Enron, Tyco and Marconi used fashionable approaches, invested in technologies and their staff worked hard. Yet it went pear-shaped. What did their directors overlook or do wrong? Do the boards of winners’ – companies that adapt and grow, adopt different financial, accounting and business practices from ‘loser’ boards?
The Centre for Competitiveness examines why companies succeed in winning new business, building customer relationships, creating and exploiting knowhow and managing change while others stagnate. Research teams compare approaches of the most and least successful to reveal success factors.
More than 2,000 enterprises have participated in the centre’s investigations. Their experience suggests widespread frustration is the inevitable consequence of the respective mindsets and approaches of winners and losers. The perspectives and priorities of the two groups are very different.
The attitudes and practices of many FDs hinder. They ‘go with the flow’ rather than propose alternatives to traditional reactions to disappointing results. They engage in exercises like boosting apparent performance by burying as much as possible in below-the-line costs of reorganisation.
Corporate performance depends upon what boards do and how directors behave – not upon whether a particular committee structure operates. Winning boards are distinguished by the attitudes and conduct of members.
The board should be the heart and soul of a company, the source of its ambition and drive. Without a sense of purpose, a sound strategy and the will to achieve, well-endowed corporations wither and die. Whether or not a company competes and wins, sustains success and remains relevant usually depends upon its directors.
Investors sometimes analyse financial ratios rather than assess whether companies have winning or losing boards. Both categories are easy to identify. But how FDs spend their time – particularly the emphasis on reducing expenditure as opposed to increasing revenues – is equally revealing.
Responses to adversity such as cost reduction are symptomatic of the general approach of ‘loser’ boards. They lack will, drive and heart. They either do not consider or choose to ignore the implications of their decisions. Their approaches are essentially negative and often destructive. Thus training and advertising are pared back regardless of the consequences for future skills or brand value.
Members of ‘loser’ boards mouth platitudes and generalisations. They are distracted by trivia and do not probe deeply. They avoid responsibility and blame others for disappointing results. Their internal orientation, short-term perspective, obsession with numbers and insecurity when dealing with City institutions cause them to focus upon packaging and presentation.
Losers slip into a spiral of descent and become entangled in their webs of obfuscation and spin. As ‘savings’ accumulate so do the losses of experience and knowledge from headcount reductions, the closing of future options due to outsourcing and disruption caused to relationships by reorganisation.
As their enterprises slide towards commodity supplier status directors of losing companies become preoccupied with their own interests.
They often fail to distinguish between operational and strategic issues. They muddle personal issues with corporate interests. They concentrate upon the internal, policing and stewardship aspects. As their companies’ prospects diminish they still obtain ticks on audit checklists.
Cutbacks, downsizing and retrenchment do not engage, excite or motivate. Boards of ‘loser’ companies respond to developments rather than influence events.
Winning boards have other and more positive preoccupations. They want to win and are driven to succeed. Their actions demonstrate they care about customers and colleagues. They anticipate events and likely financial consequences.
Winners address business fundamentals. They build rather than trim. They set sights on income generation rather than cost control. They develop additional revenue streams, enhance capabilities and refresh intellectual capital.
They make strategic investments and establish frameworks for assessing, supporting and monitoring new ventures. They benefit shareholders by delivering additional value to customers.
Directors of winners provide and communicate clear direction, a distinctive vision, a compelling purpose, achievable goals and clear objectives. They motivate others to work towards their achievement.
Winning boards strive for success rather than survival. They manage change, lead transformation and create future opportunities. They are proactive. They avoid rhetoric, blather and hype. They anticipate and address obstacles and barriers.
Clever and highly-paid people serve on the boards of both winners and losers. Many accountants wield the axe effectively. The lower cost base they achieve perpetuates practices that lead to corporate anorexia. More FDs should challenge the defensive reactions of colleagues, champion the approaches of winners, and propose a switch of emphasis from cost cutting to value creation.
Firms that react, imitate and copy rarely become market leaders. Think for yourself. Question and reflect before you act. Adopt simple solutions. Create additional choices and new markets.
Finally, go for it. The prospects of ‘loser’ companies can be transformed by putting the required critical success factors for winning in place. Achieving success is often easier and is invariably more satisfying than rationalising failure.
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