Archive for the ‘Corporate Governance’ Category

Corporate Tea Party?

October 5, 2010

Quietly, but unmistakably, some corporations appear to be fighting back against regulators and consumer lawsuits rather than reaching settlements.  Are they having their own Tea Party moment?  Fruit drink entrepreneur, Lynda Resnick, who with her husband owns POM Wonderful, makers of the pomegranate drink, is fighting back against FTC claims that health claims made for the drink aren’t backed up by science.  The Wall Street Journal quotes her today as saying “We’re going to fight this.”  In the mean time, American Express has refused to join an industry-wide agreement to allow merchants to steer customers towards cheaper forms of plastic, says the Journal.  The Justice Department is now suing AmEx which has apparently decided years of litigation, according to WSJ, are preferable to caving in.  Meanwhile, in East St. Louis, Henkel’s Dial Corp. is fighting a consumer lawsuit inspired by an FDA ruling that says there is no factual basis for its claim that its soap “kills 99.9 percent of all germs.”

Three cases don’t make a trend but there’s a distinct feeling here that some corporations have decided that election-inspired Ceylonerie may be the perfect environment in which to fight back against Obama administration regulators.  Perhaps some of these efforts will be successful, but November comes very soon and there’s little evidence that Tea “drinkers” are any less concerned about the products and services they consume than the general population.  They may be against Big Government with a Capital O (b-m-), but that doesn’t mean they like Big Marketers any better.


Social Responsibility and “Pubic” Embarrassment

August 24, 2010

Professor Karnani’s essay in today’s Wall Street Journal perfectly illustrates the fuzzy thinking on both sides of the debate about corporate social responsibility.  He clearly doesn’t like CSR but the reader searches without much success for the reason why.

 The rise of the term “stakeholder” has indeed deluded some people into believing that there is an abstract ethical obligation on corporations to balance profits and the public good, but Dr. Karnani has erected a convenient straw man here. The main stream view is that no-one expects for profit corporations to take actions adverse to the long term interests of shareholders.  Social responsibility is and should be, as he says, a financial calculation for executives just like any other, designed to protect their companies’ license to operate.  Companies that correctly identify the consumer appetite for sustainably produced and transported goods will also make money by marketing that commitment to social responsibility. Companies that fail to keep up with changing consumer opinion in this area will expose themselves to the Journal’s orthographically apt “pubic embarrassment.”

So, other than attacking the fringe that believes that companies should sub-optimize their profitability without any balancing benefit, what exactly is Dr. Karnani’s problem with CSR?  In one paragraph (and a sidebar), he asserts that “a focus on social responsibility will delay or discourage more effective measures to enhance social welfare in those cases where profits and the public good are at odds.”  He adduces no evidence, even anecdotal, for this argument.  Presumably, he would not have the audacity to argue that “Beyond Petroleum” rather than lax regulatory enforcement led to the Gulf oil spill.  In fact, there is at least as much evidence that commitments to social responsibility goals by large corporations are likely to increase the eventual public good and assure their  continued license to operate, surely a shareholder benefit.

 There may indeed be an argument that the relationship between corporate behavior, regulation and self-regulation is currently off balance, but that requires a different discussion.  That is a discussion about finding the equilibrium between public goods such as jobs, growth and innovation and other public goods such as pollution control and the management of natural resources.

Hurd on the Street II

August 17, 2010

Alfred Hitchcock used the term the “McGuffin” to describe a plot-enabling device which drives the behavior of a film’s characters.  It’s usually mysterious like the secret government plans in “The Thirty-Nine Steps” or the meaning of Rosebud in “Citizen Kane.”  In the evolving saga of the resignation of Mark Hurd at HP, the McGuffin is surely the charges of sexual harassment that didn’t involve intimacy and that Ms. Fisher claims she never imagined would cost Mr. Hurd his job.  This McGuffin is clearly working over time.

