Do Economies Need More Than Just Corporate Reform?

Despite the efforts of national governments and international organisations to improve corporate governance in emerging markets, the response of the companies themselves has been underwhelming. Many companies ignore the initiatives - which primarily involve reform of boards of directors - or just pay lip service to them. Little attention is paid to the directors' qualifications, even when reforms are mandated, as they are in South Korea, where 25 to 50 per cent of a company's directors (depending on its size and sector) must now come from the outside. Could the problem be that the would-be reformers are focusing on the wrong reforms?

This raises some interesting questions, where for example some may argue that corporate reform is required in first world countries, let alone emerging markets; where Board structure has been debated for years and yet actual change is taking a lot longer than it should. But as mentioned below, many first world countries may also need to look at political reform, where ‘governments’ need to change their priorities from ‘selfish re-election’ policies to actually putting their country’s development first.

Paul Coombes and Mark Watson mention that “over half of the respondents in a recent McKinsey survey of private equity investors said that reform of the institutional context – reform driven by governments, local stock exchanges, and regulatory watchdogs - was at least as important as reform of companies. Within the institutional context, the two main concerns were weak enforcement of legal rights and the management of the economy,” (p.91).

What’s particularly interesting about this 2001 article is that they state that “the corporate-governance model usually prescribed is the one that prevails in the United States and the United Kingdom. Its emphasis on shareholder value reflects the environment in those two countries, where a very large, dispersed class of investors, with no prior connection to the companies listed on the public exchanges, insists on boards that are similarly independent. These investors also demand a high level of financial and business disclosure,” (p.90).

Yet we see ten years on from this article that the governance models of the United States and the United Kingdom have not responded to the advice and rhetoric; and where some emerging markets actually responded quicker to institutional problems, for example, enforcing credit controls prior to the global crisis – in the process showing strong and intelligent leadership, which though rarely spoken about in ‘the West’, made these emerging markets much stronger than their first world counter parts.

It’s as if some first world governments and their industry advisors, were so caught up in their own invincibility, that they didn’t believe they could be affected by a ‘global crisis’ in such a catastrophic way, compared to their ‘lowly’ counter-parts around the world - proving once again that arrogance is the worst predictor of future success.

Like it or not, financial control is a basic requirement of an economic system and the global economic crisis still holds many unanswered questions, including how first world countries managed their failure during this time and what can be learnt by it? Governments and industry leaders seem to have a magical power to be able to sweep embarrassing mistakes under a very large carpet – often arguing that it’s better for the ‘countries’ economic standing to ‘forget and move on.’ But without proper analysis and review there is a real danger that lessons will never actually be learnt.

Unfortunately embracing proper and good governance is still lacking within politics and industry on a global scale. Board composition is just one part of this important ‘equation’ which still needs a lot of attention – but pressure must be put on governments to focus beyond their tenure and to focus on sustainable national growth – where the stakeholders of a nation aren’t just its citizens today but are the generations to come.

The selfish pursuit of short term power and fame in politics and industry has done enough damage to the economies of too many countries already, including the US, Greece, Ireland, Portugal, Spain, Italy and numerous other countries.

So where are the leaders of the future who are going to put organisations and countries back on a ‘real’ sustainable path of growth and success, rising above the game playing both with their respective organisations or the lives of their citizens?

References

Coombes, P. and Watson, M. (2001). Corporate Reform in the Developing World. The McKinsey Quarterly, No. 4, p. 89-92.

 

Do You ‘Walk the Talk’ When It Comes to Leadership?

 

Over the last twenty three years, transformational leadership has become one of the dominant leadership theories within organizational sciences (Bass, 1990), where a number of studies have suggested that leaders who often engage in transformational leadership behaviours, that include;

 

§  charisma,

§  inspirational motivation,

§  intellectual stimulation, and

§  individualized consideration,

 

have a direct effect on their subordinates’ attitudes and behaviour.

 

For example Wang Yung-Shui and Huang Tung-Chun in a 2009 article highlighted how “leaders who exhibit transformational leadership behavior are associated with higher levels of job satisfaction, involvement, and performance by their subordinates. In addition, Podsakoff, MacKenzie, Moorman, and Fetter (1990) demonstrated that transformational leaders are directly related to employees’ performance of organizational citizenship behaviors. Indeed, largely bolstered by researchers such as Bass, the theory of transformational leadership is currently viewed as the most widely accepted leadership paradigm (Piccolo & Colquitt, 2006; Tejeda, Scandura, &

Pillai, 2001),” p.380.

 

One of the key drivers in being a ‘true’ transformational leader is the ability recognise both your own and your followers’ emotions or moods and to be able to ‘positively’ respond to these emotions on a ‘consistent’ basis.

