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Posted by TonyJohnston_CNi under Management
From http://blog.tonyjohnston.biz 5522 days ago
Made Hot by: ritchelalms on October 11, 2009 1:57 pm

We need a serious rethink about how we handle corporate governance. Here is why, what and how we can do that. It's important to you, me, companies, the economy and our way of life (seriously!).

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Written by SteveRogersCFA
5515 days ago

This is turning into a great debate now! I have several points to make from what has been added since I last weighed in.

Shawn,

You are right to say that one of the great advantages of small-sized businesses is their ability to adapt to quick changing market conditions. Large corporations by their nature have levels that may prevent too much change too quickly. Now if you work for a large company and are advocating change and meet with resistance, it may be frustrating. But on the other hand, this slow approach also insures against mistakes like bringing a product to market too soon to take advantage of quick changing market conditions. This is the ground where today's entrepreneurs toil and rise and fall. One of the great mysteries in business is that large companies who are best able to take risks are also the most risk-adverse, while small business owners who face unlimited liability when they fail are still taking most of the risks in innovation and changing markets.

As for Guy Kawasaki's comments, on this point we will have to agree to disagree. I'm more of the mold of Adam Smith and Milton Friedman--"the business of business is business".

I'll respond to Tony's points later.

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Written by TonyJohnston_CNi
5516 days ago

Hey Shawn, Jimmi & Steve,

Thanks very much for your comments. They were great and showed lots of thought. I'm pleased for all the positive discussion.

As to the Shawn's suggestion that there's a "need to reintroduce some basic entrepreneurial ideas into upper level management" and the board, I agree doing that would boost these people's sense of accountability.

Maybe it can be done by making executives and directors 'run the gauntlet' four times (for explanation refer http://en.wikipedia.org /wiki/Running_the_gauntlet): once with customers; a second time with lenders; the third time with shareholders; and then finally, the fourth time with employees.

Now if things have gone well, it will be a cheering session. But if they went badly, then those poor souls are going to get pretty beat up. Boy, just think what would happen if we did that to the boards and CEOs of Lehman Bros., GM and Chrysler (to name but 3 companies that have disappointed many)!

What do you think? Is this the best way to make those in positions on power and control over large numbers of people and money get with it by accepting a greater sense of personal responsibility and accountability?

Clearly, and maybe on a more serious and practical note, it is tough to build more personal responsibility and accountability into organizations, no matter be they large or small. I think these qualities come mainly from peopleâ€™s sense of moral code and the principals by which they live. And the best way to manage that in business is by carefully watching who gets to join the organization. If solid, ethical people are in charge, and if they are careful to select those who join based on not only their competency but also their ethics - and make sure the companyâ€™s management style is positive and not one of control by fear or mindless dictate - then maybe the organization and those that run it will act in a business savvy way and a broadly respectful and responsible way as well as.

In simple terms, is this issue not one that strikes at the heart of what building a positive corporate culture is all about?

Tony Johnston

Compass North Inc.

www.CompassNorthInc.com

www.TonyJohnston.biz

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Written by ShawnHessinger
5517 days ago

Hi Steve,

No definitely not coming at things from a Michael Moore direction and have no belief that all CEO's are evil. I'm an entrepreneur only at the moment who simply believes that the small and agile sometimes, but not always, have a surprising advantage over the large and well-funded in a rapidly changing marketplace. I've worked for much larger corporations in my career and, though not at the top management level, high enough to see some shockingly out of touch decisions being made sometimes for no other reason than that the organization was simply too large or too immersed in an entrenched company culture to realize until it was too late. I understand that the current method of large scale investment has to do with a large number of investors often with limited control and perhaps limited interest in what the company does beyond making money. Though there is certainly nothing wrong with making money, I am not sure this should be a company's only goal. Consider entrepreneur Guy Kawasaki's thoughts on "making meaning" with a company as an alternative. I think many small business owners and entrepreneurs, the lifeblood of this online community and of our economy, can appreciate this point of view, have a passion for what they do and in some cases could find another easier way of making a living if making money was their only goal. I have nothing against large companies or working for them. I have learned a lot from them about organization, professionalism and persistence of mission and have taken those lessons with me into the small business community. But I think the reverse is also true. I believe that larger businesses can sometimes learn from their smaller relatives too, important lessons about leanness, improvisation and taking the road less traveled. I believe most would be better for it. We have a great deal to learn from each other and I believe the result would be a better economy for us all.

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Written by SteveRogersCFA
5517 days ago

Shawn, thanks for the response. I understand what you're saying but I think you may be starting to veer into the Michael Moore--CEO's are evil people who only want to swindle the rest of the world--territory here. (And if that's your social leaning, I'm not sure I can debate you here on that point.) I'm not sure your example of the CEO who makes ten time the company earning really happens today I think it's more of a stereotype. I do think the majority of CEOs do listen to shareholders, and have been more motivated to due so with boards now tying bonuses to stock performance and company growth. Thanks to corruption in firms like Enron now this practice is drawing criticism. Also, I'm not sure if shareholders need to have that much influence over the company. Most people invest to get a better return on their money, when that doesn't happen you sell and find something else--rarely to you try and replace the board and CEO for the way the company has been run. If the CEO takes the company in a radically different direction, perfect market rules means that none of this happens in the dark, so if the company is functioning in a contrary way the market will respond.

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Written by ShawnHessinger
5519 days ago

Steve,

I think what I mean is that, despite all the ethical guidelines established to govern corporate behavior, there is a basic ingredient missing from this equation. Entrepreneurs and other small business people rarely require these kinds of guidelines not because they are fundamentally more honest but because the ramifications of ignoring the needs of customers and any investors are more immediate. Making decisions contrary to the interests of either group such as taking the company in a direction that is radically out of touch with its customers or taking imprudent steps in money management can quickly lead to insolvency without much way for the business owner/operator to benefit. Explaining to a single business associate who has been good enough to invest in your company that you need a five or six figure salary when your company is making only half that is different than making similar recommendations to a board of directors and it is impossible to pay yourself an inappropriate salary or bonuses or make imprudent purchases as a bootstrapping business if the only money available to you is cash flow.

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Written by SteveRogersCFA
5519 days ago

Shawn, I'm curious what you mean when you say management needs to introduce basic entrepreneurial ideas into upper management. Are you implying they should be taking more risks? The SOX regulations seem designed to reduce too much risky behavior by management. I think question 10 from the list bears the most attention. The board of directors are not a full-time staff position. Corporate governance is the board's responsibility only in so far as they elect the officers of the company. Beyond that, real change come from those actually in charge. They are after all, the real face of the company and by extension the board. When you vote your proxy do you really know all the people on the board? No. But you do know what slate they plan to vote to manage the firm.

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Written by JimmiAmbrose
5520 days ago

I agree with Shawn Hessinger on this point. It's impossible to assume the same ideas would work. Granted, there are some tried-and-true decisions that can be practical for businesses of all sizes, but one must truly rethink things when implementing others.

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Written by ShawnHessinger
5521 days ago

You know, Tony, I have a feeling this suggestion is going to be unpopular and I realize it comes from a much smaller business guy than the ones running some of the small to medium sized companies you're probably talking about, but if we're discussing publicly traded companies, I think there's a need to reintroduce some basic entrepreneurial ideas into upper level management. It's hard to imagine some of these same decisions being made if the people making them had less layers of separation between themselves, their investors and their customers.

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