We must remember that innovation has nothing to do with invention – most innovations are transactional, and a series of progressive steps to ensure better governance and working practices.

A fundamental block on British innovation is a governance issue: boards are delegating too much of the ‘follow-through’ or application of governance to management and in an age of austerity where cost control is king, innovation and Corporate Social Responsibility (CSR) get sidelined.

Good governance requires scrutinizing possible blockages to governance and execution all the way down the company structure, and from my experience, there seem to be three sticking points where governance, and therefore innovation and CSR, get blocked.

These sticking points are:

1. At the level of divisional heads, who are the point of interpretation of the corporate level strategy (or not as the case may be);

2. At the middle management level where cost and sales targets have to be interpreted in terms of what will be fed up to division, and then up to the corporate centre. Bonuses, payments and staff’s ability to keep their jobs all depend on how this level handles their work;

3. At the team level, which should reflect the company’s innovation and CSR policies in practice. There could be a very clear CSR and innovation policy at the top level of the company in terms of training, targets and measurements, but by the time you have gone down five or six levels to the team, they may not know that the policies were ever in place.

These three blocking points all call into question the role of the board, which should set policy, then set discipline follow through and discipline the management team if protocols are not being adhered to. What we are finding is that there is no pattern as to whether or not boards are accepting this responsibility.

Increasing numbers of boards are passing on governance responsibility to the management team – but why then have a board? The purpose of the board is to set governance and discipline, and to enable the management to make things work, and they have a responsibility to mentor and audit at the same time. What I have found is that many boards relish the mentoring aspect of governance, but avoid the discipline aspect of their role, which is of concern.

So what does this mean for the UK? As this recent article in the Independent says, the UK is bottom of the innovation league, which sadly does not surprise me at all.

In a climate of fearing about jobs, hyped up security fears, cost cutting and meeting sales, the energy that is put into CSR and innovation campaigns ends up getting lost.

There is a different approach in Europe – what you find is a philosophy and approach geared towards innovation, and companies who work very hard on this – and in the USA, where some of the most high-performing companies are those who have given credence to the ‘soft’ factors (creating a motivating environment and an enabling atmosphere for CSR and innovation) and have been very honest about where their ‘blocks’ are. A much more sensitive and sensible governance regime has been set up in those countries.

The solution to this would be to focus on the link between innovation and governance and board responsibility, at least at identifying what is happening in our corporate structures and where the blocks to innovation are.

To be more innovative there is actually a greater need for board involvement. For example, one company, which is both innovative and has a very active board, worked with the management team to introduce a policy where any board member could visit any site with no warning and ask to be taken round by the management, despite any criticisms that board member may have about local management. This hands-on approach may not seem the most practical. But is absolutely necessary if the UK is to compete globally.

When looking at board structure and hiring new members, it is important to identify what the role of board members should be and how the new addition will fulfil this role, rather than getting someone who ‘fits in well’ with the rest of the board.

Innovation should be key, and embedded within working practices, and Britain is not there yet.

]]> http://www.kakabadse.com/2011/11/innovation-is-not-invention/feed/ 0 http://www.kakabadse.com/2011/10/are-big-businesses-bad-news-for-government-business/ http://www.kakabadse.com/2011/10/are-big-businesses-bad-news-for-government-business/#comments Mon, 24 Oct 2011 12:20:06 +0000 Andrew Kakabadse http://www.kakabadse.com/?p=752 This article by Luke Johnson on the Financial Times website on why big businesses are bad for business, with the point made that the senior executives of these large organisations are very similar to public servants of large government departments, strikes a chord with me.

We are in a situation of assets being slowly controlled by fewer and fewer hands. More and more companies are interlinked through shared ownership structures, and are plagued with the bureaucracy of governance which is emerging more as protecting directors from prosecutions than actually following through on whether governance is really adding value.

Issues such as risk, vulnerability, bribery and corruption that occur outside the usual Anglo-American governance regimes is a major problem. All our studies indicate that 80 percent of business transactions outside European or American boundaries involve more than one bribe, or a substantial amount of bribery, either to penetrate the market or to maintain presence in that market.

