Newspapers have special governance responsibilities. There has been much reported on corrupt practices of British newspapers in paying public officials for information that informs news stories and also on an apparently widespread historic practice of hacking into people's voicemail to gain information for reporting. It is worthwhile pointing out, in passing, that while those journalists implicated were acting improperly their motivation was, generally, to investigate news stories that were of public interest.
There is another area where the news media has responsibilities that has, so far, received less attention. I recently spotted a very peculiar article that illustrates this, in the Sunday Times (Kiki Loizou, "How I Made It: Maria, Hatzistefanis, founder of Rodial", 5 August 2012). You may argue that there is nothing wrong in a reputable newspaper running a piece on the background of the founder of a controversial business. It did, after all, state quite clearly that Rodial had sued a docter who cast doubts on the efficacy of their products and quoted the business founder as saying she had no regrets in having done so. However, let us examine this by taking a wholly hypothetical and extreme position. Let us suppose that none of Rodial's products have the effect their manufacturer claims and that it is a business that preys on the credulous and the desperate. Would it then be right for a reputable newspaper to be offering helpful publicity without calling it an advertisement?
You may argue that the article was balanced but I think that is questionable. At the time of the legal action against the doctor it was claimed its purpose was to make it too expensive for her to defend herself when she thought she had merely expressed a reasonable opinion - the intention, it was suggested, was to shut her up. The doctor had expressed only mild doubts, not an all-out assertion that the claims for Rodial products were balderdash, and she had merely asked for the company to publish scientific proof for what seemed to be extraordinary claims. See my previous post on this matter. No peer reviewed evidence for efficacy has ever been published. Loizou's article does not make any of this clear and it is pretty material. You may wish to look at Rodial's website yourself to inform your own opinion of the products and claims for them. You may disagree with me. The range has extended considerably over the last couple of years and the products that caused all the fuss - under 'bodycare' - are now a small element of the whole. I admit that, personally, I find the claims for this range of products hard to believe without seeing some convincing supporting evidence. A counter-view to mine might be that many of the skincare products sold by Rodial make claims that are no more extravagant than many cosmetic companies, which also offer no proof of efficacy to potential customers. Indeed, for example, a study published in the past year suggested that only two or three of the many anti-wrinkle creams on the market work at all - all the rest have no effect.
My problem with the Sunday Times article is that it provides unbalanced publicity for this company. Are there other articles in supposed 'papers of record' that are similarly unbalanced? Do not newspapers that claim to be 'papers of record' owe some duty of care to their readers? Is this not a governance matter? How did the article come to be written, did Rodial's representatives approach the journalist, is the journalist a user of their products? I do not suggest that News International, the owner of the Sunday Times, is worse than other proprietors. It just happens that they have recently been the centre of a public relations and media storm concerning governance, which might have made them a bit more careful.
Monday, 13 August 2012
Lessons from the Olympics
I have been absent from the blogosphere for a while but am pleased to find I have some new things to say about corporate governance, even if they arise from unusual directions. Take the London 2012 Olympic Games...what does that have to do with business management or governance issues? The link is that good news drives out bad news.
The UK press has engaged in a bout of national self-congratulation at the close of the Olympic fortnight, and it is well justified. Most things worked very well indeed. The stadiums were ready on time, were comfortable and visually exciting; the Olympic Park was a fun place that handled feeding throngs of people perfectly well and the capital's transport system coped with the extra journeys without breaking sweat. Above all the people of this country were really engaged. Hundreds of thousands of people, if not millions, went to see the Olympic torch carried by a relay of 8,000 people through the country to finish, eventually, at the Olympic stadium. I was one of those spectators who, alerted that someone I know slightly had been chosen to run one of the legs as a reward for his voluntary community work, went out on to a street near where I live to watch. I met dozens of other people I know by sight. I waved a flag and cheered, took photos and was uplifted by the experience. In another flash of inspiration the Olympic venues used a team of 70,000 volunteer stewards who smiled and cracked jokes and good humouredly chivvied the crowds to where they needed to go. I also bought tickets to a couple of events as well as going to free events held in London parks, where giant tv screens carried broadcasts of the competition to enormous crowds.