 

Yung-Shui and Tung-Chun go on to highlight how “in the last few decades, within the field of leadership, transformational leadership behavior has come to represent the most effective form of close engagement between leaders and followers that motivates the latter to perform beyond their transactional agreements. Robbins (2001) defined transformational leaders as leaders who provide individualized consideration and intellectual stimulation, and who possess charisma. Bass (1990) categorized this concept through the designation of four behaviors typical of a transformational leader: charisma, inspirational motivation, intellectual stimulation, and individualized consideration,” p.381.

 

Though it’s worth remembering that later, Antonakis, Avolio, and Sivasubramaniam (2003) replaced the term charisma with idealized influence; which for me was one of those instances of making change for ‘change sake’; as when I speak to leaders and followers alike, they all understand the concept of charisma, but don’t have a clue what idealized influence means – and I feel that it’s important, as we research and develop the conditions and traits for effective leadership, that we do so in a language that is clear to those we want to engage with – just as a transformational leader would do.

 

It’s also worth remembering that “there are several reasons that transformational leadership is imperative. Firstly, a leader possesses idealized influence only if his or her followers seek to identify with, and want to emulate, him or her. This type of leader is admired, respected, and trusted. Secondly, transformational leaders behave in ways that motivate and inspire their followers by providing meaningful challenges. These leaders encourage followers to envision attractive future states, which they can ultimately envision for themselves. Furthermore, intellectually stimulating leaders aim to expand their followers’ efforts in terms of innovativeness and creativity by questioning assumptions, reframing problems, and approaching old situations in new ways. In brief, transformational leaders concentrate their efforts on longer term goals, emphasize their vision, and encourage their followers to put forth extra effort to achieve group goals.”

 

The question that researchers and stakeholders need to be asking is how is transformational leadership being taken out of the many books and seminars that exist on the subject; and translated and implemented into real effective transformational leadership on the ground; since history has taught us that it’s one thing to talk about a great concept but another thing completely to implement it effectively on a consistent basis – it’s all about walking the talk.

 

One thing a true transformational leader does that often makes them stand out from the crowd of wannabe business leaders is that that are constantly reviewing their own performance, assessing how well they are performing in their leadership role and also constantly seeking constructive feedback from their team – it’s simply part of the toolkit of transformational leadership and something that can’t be ignored.

 

So as part of your leadership self-development do you regularly ‘debrief’ yourself on your leadership performance and proactively make adjustments to your style to make yourself even better – do you walk the talk?

 

References:

 

Yung-Shui, W. and Tung-Chun H. (2009). THE RELATIONSHIP OF TRANSFORMATIONAL LEADERSHIP WITH GROUP COHESIVENESS AND EMOTIONAL INTELLIGENCE. Social Behavior & Personality: An International Journal; Vol. 37, Issue 3, p.379-392.

How Has Your Approach to Marketing Strategy Changed?

As Professor Don Schultz mentions “it now seems fairly clear, we’ll never go back to the way things were in the latter part of the 20th and almost the first decade of the 21st centuries. Those halcyon days of economic growth and prosperity, at least for the majority of the global and national economies, are gone but, unfortunately, not forgotten. Vestiges of them remain in the empty, uncompleted or abandoned homes, vacation villas, boats and shopping centres that litter the landscape.” 

Don Schultz also highlighted that “the ‘go-go’ years of the recent past pose major changes for marketing, advertising and branding. Like the financial structures that must be reinvented, we’ll also need to reinvent our marketing and communication concepts, particularly how we think brands work, what they contribute and how they can be developed to provide real, not artificial, value - these changes are transformational – and what must be done is going to be so massive that most of our traditional approaches and methodologies simply may not be up to the task.  

Take marketing measurement and accountability for example. Who today can propose using the last three or four years of sales, expenses, output levels or whatever as the benchmark against which to create statistical marketing mix models that really make any sense? Yet we continue to pay homage to past events, past research and past experiences. That’s sort of like basing an economic forecast of success on the few years prior to New Orleans’ Hurricane Katrina. It makes no sense, yet we continue to do it simply because it’s the way we’ve always done it.” 

The other danger with these current times is that in many cases, way too many cases, the blind are leading the transformational change and ‘selling’ solutions that simply won’t stand up to the next ‘hurricane’ that comes along – and what’s even more amazing is many companies, again too many, are willing to spend money on unproven and unsubstantiated approaches to marketing and branding in the desperate hope that their ‘sales and revenue’ will increase in these difficult times. It’s like people with a life threatening virus who will start to believe anything that purports to be a ‘cure’ for their life threatening disease, where they are prepared to spending ‘big bucks’ just on wanting to believe that this is the cure. 

The last real transformation in marketing and branding occurred in the 1970s. Radical changes in traditional marketing and advertising thinking and practice occurred: a move from mass to one-to-one; the shift of money from consumer investment to trade support; an increasing focus on measurement and accountability of the entire marketing function; and, most importantly, the rise of brands and branding as the darlings of the marketing process. 

