Category: Starting a Business

Herman has been invited to join the board of a not-for-profit organisation that provides specialist education and training for the non-profit sector. The invitation was extended to him by the CEO who is also the founder and the principal deliverer of services.

Due diligence shows that the company is profitable (making a small but comfortable surplus every year) and has some funds banked to tide it through any tough times that may arise. The staff are paid reasonable salaries and the CEO earns well but is not over-rewarded. Clients appreciate the CEO’s expertise and the forward bookings are healthy.

On the down side – there is nobody apart from the CEO with any real profile or expertise and most clients specifically request the CEO deliver their programs. Staff seem to join for the experience of working with the CEO and leave after a few years. Board members also seem to churn rather more than normal for a healthy company. A former board member told Herman that she felt her time on the board was un productive as there was nothing to do since the CEO had it all under control.

The CEO is 67 and Herman is concerned that there is no succession plan or viable business without her.

What should Herman do?

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Herman. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html (see link below) where you can check out the format and quality.
The newsletters will be compiled into a book. If your advice relates to a legal jurisdiction, the readers will be sophisticated enough to extract the underlying principles and seek detailed legal advice in their own jurisdiction.

The first volume of newsletters is published and available athttp://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

What would you advise?

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Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.au or visit her author page athttp://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

The Ethics Resource Center, a Washington DC based ethics research organization, released its 2011 National Business Ethics Survey. The NBES is regarded as the premier survey of ethics issues in the American workplace. This year’s survey identified some interesting trends:

On the one hand, misconduct has reached an historic low and observers of wrongdoing are more willing to report than ever. But with this good news we also see some very ominous signs – ethics cultures are eroding and employees’ perceptions of their leaders’ ethics are slipping. Additionally, pressure from employers to compromise standards is at an all-time high and retaliation has reached an alarming rate.

There are two independent dynamics working at odds here: employees are willing to report misconduct, but that is necessarily due to the ethical climates in which they work. In fact the ethical climates are becoming more challenged:

U.S. employees reported an increase in pressure to compromise their company’s ethics standards or policies, or even break the law. Thirteen percent of employees said they felt pressure to break the rules. That is the highest level since 2000 – just before a wave of corporate scandals triggered a new emphasis on corporate ethics.

The ERC research has shown for over 10 years that there is a strong correlation between the health of the organization’s culture and the number of instances of observed misconduct.

Ethics is a component of culture. The NBES measured critical aspects of ethics culture, including: management’s trustworthiness, whether managers at all levels talk about ethics and model appropriate behavior, the extent to which employees value and support ethical conduct, accountability, and transparency.

The percentage of employees who say their business has a weak ethics culture increased to 42 percent in 2011, a seven percentage point surge and the highest level since 2000.

Of the factors that determine the health of the organization’s culture, there are two that stand out: senior executives and supervisors. Employees’ perceptions of both have declined in 2011.

Confidence in senior leadership fell to 62 percent in 2011, matching the historic low observed in 2000 and down six percentage points from 2009. Far fewer employees believe their direct supervisors act as ethical leaders: one-third of employees (34 percent) say their managers do not display ethical behavior, up from 24 percent in 2009 and the highest percentage ever.

In its recommendations the ERC suggests two areas of focus that have the most impact in creating an ethical culture:

• Invest in building a strong ethics and compliance program; and „
• Commit to ethical leadership and building an ethics-focused business culture.

The challenge for leaders is that many companies lump these two concepts together. However, they are very different factors which require very different interventions. Building a strong program will ensure that employees know what is expected of them. But without leadership deeply committing itself to an ethics-focused business culture, employees just won’t feel comfortable doing what they know they should do.

Two of the key recommendations by the ERC should be top of mind of policy makers as well as corporate leaders:

For policy makers:

Encourage the measurement of ethics cultures. The strength of cultures can and should be evaluated regularly. Public officials should set the expec- tation that companies regularly conduct assessments of their workplaces. Additionally, prosecutors who are considering alternative forms of enforcement against a corporation should insist on seeing data-based evidence that company defendants have taken steps to build a sound program and a strong ethics culture

For Ethics and Compliance Professionals:

„Focus on supervisors who are the critical actors that set expectations for their direct reports, conduct evaluations, and are most likely to receive initial reports of misconduct. Develop specialized supervisor training on how to support ethical conduct by employees, how to properly handle reports of misconduct, and strategies for reducing retaliation. 2011 NBES data show that employees’ confidence in supervisors’ ethics has declined dramatically.