So yes, it was a triumph. I notice, however, that failings and lessons that might be learnt for the future are being overwhelmed by the good news and conveniently forgotten. Some examples...the ticketing was a fiasco that, in this digital age, should have been avoidable. Security was well handled...in the end...by the expedient of drafting in the army to help. Yet the problems that arose on the very eve of the games should have been predicatable months, if not years in advance. To make way for the expected throngs of visitors the authorities called on people to avoid London, which resulted in empty roads, empty shops and empty hotels. The experience of the Beijing Olympics four yours ago should have alerted everyone to the problem of empty seats at competitions, yet it was apparently a surprise all over again, and even if it is the fault of the Olympic organising committee it could still have been addressed well in advance. I could go on...but I will mention just one more thing, that general good sportsmanship was nearly, but not absolutely, universal. A member of one of Great Britain's medal winning cycling teams admitted on a tv interview having deliberately crashed his bike to get a restart. Instead of being disqualified (which should have happened), the matter was quietly forgotten. I also noticed that US swimming coaches implied drug use about a 15 year old Chinese competitor who clocked up a remarkable time to win a gold medal, yet were silent when a 15 year old American did the same thing...hmmm.
Going back to linkages...the same thing occurs in business. Failure and bad behaviour are forgotten if someone can associate themselves with a bigger triumph. Just today a book review in the newspaper brought to mind how individuals take credit also for triumphs that were not theirs: a new biography of the iconic Israeli general Moshe Dayan explains that he initially argued against policies which he later claimed credit for, after they proved successful. The lesson for us all is that we must struggle to stop failure being forgotten because lessons will then not be learnt and mistakes will be repeated in future - perhaps with more serious consequences next time. Individuals who should be removed from office may also go on to perpetrate further 'crimes'. In practice how do we stop the well-connected from evading responsibility? It is hard and may call for individual courage on the part of whistle blowers or on the part of those who seek investigation of the failures or bad behaviour that has been buried. When everyone around only wants to talk about good news and to forget the bad news it can be emotionally hard to go against the crowd but it needs to be done. Are you an Olympic champion, will you stand up and do it?
The UK press has engaged in a bout of national self-congratulation at the close of the Olympic fortnight, and it is well justified. Most things worked very well indeed. The stadiums were ready on time, were comfortable and visually exciting; the Olympic Park was a fun place that handled feeding throngs of people perfectly well and the capital's transport system coped with the extra journeys without breaking sweat. Above all the people of this country were really engaged. Hundreds of thousands of people, if not millions, went to see the Olympic torch carried by a relay of 8,000 people through the country to finish, eventually, at the Olympic stadium. I was one of those spectators who, alerted that someone I know slightly had been chosen to run one of the legs as a reward for his voluntary community work, went out on to a street near where I live to watch. I met dozens of other people I know by sight. I waved a flag and cheered, took photos and was uplifted by the experience. In another flash of inspiration the Olympic venues used a team of 70,000 volunteer stewards who smiled and cracked jokes and good humouredly chivvied the crowds to where they needed to go. I also bought tickets to a couple of events as well as going to free events held in London parks, where giant tv screens carried broadcasts of the competition to enormous crowds.
So yes, it was a triumph. I notice, however, that failings and lessons that might be learnt for the future are being overwhelmed by the good news and conveniently forgotten. Some examples...the ticketing was a fiasco that, in this digital age, should have been avoidable. Security was well handled...in the end...by the expedient of drafting in the army to help. Yet the problems that arose on the very eve of the games should have been predicatable months, if not years in advance. To make way for the expected throngs of visitors the authorities called on people to avoid London, which resulted in empty roads, empty shops and empty hotels. The experience of the Beijing Olympics four yours ago should have alerted everyone to the problem of empty seats at competitions, yet it was apparently a surprise all over again, and even if it is the fault of the Olympic organising committee it could still have been addressed well in advance. I could go on...but I will mention just one more thing, that general good sportsmanship was nearly, but not absolutely, universal. A member of one of Great Britain's medal winning cycling teams admitted on a tv interview having deliberately crashed his bike to get a restart. Instead of being disqualified (which should have happened), the matter was quietly forgotten. I also noticed that US swimming coaches implied drug use about a 15 year old Chinese competitor who clocked up a remarkable time to win a gold medal, yet were silent when a 15 year old American did the same thing...hmmm.