 Since Hurd’s resignation, as Ashlee Vance writes in today’s New York Times, there has been “a string of leaks from both sides resulting in a very public imbroglio.”  Like all crises, the HP saga illustrates some key principles very effectively.  The first is, that from the corporate perspective, nothing is more important than starving the narrative of oxygen.  This means that even if you believe the story is slipping out of control, resist the  temptation to leak further details that you believe bolster your position.  It is better to get off the front page than win the argument.  The second more elusive principle is that it is crucial to stick to your storyline.  If the issue is expenses, then you need to stick with expenses.  Revelations about inappropriate web-surfing at work or undisclosed settlement negotiations muddy the waters and throw your entire rationale into question.  Whoever is leaking information from HP’s side is doing the company no service.

In some of the best films, the McGuffin is actually completely forgotten about by the end of the picture. It might be a suitable fate for this particular example of the genre.

Hurd on the Street

August 12, 2010

We have long been advocates for the visible and public management of reputation risk by corporate boards.   Ethical sourcing of raw materials, monitoring of emerging market labor practices, assessments of appropriate marketing to children are all fit subjects for board level scrutiny.   Nonetheless, we were somewhat taken aback by the very public association of the firm APCO with the recommendation that HP’s board ask CEO Mark Hurd to step down.  Various news stories described the analysis by the firm as showing that a decision to let Hurd stay would be a PR nightmare for HP.

We can argue about whether such a nightmare would actually have occurred and there are differing opinions as to whether the alleged expense account improprieties were in themselves a firing offense.  What stands out for us is the presentation of APCO’s recommendations almost as if they were a credit rating, an audited financial filing or a fairness opinion.  Look, HP’s board seems to be saying, we’ve consulted expert advisors and this is their recommendation, so you can’t second guess us.  If this positioning turns in to a trend, it could lead in some interesting directions.  Do BP’s perceived communications failures constitute one of the counts in a shareholder lawsuit?  If a company planning a product recall does not consult outside crisis counsel, is that a breach of fiduciary responsibility?  Will we see the emergence of a Big Four group of certified reputation risk consultants?  Will the current Big Four accounting firms simply add this to their service offerings?

It’s obviously too soon to know which scenario will end up being played out.  Having co-developed a methodology with Oxford Metrica for measuring the shareholder value impact of reputation events, we are watching this space with intense interest.

The King is dead! Long live the King!

July 2, 2010

The orderly succession planning  recently announced at JPMorganChase stands in stark contrast to the unanticipated executive departures and botched successions that crop up routinely at many American corporations.  This contrast accentuates the dual nature of the succession/replacement issue.  A well-run company needs a contingency plan to ensure that there is a back-up in case of  the illness or departure of a key executive. It also needs a credible narrative to support a transition even when unexpected.  The need for this narrative becomes especially acute when a company suffers from a string of what are almost always unrelated senior exits, but in the marketplace are construed as that noxious form of negative momentum — the mass desertion.  Once established, this storyline can be very hard to eradicate.  Naturally, it strikes hardest in those organizations where much value resides in individual players — technology, health care, professional and creative services.

There are limits to the available mitigation strategies.  The research genius or marketer with true flair can have an enormous impact on a company’s fortunes.  However, there are some prophylactic measures available to head off the threat of negative momentum.  The first of these is to have agreement in advance about what you would say if a key executive left to join a competitor or retired unexpectedly and have a narrative that explains why the departure, while regrettable, does not throw the company off track.   This usually involves pointing to the strengths of the overall team and the credentials of executives moving into new positions.  This is hard to pull off convincingly in the heat of the moment which is why it needs to be agreed upon before it happens.

 The companion piece is for the CEO and his or her senior communications counselor to keep a quiet watch on the publicity generated about individual performers in successful business units.   Some executives like the limelight more than others, and publicity for the individual is usually also good for the firm in the short-term.  What communicators need to ensure, however, is that  there is a good balance of visibility amongst key executives both internally and externally.  Enlist lots of them in company thought leadership.  Reach down into the middle ranks for executive profiles whenever possible so that dark horse replacements, when needed, aren’t quite so dark.

No solution is fool-proof but a few steps like these can help deter the negative narrative.  Perhaps if Saul’s publicists had hyped their favorite Pharisee just a little less, the conversion of St. Paul would have been nothing more than an HR problem.