What is happening is that ever-increasing volume of procedures in organisations are inhibiting the organisation from being innovative, but are protecting it from prosecution, risk and loss of reputation. There does seem to be an unhealthy relationship between government and big business – in fact, some organisations are so expert at handling government that they have lobbying and public affairs departments that can be 100-strong plus. There companies are often those called on to advise government because of the quality and strength of relationship, and inevitably the advice given – and the way legislation is then shaped – favours the larger corporations at the expense of the small to medium size businesses (which tend to be far more entrepreneurial).

The question is, why do we have this situation, especially in a financial regime where fewer people are controlling assets, and the corporation is the vehicle for wealth creation? This is a question we are now beginning to see being played out in the streets of America, Britain and Europe with ever-increasing protests against capitalism.  What the protestors may not quite realise is that they are not protesting against capitalism, but against oligopolies and an ever greater restriction of markets.

Placing controls around lobbying is not necessarily the answer, though. If regulations around lobbying are increased, the corporations simply adapt. Regulation could inhibit the spread of interests trying to influence governments, but it doesn’t take much for a major corporation to then start forming links with NGOs and other organisations and contribute to their budgets in a way that turns these organisations into vehicles for big businesses.

Instead, we should be moving towards greater transparency as to who really advises government, how government approaches corporations for specialist input and how the businesses affect the drafting of legislation.

The gap is narrowing between younger age groups, but overall the gap is widening. The issue here is why, after such attention to gender for all these years and with the Davies report pending on having more women on boards, is the pay gap widening?

The articles indicate that this is still a gender-based problem, but I suspect that if this is the case then gender is not the principal reason. The principle reason is very simply one of cost.

If one looks at apprenticeships as another example, a current apprenticeship is currently positioned at half of the national wage. The underlying problem is that in the current climate, anyway to cut costs will be exercised, and only strong political and social pressure will change that.

Staking a gender-based position on the pay gap between men and women will only progress the fair pay agenda so far. Costs are being cut dramatically across health and social services and education, when the City is awash with cash, simply waiting for the confidence to invest. Even if confidence where to return for investment purposes – which I doubt – the same instruments that lead us into this financial crisis are going to be the areas that are the focus of investment. So overall, there is an imbalance across UK and US society.

I believe the gender pay gap, just as the pay for apprentices, is symptomatic of a much wider problem – the way we are handling our finances. I do not think we are going to get an equality of financial distribution when there is going to be less and less money coming into the Treasury, less money circulating in society and when every opportunity to cut costs is pursued.

If the gender diversity pay debate was positioned as a social debate, and the inequity in pay seen as one of the social ills that we have to address, then I believe that issue would be much better serviced. If we still push for equality of pay between the sexes, under these circumstances of cost redirection, I don’t think that much difference will be made.

This issue is much wider than simply businesses not wanting to pay women the same as men – we are currently in a situation of rising unemployment and job insecurity. In some cases there is a gender bias. But in probably around seventy per cent of cases, it will be more a question of what the employer feels they can get away with.

If, say, an employee were to leave their position and take another job, I am sure that in many cases that same job would be advertised at a lower rate of pay. The woman trying to get more for her efforts might make some headway, and perhaps get a thousand or a couple of thousand pounds extra. But if she was awarded that and then left the position, I am certain that the new post advertised would be at the original pay level or lower.

Therefore, the real issue at stake is not about employers making a conscious decision to give women less money but rather that those who are most vulnerable to lower paid work – women, young people, those from deprived communities – are those most likely to be victims of cost-cutting by employers.

What we have today is a situation where capital is not being traded, so the debt and equity markets are fairly static. If there is no trading taking place, less money is being loaned about, corporations cannot get the capital they need to function, costs are scrutinised more often, and life becomes more ‘demotivating’. If you have been exposed to easy consumption, easily accessed education and travel, as many graduates have been, then your sophistication is going to resist this demotivating aspect of constantly being scrutinised and ‘pigeon holed’ in a particular role. Younger generations are not going to like what is happening. Because they are young, they may be able to move from one organisation to the next, but once into their thirties it will be interesting to see if this will continue, as it is unlikely that the current financial situation will change drastically.

As Bolshaw’s article suggests, it could be that women express their dissatisfaction more than men, although from what I have seen it is both. This raises an interesting question about diversity, and what it is.

