advantage card. Both experiences left me feeling kindly disposed towards both retailers.

Instead of introducing a simple loyalty scheme with clear and easily accessed benefits, M&S seems to have set up a very complicated system which offers loyal customers almost nothing. I do sincerely hope that you are getting positive feedback on the Sparks card from some people: a friend of mine described it as "as much use as chocolate teapot" (no, that's not intended as a product suggestion to inspire your people).

I would be very interested to hear your views on the scheme and, in particular, its strategic intent. In the current economic environment I would expect M&S to want to keep its traditional and loyal customers on side. Foisting a spurious loyalty scheme on us - one that is so far behind your competitors - seems more likely to alienate us.

Yours very sincerely

I did rather enjoy writing that. Once again, a speedy response from the same person:

Hi Laura

Thanks for getting back in touch with us. As with your first email, this has been passed to myself to respond to on behalf of Steve.

I’m sorry to hear that you’ve remained disappointed by the Sparks scheme and I appreciate your frustrations.

The purpose of allowing customers to activate the offers is that it gives you the opportunity to choose which offer you would like to select. It may be that a different once was available that you wanted, so we wouldn’t want to give you that choice.

Some offers, like the recent 10% off food are automatically registered to the cards. As this offer was so general and broad, we knew all our customer would enjoy it and therefore made it active on all Sparks cards.

I know it’s frustrating to not receive great offers but the Sparks scheme is totally optional and isn’t something you have to use.

As with your previous comments, I have reported your feedback to our Sparks Development Team. As explained, they do review, consider and use customer comments in order to improve the scheme.

On behalf of the Executive Office, many thanks for contacting us and sharing your thoughts with us.

Kind regards

Now, consider the 3rd and 4th paragraphs of this message: I can only assume that my correspondent is an unsupervised intern. 

I have a genuine concern here. The Sparks scheme must have cost a lot to implement and is stupidly complicated for customers so I wonder how easy it is for management to extract the data from it that it was presumably designed to generate. It is, of course, possible that Steve has been lumbered with something he would not have chosen and it may not be easy to row back from it or even to alter it. But I do hope that things change and that the unsatisfactory loyalty scheme and the poor literacy in the Executive Office are not symptoms of a worrying decline.

BHS

I am saddened by the demise of BHS. I feel so sorry for all the employees and pensioners whose lives have been turned upside down by greedy asset strippers.

My mum always said their tights were better than any others. We had two close family friends who were BHS store managers, from the1950s through to the 1970s and they said it was a great company to work for: at one time long-serving managers got sabbaticals - imagine that!

On the audit team there in 1967, I was alone one lunchtime when the chief accountant appeared. "Where are the lads?" he asked. "They're all at lunch but can I help you?" I replied. He grinned as if I'd said something rather funny and turned away, saying "I'll pop back later." "I'm the most senior person here today", I added. He turned back: the grin had been replaced by a look of astonishment, tinged with horror. "They sent a girl?" He vanished, muttering. I was, by that point in my training, used to far more offensive reactions from clients. To my astonishment, he returned later and apologised. He had phoned the firm to check up on me. He confessed that he had been surprised to discover that the firm employed female articled clerks but he thought it was a very good idea and we had a pleasant conversation.

Many years later I had the great pleasure of interviewing Denis Cassidy, BHS chairman and CEO in the 1980s, for a research study. He was a charming man but I think his experience at BHS in the Storehouse days had been frustrating and he talked much more about his other corporate roles.

Retailing is a cut-throat business these days. I wouldn't be at all surprised to see other long-established high street names going to the wall...

Culture redux - more random thoughts.

Yesterday I attended the annual conference of the Management Accounting Research Group at LSE.  I don't know much about management accounting so I have occasionally trotted along to this and it has always proved interesting. In 2013 they actually invited me to speak (you can even listen to me here, starting at 2.30)

The theme this year focused on business models, a notion that I have struggled with for some time, but there was much discussion about culture, principally about how to change organisational culture.
I noted some thoughts about culture in a blog post last November but yesterday's conversations prompted further thoughts.

It occurred to me that the assumption in these discussions is always that cultural change is needed after a crisis of some kind demonstrates some deficiency in the existing culture which needs to be improved.

But cultural change itself is not always a positive thing. In universities over the thirty plus years of my experience I have observed several significant cultural changes. The impetus to measure outcomes started with the quality assurance requirements imposed in the late 1980s/early 1990s and was reinforced by the introduction of the Research Assessment Exercise. While it could be argued that these were practical initiatives introduced to monitor the use of public funds, the unintended cultural consequences have never been properly recognised. Couple all this new funding arrangements, global competition to recruit students, and with individual VCs who feel they have to make their mark on appointment by tinkering with organisational structures without thinking through the consequences and you have a chaotic environment, where academics are under constant pressure to respond to measurable KPIs, and a managerialist culture.

Thirty years ago, the culture I worked in was collegiate and supportive: colleagues ate lunch together and there were many opportunities for the sort of informal conversations that can be very productive. Experimentation in teaching was actively encouraged. Academic staff were encouraged to participate in university administration via committee membership. All of this has gone. Managing an academic career is now a very different proposition. Early career researchers face immediate pressure to publish in high-ranking journals and to raise external funding. They will have research experience but have little opportunity to learn the craft of teaching - I learned by being able to team teach with more experienced colleagues but that's an expensive way of doing things and teaching seems to be a much more isolated experience now.

There was a sense of a shared purpose about the goals of the university, even though different faculties and departments operated in quite different ways. Academics were trusted as professionals. Lines of accountability were blurred. There were colleagues who didn't always pull their weight but peer pressure was strong and I think that is an important factor in how culture works.

The breakout group I was in yesterday thought that cultural change could be effected through change in systems and processes. An example given was a change in the process for reimbursing expenses: this could certainly lead to behavioural changes but is that really cultural change?

How can organisations defend themselves against adverse cultural change, whether imposed by external constraints or new senior management? Does such adverse change inevitably lead to crisis and a demand for a new and "better" culture? How can individuals within an organisation work to maintain a culture which has a proven history of achieving organisational goals?

Calls for cultural change seem to imply that individuals or groups within an organisation have favoured their own interests ahead of that of the organisation to an extent that causes a crisis. Is culture about ensuring that the interests of individuals are aligned with that of the organisation (thanks to MP for that thought)? If so, to what extent do they have to be aligned? Can some degree of non-alignment be positive, a catalyst for innovation?