Financial Crisis and Leadership or Lack Of
December 18, 2008
In my book, written after the “Enron Era”, I wrote about a Business School-Media-Corporate complex –
This Business School-Media-Corporate complex seems to have engaged in a group think of enormous proportions—professors, consultants, journalists, students and executives all feeding on their own diets of best practices, theories and what defines leadership.
- Business schools taught Ethics as a sideline.
- Many companies have lofty Mission Statements and Operating Practices statements that address ethics, but do little to enforce them.
- Journalists give interviews to glitzy executives who brag about what they are doing to improve profits.
- Executives courted Wall Street analysts who might improve their stock ratings.
Business is at a crossroads. Capitalism is facing a crisis. All of us who believe in business—from CEOs to business-school professors—must recognize that we have contributed to this crisis.
“Memo to: CEOs,” FastCompany, June, 2002″
Once again we have a flood of articles about a Leadership Crisis. There’s Fortune Magazine’s “How the fallout from the financial crisis could breed a new type of corporate leader”. Then there’s BusinessWeek’s “Leadership and the Financial Crisis”. And again there’s the debate about the role of Business Schools.
Enron Era Redux? No, this crisis is much worse. The impact of the Enron era was primarily limited to employees and investors. The current crisis has brought us to the brink of an international economic collapse.
In some of my posts, I have singled out some companies such as Nexen and Rio Tinto as models of ethical practices. Unfortunately for many of us, their model was not replicated in the companies that caused the current crisis.
Perhaps Warren Buffett has the key –
Executive compensation is the acid test of corporate governance. Financial incentives determine what objectives an organization pursues, and they drive the way managers conduct a business.
Boards should add an ethics component to senior management’s compensation package. Components of typical executive compensation include –
- a cash base salary;
- annual (short-term) incentives;
- long-term incentives;
- supplemental retirement; and
- other executive benefit.
Adding an ethics component should not be difficult and would contribute to improved ethical behavior. This will be covered in a future post.
A final insight on effective leadership is offered by Carly Fiorina, former CEO of HP. In a Wall Street Journal Opinion piece she said –
There is no doubt that government will now play a greater role in key industries. While this expanded role is perhaps vital for a time, our Founding Fathers knew that government’s power should be limited. If we are to emerge stronger from our current crises, businesses must restore their credibility and regain the American people’s trust by embracing accountability and transparency.
At no time in human history have we been so unconstrained by our array of capabilities or so challenged by our worst excesses. Never have common sense, good judgment and ethics mattered more.
Indeed.
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9 in 10 Emails are Spam Says Cisco Annual Security Report
December 17, 2008
Each year, Cisco publishes its annual security report. This year’s report tells us that 90% (or nearly 200 billion) of all the email messages sent each day are spam. Next time your leadership comes to you and asks you to put together a marketing or branding email campaign, and you tell them to invest in measures to ensure your email is not diverted to recipients’ spam folders, but to save money, they say no, show them this report. Every step you can take to ensure your email messages get to the recipients’ inboxes are essential to your campaign’s overall success.
Perhaps the biggest challenge of creating a successful email campaign isn’t getting people to open your message and follow your call to action, but making sure they get to see it sitting in their inboxes. Even the most compelling title for your email doesn’t help if consumers never see it. At the very least, an email authentication program is critical. While not full-proof, it certainly increases the chances for your email to make it to its final destination correctly. Read more
Governance Visualization — An OCEG Masterpiece
December 16, 2008
In one of my posts I wrote about a standout Corporate Governance organization Open Compliance and Ethics Group (OCEG). Another post covered Corporate Governance Visualization, the use of graphics to convey and explain Governance matters. I’d like to combine the two themes.
Corporate Eye has received permission to link to OCEG’s seminal visual on Corporate Governance. Think of it as “everything you wanted to see about Governance.” This is a landmark effort and visually shows all Corporate Governance practices and stakeholders, and all relationships and linkages.