Glenn Llopis’s article in Forbes raises that very interesting issue. Diversity is not gender. What diversity seems to be is a business definition which highlights what is unique, better and different about a particular organisation that will create a competitive advantage. The terms ‘competitive advantage’ and ‘differentiation’ today are probably the two most critical words that exist. In a commoditised world where the services and products from one organisation to the next are not that different and where to make a difference, requires an extra level of value that matters. In that sense, diversity thinking is critical.

Diversity today, rather than being a clear concept like gender or racial diversity, is idiosyncratic. It is dependent on what makes the difference to each organisation. Numerous definitions of diversity exist.  An organisation with six or seven businesses in its portfolio may have as many working definitions of diversity.

Where the real problem lies is in the lack of debate at top team level, and the too-ready acceptance of some of the more stereotyped definitions of the term. Diversity should be a key discussion for boards.  Once diversity penetrates the strategy debate about what diverse things the organisation needs to do or introduce to get that competitive advantage then there will be a very profound discussion that will produce value in the short to medium term.

Where the debate is more centred around political correctness, an element of resentment enters the boardroom, and people end up playing games. You can understand why, particularly with the gender issue.  As gender is so topical let us for a moment scrutinise this term.

There are two points of consideration with gender – the first is ‘getting there’ – what does it take to break through the glass ceiling? – and the second is ‘got there’ – what does it mean to perform on the board? The gender diversity debate links both of these questions.

I believe we should not be focussing on board appointment (got there). You simply cannot place women onto boards unless you wish to tokenise them, and thus diminish their contribution. Rather, through mentoring and supporting them, women can be developed to be the best performing talent (getting there). Whilst positive discrimination focuses on board appointment, we should be focusing on growing a talented pool of women for future board appointments.  At board level, gender is the least distinguishing factor – more important is how well you can do the job, and how well you contribute.

The “getting there” is political – women are not getting into the inner networks that they need to be considered for certain roles, which is why positive discrimination is needed. But this should not be in the form of simply placing women on boards, and taking highly competent people who might not yet be ready and rushing them into these positions. It would be better to try and minimise these ‘political aspects’ and substitute these with performance. With a higher level of capability women will be armed to fight for the roles they want, and will be truly prepared to take these on and thrive.

While many studies suggest that having women on a board can increase share value, as discussed in the recent Financial Times article, “Women at top lift shares, study shows” by Masa Serdarevic, there are just as many studies that show that shares drop when women join the board. This is because gender is irrelevant; instead what matters is whether or not you have the right person in the right role. In recent research that we conducted on women on boards, we looked at the top 50 companies in the UK, USA, Ghana, and we found no difference in the performance of companies based on the number of women on the board. Boards do not automatically perform lower or higher just because they have females involved.

Performance depends on whether individuals on the board are well qualified for the job and the key lies in finding the right match. Boards must know why they are employing a particular person for a particular position and what they want from that role. The board has to know the specific skillsets that they need, why they are recruiting a particular person, whether or not he or she capable of the role, and if it is the right match. In other words, the board has to know why it has any given person in any given role at any given time—and research shows that companies do not tend to do this. Our research shows that 85 percent of directors on the FTSE 100 boards did not know why they were on the board, and this is quite scary.

Indeed the number of women on boards is generally low, and while gender often becomes the overwhelming issue, the real issue is that boards are not looking hard enough at making the right match. The issue that demands attention is the fact that there are masses of qualified people—who happen to be women—that are not being reached because companies are not tapping into the right markets. Just as Andrew Kakabadse discussed in his previous blog, “Strong board performance requires diversity of talent not gender”, there are plenty of qualified females out there who were successful lawyers, accountants and finance directors, among others, who are now part-timers and ideally suited for board positions. Recruiters are not approaching them nor do boards really want them, and this attitude has to change. Boards need to look more closely at the roles they are filling and then become more creative in filling them—then company performance will improve.

It is becoming a greater requirement that you cannot be a board member until you have had corporate centre director experience. Boards show reluctance to break from this fundamental assumption. A recent article in ABC’s The Drum, by Paula Matthewson, titled “Boards need diversity, not necessarily women”, observes that boards could benefit from searching for candidates with a broader range of skills and experience, inpependent of their gender.  Matthewson then implies that women have the potential to meet some of these selection criteria better than men. Unfortunately, today we see boards taking one demographic, women, and still making choices from a very limited pool. Talented women who make the board look right, and who have corporate experience, are being stretched too far and too wide.