„Help senior executives set a proper tone from the top. Work with corporate communications experts and speechwriters to craft messages and commu- nicate effectively with employees, assuring them that even as the company takes more risks during economic recovery, integrity remains a high priority. Encourage the establishment of performance metrics related to ethical leadership and reward business leaders for talking about the importance of ethics, modeling ethical conduct and holding employees accountable to the standards of the organization.

The ERC has laid out a clear roadmap, as well as the risks of not following it. Let’s see who takes the journey

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David Gebler is the President of Skout Group, an advisory firm helping global companies use their values to clear the roadblocks to performance. Send your thoughts and feedback to dgebler@skoutgroup.com.

(Guest post from Andrew Clearfield, Corporate Governance Consultant )

One of the things with the market for governance experts is that almost no one is willing to pay for real, forward-looking expertise, but especially over here in the U.S., the market is almost entirely dominated by a compliance mentality, which means, not ‘How do I improve it?’ or even, ‘How do I make my shareholders happier?” but, ‘What is the minimum I can get away with?

The law firms monopolize the field, because boards would rather pay someone $800 an hour or more to wriggle out of trouble than $200 an hour or less to figure out how not to get into it. (Of course, lawyers are also adept in making sure that their services are seen as indispensable.)

It is also remarkable how many experts have suddenly emerged from the woodwork. Given how few were in the field only five years ago, I wonder how many of these people have real experience, and if so, where they got it. The problem is that there is no professional certification, and prospective employers don’t seem to have very clear criteria for what they should want. (Then again, if all you want is a compliance chief, there are probably quite a few of those around, especially with all the layoffs in the financial sector . . .)

Thoughts, anyone?

For more resources, see the Free Management Library’s topic All About Boards

Guest post from Jack Hoban.

What are Values?

According to the dictionary, values are “things that have an intrinsic worth in usefulness or importance to the possessor,” or “principles, standards, or qualities considered worthwhile or desirable.”

However, it is important to note that, although we may tend to think of a value as something good, virtually all values are morally relative – neutral, really – until they are qualified by asking, “How is it good?” or “Good to whom?” The “good” can sometimes be just a matter of opinion or taste, or driven by culture, religion, habit, circumstance, or environment, etc.

Again, almost all values are relative. The exception, of course, is the value of life. Life is a universal, objective value. We might take this point for granted, but we all have the life value, or we would not be alive. Life is also a dual value – we value our own life and the lives of others.

What are Morals?

Moral values are relative values that protect life and are respectful of the dual life value of self and others. The great moral values, such as truth, freedom, charity, etc., have one thing in common. When they are functioning correctly, they are life protecting or life enhancing for all. But they are still relative values.

Our relative moral values must be constantly examined to make sure that they are always performing their life-protecting mission. Even the Marine Corps core values of “honor, courage and commitment” require examination in this context.

Courage can become foolish martyrdom, commitment can become irrational fanaticism, honor can become self-righteousness, conceit, and disrespect for others. Our enemies have their own standard of honor, they have courage, and they are surely committed. What sets us apart? Respect for the universal life value sets us apart from our enemies.

What is Ethics?

A person who knows the difference between right and wrong and chooses right is moral. A person whose morality is reflected in his willingness to do the right thing – even if it is hard or dangerous – is ethical. Ethics are moral values in action.

Being ethical id an imperative because morality protects life and is respectful of others – all others. It is a lifestyle that is consistent with mankind’s universal values as articulated by the American Founding Fathers – human equality and the inalienable right to life.

As warriors it is our duty to be protectors and defenders of the life value and to perform the unique and difficult mission of taking the lives of those acting immorally (against life) when necessary to protect the lives of innocent others.