Captain Ahab and the Modern Enterprise

June 22, 2010

Perhaps we need to re-examine our practice of building corporate reputation through CEO visibility  and thought leadership.  This reflection is prompted by Stefan Stern’s comments in The Financial Times today on the concept of centred leadership developed by McKinsey’s Joanna Barsh.  Barsh’s model grew out of her team’s work on women leaders in business and focuses on five principal strategies — developing meaning, managing energy, positive framing, connecting and engaging.  What caught our attention was Stern’s coupling of this concept with a commentary on the retirement announcement of Tesco’s legendary leader, Sir Terry Leahy.  Stern warns us against fitting Leahy’s success into the mythology of the lonely heroic leader.  Tesco’s success was a team effort, as Sir Terry himself points out, lasting for decades.

We’re not sure exactly how the centered leadership model fits, but Stern is clearly stating that the global enterprise of today is too complex to be led by the lone, heroic leader as radical soloist.  If this is true, we need to find a better way to nourish corporate reputation than by creating leaders in the image of Captain Ahab — driven, charismatic, inscrutible, Olympian.  Sustained strategic credibility in the new model will come from showcasing the cohesion, creativity and connectedness of a group of leaders.  In some companies, this already happens organically.  For the rest of us, centred leadership may be a useful wake up call to change the default mode from Moby Dick to The Seven Samurai.

Return of the Nattering Nabobs

June 14, 2010

Clive Crook, writing in today’s Financial Times, rightly warns the British commentariat against complaining about the perceived anti-British tone of criticism of BP. Let us hope that his advice is taken to heart, in contrast to the switch in tone taken by President Obama’s administration last week in response to media criticism that he was failing to express the appropriate outrage (see last week’s post, Channeling Calvin Coolidge).

The ersatz brouhaha about the temperature of the president’s response reminded us of Vice President Spiro Agnew, who, courtesy of William Safire, called the media “nattering nabobs of negativism.”  He was fond of this sort of rhetoric.  He also called another group “hopeless, hysterical hypochondriacs of history” but the reason he springs to mind is that Agnew was, until their relationship soured, a very effective hatchet man for President Nixon, taking on the president’s opponents vigorously  while allowing Nixon to appear as the leader/statesman.

One can’t quite picture Vice President Biden in this role, but perhaps another member of the US cabinet or White House staff could have performed this vital role in order to give the nabobs their outrage while enabling President Obama to be the forceful but calm leader.  This dual response model runs counter to most expert opinion about the importance of speaking with one voice  in a crisis but the challenges of very big crises, in our opinion, require a “palette” of communications styles in response to a diversity of psychological needs among different stakeholders.  If these styles can be carefully coordinated, there are sometimes powerful benefits, benefits incidentally that would also have been available if BP had activated Chairman Svanberg in coordination with CEO Tony Hayward.  Perhaps there is yet time.

Management Skills and the Bhagavad-Gita

May 14, 2010

Embedded in every business success story from Standard Oil to Ikea, there is a culture story and the power of a distinct corporate culture to enable greatness.  A timely reminder of this truism is the story of the New Delhi metro as told in today’s New York Times.  On time and on budget, the metro appears to be a miracle of infrastructure renovation in a country not universally known for the success of its public works.  What is behind this miracle?  A visionary 77-year old who, according to the Times, hands out the Baghavad-Gita to his senior managers as a management training tool.  As a spokesperson for the agency pithily observed: “It is the story of how to motivate an unmotivated person.”

Those of us worn out by the leadership lessons of the Tao Te Ching, Helmuth von Moltke and Genghis Khan, could do worse than turn to the wonderful story of King Arjuna and the Lord Krishna disguised as a charioteer.  Risking the scornful howls of scholars, we’ll give away a couple of central themes: “it’s up to you” and “persevere,” but viewed from a management perspective it’s actually a fascinating discussion of action/inaction and the mental obstacles to successful execution of a strategy.  We’ll leave you with a quote from Text 47 in the Macmillan-Collier edition of 1972: “You have the right to perform your prescribed duty, but you are not entitled to the fruits of your action.  Never consider yourself to be the cause of the results of your activities and never be attached to not doing your duty.” 

Companies can stumble into greatness, but few can sustain it for very long without a powerful narrative of purpose that is consistently communicated to all employees.  If sacred texts are not your cup of tea, The Purple Crayon works, too.