Instead of focusing on the gender demographic, if we begin to focus on talent, we will see that there is a whole labour force with a distinct skill set and experience who are also desperately looking for part-time work and who could be well utilized on the board. This cluster of people have been consultants, accountants, and corporate lawyers­—people who have had high exposure to very distinct functional skills and have been good at problem solving—and the considerable bulk of them who are available for part-time work also happen to be women.

If you are a FTSE 50 company or FTSE 60 company, it is understandable that having a board with corporate centre director experience is important. Having executives exposed to the workings of the centre of a major corporation helps the individual to understand how the softer issues along with the harder issues all determine share price. You have to be as concerned with having an awareness of your vulnerabilities and how you handle the press/media, as you do with how you structure and configure the organisation. As such, exposure to a high performing corporate centre that has this overarching view is important. But when we look at the FTSE 70 company, the FTSE 150 company and the FSTE 180 company, does the same apply? And the answer must be an emphatic NO.

You do not need people who have this corporate centre director experience in a FTSE 140 company because you are not going to have the same vulnerabilities, and because you are not going to have the same risk exposures. So here is where we need to tap into this underutilized labour force and draw on this massive talent pool that it just simply lying there wasting away. People who may have taken time off work can re-engage with board work on a part-time basis and draw on their previous skills and experience. Any additional training and development typically does not take more than three weeks or a month to provide.

So a national campaign is needed here. We should commission it to business schools to make the best use of these high quality resources in companies below the 90 FTSE and fill these boards with high talent.

Now all of a sudden we do not have a women diversity issue with boards but rather a talent solution.

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Stefan Stern wrote an article in the FT a while back that basically says there’s a way of getting around this. My experience is that it’s really difficult, because it’s tough to create an environment where people are motivated and feel they are making a contribution when in fact their lives are constantly disrupted. If we forget the term ‘multi-multitasking’, and introduce the term ‘authentic leadership’, we’re probably in a more accurate description of what’s happening today.

If you look at the situation we have today, first of all, the amount of money we made from productive capital (i.e. goods that we produce and sell) really slowed down in the 1980s. Since then we’ve had financial capital–in a sense we’re making money out of money. The way we do that is to take the existing structure of the organisation and constantly prune it down. That’s why we have many CEOs who actually come from a financial background. You need financial skills to become a leader today. That was not the case twenty years ago, when the finance director or the accountant was called a bean-counter–that was a term of abuse a long time ago. What we also have is making money out of parcelling up and selling the corporation in such a way that it looks more attractive when the bits are pulled apart, and then put together by somebody else who will then sell them on. What that does is create a very short-term attitude and perspective.

So we have a number of tensions: how to make money quickly, and how to make more money by looking after costs rather than looking after sales and the customer. We then have the tensions between governance and the stewardship of the board: the board really looks after the moral health of organisation, while the executive team drives the business and the leadership in terms of profit, sales and future strategy, and the general management below the executive team tries to keep the whole place together. But the executive team is caught between the board telling them to do one thing, and the general management who dislike being told what to do.

So we have a situation there where the best leader with the best intent, wanting to do the very best for his or her organisation, comes over as insincere. In fact these leaders are facing too many pressures in too short a timeframe. So they may intend authenticity, but at best they come out as inconsistent, and at worst they come out as highly political and not to be trusted. So strangely enough, many of our top executives are being seen as politicians and are the sort of person people want to listen to and take notice of. That situation doesn’t help.

Equally, asking people to be very good at multi-multitasking doesn’t help because they can keep it up for a while, but what they need to have is a culture which is supportive and helpful, so that they can continue working at an ever-increasing rapid pace but still be motivated. The multi-multitasking article by Stefan Stern masked an overwhelming need to examine what authentic leadership means today. It’s an issue that’s difficult to talk about because people have to become very personal. It’s an issue that many people find difficult to understand because while they face pressures in their role, they don’t quite comprehend the range of pressures that their boss has to face in trying to manage the organisation and manage the team. So, multi-multitasking can be conducted in positive, supportive cultures which are led by highly authentic leaders, and those leaders have learned how to cope with continuous diversity and pressure and changing agendas but in such a way that their personality and charm comes over and is authentic in front of internal stakeholders (employees) and external stakeholders.

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