When you must kill protecting life it is still hard, but it is moral. Those who kill those not observant of their narrow relative religious, ethnic or criminal values – in other words, kill over relative values – are immoral. A dedication to protecting the life value of self and others – all others – makes the Ethical Warrior different and moral.

The Definitions in Action — Sample Story: “The Bully”

If all of that is a little too philosophical, we also created this vignette to explain the terms in a more down-to-earth way. We call it:

You are a kid in the schoolyard. You see a bully. He thinks he is the “top dog.” That is fine. That perception is a relative value. But when his relative value supersedes the life value of another kid – in other words, when the bully picks on and/or punches the other kid – this is wrong and must be stopped. Here is the rule: relative values, no matter how “great,” cannot supersede the life value.

You see the bully picking on the other kid. You feel – in your gut – that this is wrong. Congratulations, you are moral. (By the way, most people are moral – they know the difference between right and wrong)

Now…you see the bully picking on the other kid. You overcome the “freeze,” you overcome the embarrassment, and you go tell a teacher. Congratulations! You are ethical. (Ethics are moral values in action).

Now…you see the bully picking on the other kid. You overcome the “freeze,” you overcome the fear, and you go to the aid of the kid being bullied. You put yourself at risk. Congratulations! You have the makings of an Ethical Warrior.

And it doesn’t end in the schoolyard. Almost all problems in our society and the world are caused by bullies – those who would supersede the life value of others with their own relative values. Ethical Marine Warriors counter the bullies.

See the Free Management Library topic:

• Business Ethics
  

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 763-971-8890
Read my blogs: Boards, Consulting and OD, and Strategic Planning.

(Part 1 of 2 is Benefits of Involving Board in Projects for Change)

One of the jobs of the Board is to continuously ensure the high-performance of the organization. Certainly, there can be many perspectives on what “high performance” means, for example, to always satisfy needs of stockholders or stakeholders or to always achieve strategic goals. Any project to accomplish significant change in an organization or in one of its major parts should always include focused attention from the Board. There are numerous ways to ensure a Board is appropriately involved.

1. Board should be involved in initial planning meetings.

In projects intended to accomplish significant change in an organization, members of the Board certainly should be aware of – and have approved – the final project plans and related contracts. An appropriate Board member, for example, the Board Chair or a member with skills in the area that is the focus of the project, could participate in the first meeting with personnel leading the change.

2. Both the Board Chair and the Chief Executive Officer should sign the contract.

Particularly in small- to medium-sized organizations, the Board Chair should sign the contract along with the Chief Executive Officer. That approach helps ensure that the Board is indeed aware of, and supports, the project.

3. Educate Board members about at least the basics successful organizational change.

There is a vast amount of research on what it takes to accomplish successful organizational change. Educate members, for example, provide them a short article, or brief presentation, with follow-up discussion. See the topic Organizational Change in the Free Management Library.

4. Involve at least one Board member in the Project Team?

In projects for change, form a Project Team comprised of key personnel to guide development of a project plan and be closely involved in guiding implementation of the plan. Consider involving at least one Board member, for example, a member with skills in the area that is the focus of the project for change.

5. Ensure Board members get feedback from the assessment phase of the project.

Early in a major project, there should be assessment activities to closely understand what is going on in the organization or the area that is the focus of the project for change. The assessment can produce a wealth of learning and insight. Present the findings and recommendations to the Project Team. Significant results are important information for all Board members to know about. Provide that information to all Board members, whether in a meeting and/or a written report.

6. Include Board development in the project if many issues exist in the organization.

If the assessment activities identify many issues in the organization, then it’s likely that the Board has major problems, as well. Otherwise, the Board would have been effectively governing and the many organizational issues would not have existed. One of the most powerful approaches to addressing major problems in the organization is to build up the Board to help to address those problems.

7. If there are CEO and/or staffing issues, consider forming a Board Human Resources Committee.

A Board Human Resources Committee is responsible to ensure that staffing (including the CEO) is carefully planned and fully utilized. That includes providing ongoing coaching to the CEO to ensure that his or her role is competently filled. The Committee can be of tremendous value to the project to coach the CEO through the struggles of making major changes.