Going back to linkages...the same thing occurs in business. Failure and bad behaviour are forgotten if someone can associate themselves with a bigger triumph. Just today a book review in the newspaper brought to mind how individuals take credit also for triumphs that were not theirs: a new biography of the iconic Israeli general Moshe Dayan explains that he initially argued against policies which he later claimed credit for, after they proved successful. The lesson for us all is that we must struggle to stop failure being forgotten because lessons will then not be learnt and mistakes will be repeated in future - perhaps with more serious consequences next time. Individuals who should be removed from office may also go on to perpetrate further 'crimes'. In practice how do we stop the well-connected from evading responsibility? It is hard and may call for individual courage on the part of whistle blowers or on the part of those who seek investigation of the failures or bad behaviour that has been buried. When everyone around only wants to talk about good news and to forget the bad news it can be emotionally hard to go against the crowd but it needs to be done. Are you an Olympic champion, will you stand up and do it?
Thursday, 3 May 2012
Dinosaur attitudes to governance in private equity
I have a report from a recent round-table discussion on making non-executive directors effective which was led by a director of one of the UK's major private equity firms. It was fascinating and horrifying for its old fashioned attitudes that are surely, to borrow a cliche, not fit for purpose.
Asked about where directors nominated by private equity firms owe their allegiance he seemed to imagine there was no issue to worry about here. Well.....Later asked about board diversity he merely trotted out the old mantra that if women have other priorities and don't get to board positions then that automatically means there is an inadequate pool of qualified women to serve as non-executive directors. And of course he opposes quotas for female participation at board level. No idea of making changes to make it easier for women's careers to advance to board level. No concept that aspects of approved career progression paths in the UK are too conservative. Needless to say this chap's executive team colleagues comprise just 12% women and not a single coloured face. He accepts that diversity improves corporate performance but, of course, that applies to others and cannot conceive how he could sensibly change the status quo. I too worry that quotas avoid the difficult questions but I think they are inevitable when such young fogeys are so common in this country.
A wonderful remark remark reported by my informants was to the effect that there was, however, a big demand for female non-execs in specific industries, such as cosmetics. What a ******!
Talking about finding senior people for companies he spoke about installing CEO's and Finance Directors: very revealing - no concept that HR is a key discipline that should improve the bottom line, as are engineering skills in many cases.
Where are the open and enquiring minds? Such attitudes as reported here are all too common, to the detriment of our nation's corporate performance; and they are most damaging when they are found in finance businesses such as banks and private equity because there they infect the companies these guys finance, so the virus is spread and reinforced.
Asked about where directors nominated by private equity firms owe their allegiance he seemed to imagine there was no issue to worry about here. Well.....Later asked about board diversity he merely trotted out the old mantra that if women have other priorities and don't get to board positions then that automatically means there is an inadequate pool of qualified women to serve as non-executive directors. And of course he opposes quotas for female participation at board level. No idea of making changes to make it easier for women's careers to advance to board level. No concept that aspects of approved career progression paths in the UK are too conservative. Needless to say this chap's executive team colleagues comprise just 12% women and not a single coloured face. He accepts that diversity improves corporate performance but, of course, that applies to others and cannot conceive how he could sensibly change the status quo. I too worry that quotas avoid the difficult questions but I think they are inevitable when such young fogeys are so common in this country.
A wonderful remark remark reported by my informants was to the effect that there was, however, a big demand for female non-execs in specific industries, such as cosmetics. What a ******!
Talking about finding senior people for companies he spoke about installing CEO's and Finance Directors: very revealing - no concept that HR is a key discipline that should improve the bottom line, as are engineering skills in many cases.
