Prompted by this blog post by Dan Pallotta on Harvard Business Blogs, in this podcast I discuss how organisations outside the private sector should evaluate compensation. Charitable work is becoming more professional, and as it does so, it is becoming increasingly necessary to pay the market value for executives.
[Audio clip: view full post to listen]

An interview with Cristóbal Conde, president and CEO of SunGard, recently appeared in the New York Times . I found it particularly interesting because the debate between flatter structures and more hierarchical structures and their relevance for today is an ongoing issue.
The interview didn’t quite capture the issue of confusion between structures and culture. We cannot escape the fact that we are in mature markets. Few companies and few industries are not within the tail end of the cycle of maturity, and I would have thought an organisation like SunGard would be no exception. Mature companies tend to have ‘taller structures’ in which tasks, roles, responsibilities, accountabilities, and even governance are made very clear. You need that–you need to know what people are doing and why they are doing it because you’re going to make as much money from the products you sell and their [...]

Prompted by this article on how Republicans in the US want to block American shareholders from having a say on CEO pay , in this video I discuss how executives are blocking shareholder activism against executive remuneration, and how the equity-based financing system that prevails in Anglo-America won’t shift to a longer-term stakeholder-based financing system. This is because the issue of executive bonuses in the short term takes away attention from global long-term needs and planning.

In mature markets, where growth is slow and costs are managed to the extreme, what differentiates one company from another? Many organisations and managers have actually become rather indistinguishable in that they uniformly pay attention to teamwork and quality, reduce costs where they can (often through outsourcing) and get rid of poorly performing executives—these activities make for good organisations. But then what give some companies a leading edge over others? It comes down two factors.
The first is brand—a strong brand reputation makes people believe that a Mercedes is better than a Ford, and can help a company even if this belief proves not to be true (e.g. if Mercedes outsourced some faulty components and their quality did decline below the perceived quality of Ford).
The other differentiating factor is people. Better led teams will be more motivated; when there’s a single company mentality, especially among [...]

When Nada and I read this Economist story about Harvard Business School graduates pledging to act with integrity, our first reaction was one of cynicism. It’s all very well to get students to pledge to “serve the greater good” and “act with the utmost integrity,” but making these anything other than platitudes is difficult.
The question is: has Harvard Business School identified what that greater good is, or is the pledge just window dressing? [...]

Recently I came across this article on CEO compensation in Slate by Ray Fisman. It’s a very interesting article, and the position Fisman takes, that CEOs and compensation committees usually do not enter into undue intrigue and backhand politics, is probably accurate.
Most compensation and nomination committees do take their jobs very seriously, and try to emerge with compensation packages that make sense. But the challenge they have faced and the challenge society continues to face is that of peer comparison. [...]

Let’s take a look at the corporate strategy of the large financial institutions that played an instrumental role in bringing on the financial crisis. The chief executives at these companies tended to favor an aggressive leadership style, which for a long time led them to aggressive growth; as they acquired companies, the largest companies became ‘financial supermarkets’ with a whole range of services. These financial institutions grew and grew, but eventually reached a point around 2004 where their growth stopped. The leadership of many of these companies started to be criticized for not integrating their acquisitions well. And so chief executives responded by making their companies more governance-oriented, with new constraints for things being signed off by teams. These new protocols and procedures made the financial institutions stabilize and stop growing, but they didn’t prevent the financial crisis, and the whole sector is now suffering as banks (and [...]

At the G20 and elsewhere, we’ve heard government leaders like Obama and Brown calling for more regulation to prevent financial institutions from growing too large to fail and obfuscating their responsibilities. These calls are all well and good, but they aren’t a panacea. The problem with too much regulation is that it slows down markets and hampers growth. The ‘greedy bankers’ that have been reported on so often in the press aren’t the problem—they’re only the symbol. They’ve just been following procedures in a marketplace incentivised by short-term thinking and by imbalanced approaches to risk-taking. [...]

Today it was announced that the seven highest ranking executives at Goldman Sachs will not be taking their bonuses this year . It’s an good move and will generate some positive publicity for the firm, especially because they announced their decision before other banks and before bonus season starts in earnest. Likewise, such a move was almost a necessity given the potential for public outcry if multiple executives were receiving bonuses worth over $50 million each after the company was one of the 9 banks that shared a $150 billion cash injection earlier this fall.
This move reminds me of some of that activity that Linda Lee Davies, Nada and I found in our recent book Leading for Success . One of the seven sides of great leaders we identified was ‘finding ways through.’ In the chapter dedicated to that subject, we said: [...]

This week’s financial upheaval on Wall Street gives us an opportune moment to discuss the leadership of executives at Merrill Lynch and Lehman Brothers. Have they been making good decisions over the past few months (and years)? Could they have possibly changed the outcome for their respective companies?
The effectiveness of leadership is determined by being able to recognize the appropriateness of actions relevant to the circumstances of the situation. As Henry Blodget explains in this article on Slate, Merrill Lynch’s CEO Peter Thain was brought in last year to ‘clean up the mess’ created by his predecessor. In the process he became aware of the growing problems posed by declining credit and real estate markets. He took responsibility bad debt and acted, taking big write-offs and swallowing his pride in the process. These actions helped Merrill Lynch stay strong enough to find a buyer [...]