8. All Board members should be copied on project reports.

All Board members have a responsibility to govern the organization. All Board members should have access to the necessary information to do their jobs. Consequently, they should be copied on reports about the status of major projects.

9. The Board should formally approve the Change Management Plan.

The assessment phase of a project should be followed with various action plans to address apparent issues or achieve goals. Those plans could be included in an overall Change Management Plan. Formal approval of the Plan by the Board can help to ensure that Board members have seen and will support the Plan.

10. An appropriate Board Committee could “police” implementation of action plans.

The full Board or an appropriate committee should monitor to ensure that the Change Management Plan is being implemented or changed to be more relevant and realistic, for example, the Board Executive Committee.

11. Board members should be review results of evaluations of the project.

Finally, the Board should ensure that the project actually addresses the issues and/or goals that are the focus of the project. They should regularly review results of evaluations of project activities as those activities occur. Also, they should review results of evaluations of the quality of final results from the project.

What do you think?

For many related, free online resources, see the Free Management Library’s topics:

• All About Boards of Directors
• All About Consulting — Using Consultants, Doing Consulting

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my blogs: Boards, Consulting and OD, and Strategic Planning.

Especially in projects for change in small- to medium-sized corporations, the Board can be the leverage point – the point in the project that can make the biggest difference – for success in significant projects for change. In these situations, if an organization seems reluctant to involve the Board, then change agents should seriously consider whether the organization is really ready for a project to accomplish significant change in the organization.

There are numerous reasons to involve the Board:

1. The Board ensures the project is fully resourced and shows political support.

Board members have full authority for allocation of resources for the organization. Consequently, Board members can ensure that the project has all necessary resources, including people, money and time. Their allocation shows strong political support for change, which can sustain ongoing motivation and momentum for change.

2. The Board ensures that project plans are developed and implemented.

The Board supervises the Chief Executive Officer, having full authority over the CEO. Although employees (including the CEO) usually develop and implement many of the action plans in the project for change, the Board can ensure that those plans are fully developed and completely implemented.

3. Board members provide a wide range of useful expertise.

Board members often have a wide range of useful skills for governing the organization, such as planning, leadership, management, supervision and problem solving. They may also have technical knowledge of the organization or the industry. Those skills can be useful during a project for change.

4. The Board provides time and energy to help implement plans for change.

Employees are already overloaded. Giving them yet more work to do (during your project) can completely overload them such that they collapse altogether, which could significantly damage the organization. Although the Board is responsible to govern the organization by establishing broad plans and policies, Board members still can help with implementation of various plans by helping to develop and oversee development of plans. Plans might be to address issues in strategic planning, marketing, staffing or financial management.

5. The Board provides objective assessment on project issues and results.

Board members usually are not involved a great deal in the day-to-day activities of a project. Consequently, they often retain an objective perspective on the activities and results of the project. Their perspective can be useful when addressing issues in the project and evaluating results of the project.

6. Involvement of Board members is a powerful means to Board development.

One of the best ways to get good Board members is to give them something to do. One of the best ways to get rid of Board members is to give them something to do. Your project can be useful means to give Board members something to do – and, thus, develop the Board.

For many related, free online resources, see the Free Management Library’s topics:

• All About Boards of Directors
• All About Consulting — Using Consultants, Doing Consulting

(In my next post, How to Ensure Board is Appropriately Involved in Projects for Change (Part 2 of 2), we’ll list guidelines for how to get the Board appropriately involved in projects for change.)

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my blogs: Boards, Consulting and OD, and Strategic Planning.

Graham worked as a management consultant assisting the national operations of a company that has grown over twenty years acquiring ‘non-family’ shareholders who now account for 40% of the capital. The founder’s son, who owns 10% of the shares, heads an overseas division and is a director. The founder retains the remaining 50% and is a ‘passive’ investor.

Graham’s work helped the company grow market share, revenue and profits. He was offered, and accepted, a board seat. He was elected unopposed at the next AGM. Graham performed little due diligence as he knew the domestic operations well and they account for most of the activity.

Continue reading “Cut your losses or run with them? – a dilemma”