Where are the open and enquiring minds? Such attitudes as reported here are all too common, to the detriment of our nation's corporate performance; and they are most damaging when they are found in finance businesses such as banks and private equity because there they infect the companies these guys finance, so the virus is spread and reinforced.
Aviva shareholders revolt on board pay
It must be worth noting that there has been a 54% vote against the remuneration committee report at Aviva's annual meeting. This follows votes at other major companies indicating shareholder dissatisfaction over executive pay - not least rising pay in the face of falling performance. This groundswell of opinion seems to be an international phenomenon, with shareholders complaining in the USA and elsewhere. About time too! Next I'd like to see such votes having the power to compel management to withdraw their proposals. If that does not happen then I think we will see the rise of votes to remove directors from office. See Guardian article.
Wednesday, 18 April 2012
Damning Business Ethics Report from the USA
I am grateful to Norman Marks in his blog for bringing this latest annual report from the Ethics Resource Center to my attention. The team surveyed nearly 5,000 people across the USA.
Consider some disturbing headlines;
So we have two worlds; the significant number of wrongdoers on one side and a substantial number of people who are outraged by it and will act to denounce it, regardless of the very real consequences.
Although this survey was conducted in the USA I very much doubt that things are much different in the UK. It is not news that whistleblowers often suffer for their ethical stand but I am cheered to learn that nearly 80% did not suffer consequences.
Consider some disturbing headlines;
- 42% of respondents described their companies as having a 'weak ethics culture'
- 45% have witnessed misconduct. And we are not talking about pinching the odd pen
- 13% Health & Safety violations
- 12% Stealing
- 11% Sexual Harrassment
- 11% Substance abuse
- 65% reported the misconduct
- 22% suffered retribution as a result, including;
- 64% excluded from decisions or work activity by supervisor or manager
- 62% verbal abuse by supervisor or manager
- 55% not given promotion or pay rise
- 32% demoted
- 31% experienced physical harm to self or property
- 29% harrassed at home
So we have two worlds; the significant number of wrongdoers on one side and a substantial number of people who are outraged by it and will act to denounce it, regardless of the very real consequences.
Although this survey was conducted in the USA I very much doubt that things are much different in the UK. It is not news that whistleblowers often suffer for their ethical stand but I am cheered to learn that nearly 80% did not suffer consequences.
Monday, 2 April 2012
Financial Reporting Council paper on "Comply or Explain"
In February 2012 the UK's Financial Reporting Council published a report on the "Comply or Explain" approach applied to its Corporate Governance Code. Compliance with the Code is a statutory requirement for listed companies and the report considers two discussion groups, involving representatives of investors and listed companies, that met to discuss the workings of "Comply or Explain".
There are two reasons for producing this report; the first is that the European Commission has asked for views on a proposal that regulators and not shareholders should decide if explanations of non compliance are adequate; the second is that a review of a sample of UK annual reports found a minority of those that had not complied on one or more principles had given only a 'perfunctory' (i.e. inadequate) explanation.
I offer two contrasting thoughts; firstly, that there is a risk that yet more regulation and bureaucracy will simply make declarations even more legalistic and unhelpful (defeating the object of the change); the second, that it is astonishing that company bosses can be so inept and so arrogant as to resist giving proper explanations in the first place. It reminds me of the unhelpful legal boilerplate approach that has been adopted by companies in response to requirements that they disclose the principle risks facing their business. GSK, as I have written before, provides a particularly risible example of this. I wonder whether the company secretarial staff who produced the 'perfunctory' explanations attended the discussions hosted by the FRC - I bet not.
Baroness Hogg, who chairs the FRC, might ponder whether the answer is for her organisation to adopt a more assertive approach - how about giving those companies whose explanations are inadequate a right kick up the arse? Hauling them in and admonishing them would be a useful first step, followed - if they don't release an adequate statement - by a public shaming. Try that for a while before laying on the dead hand of bureaucracy.
There are two reasons for producing this report; the first is that the European Commission has asked for views on a proposal that regulators and not shareholders should decide if explanations of non compliance are adequate; the second is that a review of a sample of UK annual reports found a minority of those that had not complied on one or more principles had given only a 'perfunctory' (i.e. inadequate) explanation.