Take a product, any product, slap a name on it, come up with a clever marketing program, raise the price and take the money to the bank. Rising economic prosperity resulted in many of what today we believe are the basic principles of brands and branding. It was conspicuous consumption, supported by brands that shouted largesse. They were badge brands that could be worn on the feet, called out in the bar.  

“Brand it and they will come” seemed to sum up the 1990s and early years of 2000. 

As Don Schultz concluded, “the challenge, of course, is how we change and what we change into. Unfortunately, our western approaches of siloed, functional thinking and organization work against us. Clearly, we live in a holistic, networked world. In short, we’re all in this together. To bring some kind of future out of the present chaos is going to require a concentrated effort; not just of marketers, but through the efforts of consumers as well. If we really understand that the period in which we are living is transformational, not just transitional, that will help. But, we’ll need new concepts, new approaches, new methodologies and new thinking.” 

The fundamentals of business fortunately never change, like having a solid, well communicated but flexible strategy; the talent to implement it and the right systems to monitor ‘market and environmental’ information in real time. Yet it’s often the flexibility to adapt and transform that can cause problems especially when ‘history’ only helps so much – like, in telling you what not to do. So organisations need to reinvent themselves and their products and services in the ‘new’ global economy – that means being open to ideas but staying results focused and remembering the old saying “that if it sounds too good to be true, it probably is”. 

References: 

Schultz, D. (2009).Transformational Branding. Marketing Management; Sep/Oct, Vol. 18 Issue 5, p.6-7.

 

Is Bigger Always Better?

Given a choice is it better to join a large corporate organisation to maximise your career development rather than a smaller one? The immediate thought might be yes; as its size should give security; it is likely to have more money and resources to invest in talent management; and you can get access to greater benefits, including share schemes that over time can prove quite lucrative – but maybe the first question we need to ask is, “what is a large company – how is it defined?”

The EU defines a large company as one with a headcount of more than 250 people; turnover greater than €50m; or a balance sheet greater than €43m. The EU definition is important since state support to ‘Large’ companies is strictly limited. Whereas in Australia a proprietary company is defined as large for a financial year if it satisfies at least two of the following paragraphs:

• The consolidated revenue for the financial year of the company and any entities it controls is $25 million or more

• The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million or more, and

• The company and any entities it controls have 50 or more employees at the end of the financial year.

But many people in today’s global economy would still consider these companies small, or at least medium sized, compared to the multi-national large corporate with thousands of employees around the world.

The biggest ‘employer’ in the world is considered to be the US Department of Defence with around 3.2 million employees – but if we look at ‘organisations’ we know as businesses then Walmart is the largest with around 2.1 million employees, followed by McDonald’s with 1.9 million employees.

When you look at these sized companies it can be difficult for many people to even imagine an organisation of this size and how it works, unless you’ve actually worked for one. People who haven’t worked in ‘very’ large corporates are often concerned that they will become faceless, nameless people – just a ‘clock’ number whose chances of progression are limited to doing something extra special that gets them noticed by the right people.

Maybe a better example of ‘large’ would be organisations like Tesco which has over 180,000 employees; or Barclays with around 140,000 employees and Shell with over 101,000 employees – these would be considered examples of ‘well known’ large corporates that look after their staff (or most anyway) – where employees quickly learn how to make the most of these organisations, adapting to the ground rules to progress in their careers.

Not everyone has the same career ambition and if you join a large corporate early in your career you are likely to be ‘developed’ into their culture and from your perspective have a very enjoyable and rewarding career, with good financial reward; excellent development opportunities and a very good pension, guaranteeing an enjoyable retirement (possibly an early retirement too).

The only question that you may not be able to answer is whether you have achieved your full potential.

And that’s the rub – whereas a large organisation is likely to give you financial security for life and year-on-year personal development; a small or medium sized organisation may be risky, but in fact can give you a greater opportunity to maximise your true potential and the real possibility to earn significantly more than with the large corporate.

If I was giving general advice and assuming your desired career path allows it – get the experience with the large corporate first, or early in your career – earn the money and invest it wisely; get the training and development; get global exposure by looking international ‘transfers’ every three years or so; and get exposure to as much as you can; and then assuming you feel that you still have so much more to achieve in your career and have reached the ceiling with the ‘big boy’, then look at sharing your experience within the sme market, accepting that they will teach you just as much as you will give to them – as you will be entering a different environment, a different decision making process, a different culture.

Of course some people go straight into the sme market and with their natural entrepreneurial flair make a huge success of their career and retire early and buy an island :-)

 

So think about what you want from your career and try to make the right choices early on – as this forms the foundation for your career moves in the future.