You may access the visual here.
You will need to register for free subscription: well worth it you will get access to the visual and more. Also don’t worry about e-mails, OCEG respects your privacy.
For those who have an interest in Corporate Governance, OCEG and the visual is a must.
Consumers Trust Corporate Blogs Least of All
December 15, 2008
A new report from Forrester Research, tells us that only 16% of online consumers trust corporate blogs, putting corporate blogs at the bottom of the trust scale, lower even than personal blogs.
That’s not good. However, it definitely reinforces what bloggers already knew but corporate executives have trouble believing - blogs that simply regurgitate corporate rhetoric are useless. So what’s a company to do? How do you create a corporate blog that’s actually useful?
There are a number of companies that have launched successful corporate blogs, but they’ve done it by listening to consumers. Companies like Dell and Apple have turned their blogs into customer service portals and places where real conversations take place. Rather than simply speaking at consumers through their corporate blogs, Dell, GM and Apple have embraced the main purpose of blogging by creating a communications device that speaks with consumers, values customer opinions, listens to customers and responds to them. Rather than simply delivering marketing messages, the information on these blogs is useful and helpful to consumers. Read more
Rio Tinto and Governance Ethics
December 11, 2008
I came across Switzerland based Covalence SA, a company that rates corporate ethics. The latest quarterly report listed the top 10 multinational companies –
I decided to pick the company least known to me — Rio Tinto. Rio is an international mining company with $33 billion (USD) in sales. Their website includes an unique “Our Approach”, that addresses Governance and their business philosophy.
Rio Tinto’s success as a business depends on a shared commitment to being a dependable global partner and good local neighbour.
Rio Tinto is committed to maximum transparency consistent with good governance and commercial confidentiality.
Rio Tinto contributes to sustainable development by helping to satisfy global and community needs and aspirations.
Rio Tinto aims to understand the issues that concern our stakeholders, and to build that knowledge into the way we do business.
Detailed information on Rio Tinto’s business policies.
Read features and case studies about our approach to doing business.Note that Transparency and Openness is first on the list. The Features section has a wealth of information about how Rio does business. This is remarkable since it gives stakeholders a storehouse of material.
Next, look at the Ethics section –
Ethics
We encourage our employees to treat each other and the communities in which we operate with dignity, fairness and respect, and we expect our managers to lead by example in high standards of behaviour.
We are committed to a high level of transparency, consistent with good governance and commercial confidentiality. We also undertake our business with integrity, honesty and fairness at all times, as clearly stated in our statement of business practice, The way we work, in our guides such as our Business integrity guidance, and in our statement of procurement practice, The way we buy.
Further, we explicitly support the United Nations’ Universal Declaration of Human Rights and we respect those conducting our operations around the world.
How we apply ethics at work
It is mandatory for all our employees to be trained and to adhere to all the policies contained in our statement of business practice, The way we work.
Since 2005, we have required all our general managers and above to train on our Business integrity guidance, which addresses areas such as political involvement, bribery, corruption and facilitation payments.
Every year, we ask each our businesses to complete a rigorous and comprehensive Internal Control Questionnaire (ICQ), to check that they are adhering to The way we work. In addition, we use our Compliance guidance programmes with regard to implementing our policies.
We also require our directors, senior management, financial managers and employees who prepare financial statements to conduct themselves with integrity and honesty, in accordance with the ethical standards of their professions.
In addition, we expect them to comply with our Antitrust policy and guidance to ensure that we adhere to our policy of free and fair competition wherever we operate.
This is a very comprehensive treatment on Ethics. Rio understands that the key to Ethics is the actions the company takes to insure that its policies are implemented. Note the highlighted paragraph regarding the annual ICQ review. This is crucial to insure that ethics underpin business practices.
Rio Tinto stands out out as a large multinational company that is serious about its Ethics.
A final suggestion: do visit the Covalence website, as it is worldclass.
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