I offer two contrasting thoughts; firstly, that there is a risk that yet more regulation and bureaucracy will simply make declarations even more legalistic and unhelpful (defeating the object of the change); the second, that it is astonishing that company bosses can be so inept and so arrogant as to resist giving proper explanations in the first place. It reminds me of the unhelpful legal boilerplate approach that has been adopted by companies in response to requirements that they disclose the principle risks facing their business. GSK, as I have written before, provides a particularly risible example of this. I wonder whether the company secretarial staff who produced the 'perfunctory' explanations attended the discussions hosted by the FRC - I bet not.
Baroness Hogg, who chairs the FRC, might ponder whether the answer is for her organisation to adopt a more assertive approach - how about giving those companies whose explanations are inadequate a right kick up the arse? Hauling them in and admonishing them would be a useful first step, followed - if they don't release an adequate statement - by a public shaming. Try that for a while before laying on the dead hand of bureaucracy.
Friday, 16 March 2012
Maybe customers don't care about ethics at Goldman Sachs
I wonder whether my strictures against Goldman Sachs ethical standards are mere self-righteousness on my part. The thought arises from the evidence: a tidal wave of criticism and bad publicity after Greg Smith resigned from the bank and published a valedictory letter in the New York Times shifted the share price not one jot. See here.
It has long been an article of faith with me that dedication to the well being of your customers is what leads to success. Of course you worry about your own profitability but you put your faith into building a loyal customer base that does business with you because they trust you and because you deliver what they want at a good price. But why do they not desert Goldman? They probably believe the tenor of the letter, that they are described disparagingly as 'muppets' and that Goldman Sachs focuses exclusively on what can be earned from them. After all there has been plenty of previous publicity given to Goldman Sachs selling securities that the bank analysts thought were a very bad deal. Maybe customers believe it is only other customers who are patsies. Maybe they believe all Wall Street firms are the same. Frank Partnoy writes in the FT that clients you deal with through the markets are a very different thing from those you advise and to whom you have a fiduciary duty.
But, despite the evidence, I am unreformed and unrepentent. Even without evidence to support me I believe that unethical attitudes to outsiders (customers, suppliers, competitors and regulators) lead to unethical attitudes to insiders (colleagues, shareholders and the organisation). I believe that governance and performance are damaged in the long-term.
Robert Peston, for the BBC, points out that Goldman Sachs reputation for being a bit too sharp for its own interests has been around for a long time. But he too ends his article by expressing the view that they must mend their ways if they are to survive and prosper. Perhaps, like me, he clings to his moral certainties over the evidence of his eyes.
We will have to wait and see...I'll check that share price daily
It has long been an article of faith with me that dedication to the well being of your customers is what leads to success. Of course you worry about your own profitability but you put your faith into building a loyal customer base that does business with you because they trust you and because you deliver what they want at a good price. But why do they not desert Goldman? They probably believe the tenor of the letter, that they are described disparagingly as 'muppets' and that Goldman Sachs focuses exclusively on what can be earned from them. After all there has been plenty of previous publicity given to Goldman Sachs selling securities that the bank analysts thought were a very bad deal. Maybe customers believe it is only other customers who are patsies. Maybe they believe all Wall Street firms are the same. Frank Partnoy writes in the FT that clients you deal with through the markets are a very different thing from those you advise and to whom you have a fiduciary duty.
But, despite the evidence, I am unreformed and unrepentent. Even without evidence to support me I believe that unethical attitudes to outsiders (customers, suppliers, competitors and regulators) lead to unethical attitudes to insiders (colleagues, shareholders and the organisation). I believe that governance and performance are damaged in the long-term.
Robert Peston, for the BBC, points out that Goldman Sachs reputation for being a bit too sharp for its own interests has been around for a long time. But he too ends his article by expressing the view that they must mend their ways if they are to survive and prosper. Perhaps, like me, he clings to his moral certainties over the evidence of his eyes.
We will have to wait and see...I'll check that share price daily
Subscribe to:
Posts (Atom)