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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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Our findings include

• that executives are to blame
• that it was a cultural problem at banks, NOT a regulatory problem (the cost to benefit of risk taking is not weighted correctly)
• that remuneration was too high and that culture does not encourage effective change management
• that executives should have a right to tell their side of the story

We’ll post our full report when it’s released in January.

The Walker report is a lowest common denominator response to addressing corporate governance at UK banks. We need a deep overhaul of the financial system: much better regulation, longer-term thinking, and a break up of the investment banking mindsets which led to the financial crisis.

Giving non-executive directors more powers, scrutinising how they are appointed, or increasing regulation alone will make absolutely no difference.  Non-executive directors already have the powers; it’s the culture of investment banking globally which must change.

Non-executive directors must spend more time understanding the bank on whose board they sit.  They have to understand the culture, get to know the key managers in the bank, and spend more time in the bank appreciating the way business is done there.  Banks also need to spend the resources to ensure their non-executives become familiar with how they operate.

We also need to split retail banking from investment banking.  Retail banks must task themselves to make the funds available to generate wealth in our society but not to become so wealthy themselves.  Investment banking should become a small niche operation, not such a global operation.

Best practice suggests that non-executive directors limit themselves to three to four appointments in their portfolios.  This tends to be the practice in Australia, but it is not the case in the UK or the US, where some of the weakest boards exist.

Banks and other companies knew that the financial crisis would happen even before 2007.  All but three of the over 600 risk managers, bankers, and audit and control officers which we interviewed in our recent Global Risk Survey (to be released 9 Dec) acknowledged this fact. Many reported their misgivings to top managers and board members, yet nothing happened.

Banks must reconsider their approach to risk and adjust their portfolio allocations accordingly.  A longer-term approach to wealth creation and a fundamental change in banking culture must occur.

If others like Gordon Brown or the Walker report blame the global financial system, it is simply a way of absolving themselves of responsibility for what happened.

In the press, current director general Mark Thompson has defended his ‘high for a public servant’ salary as entirely justified as it’s only one third of what a private sector executive in his position would get. I’m not sure if this is a fair position, but I do know that at the BBC, their real costs are in infrastructure that is sometimes redundant, not in peoples’ salaries alone. The real question to ask about the BBC is if the cost challenges they face are due to there being too many departments or too many people in the same role doing the same job, not whether their top executives are being paid too much.

For example, when I was brought in there, they used to have an internal chauffeur service to take guests to and from their studios. This internal service worked to rule, and didn’t like to work to the flexibility often required in scheduling broadcast television and radio (so I was told). So rather than face the uncomfortable situation of having a fight with the service, I was informed that programming executives and line managers avoided using the internal function and would call outside chauffeurs to bring guests in and out. Thus the BBC was paying for the internal function they didn’t use and for an external function they shouldn’t have needed. Certainly making the internal function more flexible (or removing it all together) would be the type of cost that the BBC needs to cut.

In the Telegraph article, Thompson also mentions how greater transparency in BBC salaries could be detrimental to its ability to recruit and retain top talent. Is greater transparency in salaries a good thing or bad thing? I think that when there is a direct link between salary and reward—such as for a CEO who has to meet shareholder expectations—then transparency in salaries is a good thing. But for team members who are just doing a job that based on skills and expertise, then salary information should be confidential. But what Thompson brings up isn’t the real issue at hand; the BBC’s real issue is the hidden costs in its structure that have traditionally been very difficult to dig out.

In the past 30 years or so, while real growth has been difficult to come by in mature markets, executive performance has become short-term transactional (i.e. through the buying and selling of businesses at inflated prices). These transactions have been executed in order to bolster a company’s share price in the short term. For a long time these transactional results seemed positive, and executive pay correspondingly grew.

But then the edifice crumbled with the financial crisis—companies had been borrowing to afford their purchasing of other companies at inflated prices, and could no longer afford it. The short-term transactions weren’t creating long-term value, and shareholders have started to revolt against high executive pay—Shell provides one recent example.

Now citizens and politicians are starting to expect longer-term sustainable results, and as such, companies need to start linking executive pay to transformational results rather than transactional results. In other words, they are looking for long-term, sustainable performance rather than short-term profit-seeking.

One can look to companies in Scandinavia to see the long-term approach in action. These companies work on different pay structures: their executives are hit by up to 70-75% tax, and they don’t have intense shareholding and bonuses—they just get a small bonus if they do well. Their take-home pay may be negligible compared to top UK or US directors, yet the companies these Scandinavian executives work for have been relatively unscathed in the financial crisis—their sustainable approach has served them well.

Of course other parts of the world couldn’t just copy the Scandinavian model and change overnight—the cultural context needs to be considered. In continental Europe, a professional has a high standing regardless of pay, whereas in the US and UK, high standing comes from one’s amount of compensation—essentially better pay makes you a better expert (or shareholders trust that one is a ‘better expert’ if he/she is paid a large amount).

And so three elements need to be assessed when considering executive pay: the company’s performance (Are company transactions creating profits?), the company’s sustainable approach (Will the brand survive over the long term? Are all stakeholders properly engaged?), and the company’s cultural context (What cultural issues does the company face? Are executives properly paid for their cultural context?). Considering these together can make executive pay difficult to quantify.

Boards need to be more responsible in establishing how much roles are worth, rather than entering into excessive negotiations to get the ‘best person’. The concept of spending a great deal of money to get the best person is seriously flawed, as Shell CEO Jeroen van der Veer recently made clear, saying: “You have to realise: if I had been paid 50% more, I would not have done it better. If I had been paid 50% less, then I would not have done it worse”.

In determining pay, an analysis has to be done based on the role, not the person. However, current thinking on executive pay is based on the person, not the role. David Bolchover’s recent article in the FT noted that despite the financial crisis, executive pay will continue to be assessed on a comparative basis, using comparative data to find an average salary range. This is nonsense. Just look at Shell—they’re currently facing potential damage to their reputation from allegations of misdoings in Nigeria—a role dealing with that situation would face complex issues; it would be difficult to compensate for such a role based on salary averages. Company boards need to determine what their executive roles are worth, taking into account the role’s challenges (not the position’s comparative median), and have the guts not to negotiate with people beyond a set range of boundaries.

Boards need to have the confidence and courage to enter into more clever ways of assessing executive pay. They might not recognise it now, but the right level of executive pay is imperative for their companies’ long-term sustainability.