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/2011/09/mind-the-gap-%e2%80%93-the-relationship-between-gender-and-pay-inequality/ http://www.kakabadse.com/2011/09/mind-the-gap-%e2%80%93-the-relationship-between-gender-and-pay-inequality/#comments Wed, 07 Sep 2011 14:58:55 +0000 Andrew Kakabadse http://www.kakabadse.com/?p=740 Many recent articles, such as these from the Guardian and the BBC have been reporting that the gender gap, instead of getting closer, is widening in terms of male and female pay.

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.

Where there is a diversity of opinion, or the issue is complex, or one director does not completely trust the judgement of another, then finding the strength to have that difficult conversation is identified as not easily forthcoming. Pleasing people is the easy way out, and is a common phenomenon.  Sensitive problems, such as affairs in the workplace, or bullying, can see managers and board members turning a blind eye and glossing over the problem. In fact, these carefully cultivated artificial layers of popularity can last years.

To overcome these barriers, is not easy. Some form of sophisticated confrontation is absolutely necessary, when the individual does not wish to make themselves unpopular by going against the culture of that organisation.  Even partly raising an uncomfortable issue takes considerable emotional resilience and courage. Doing this in a very structured manner can be difficult, as the leader risks being seen as breaking rank. With this in mind, it is not surprising that many leaders do aim to please with the ultimate effect  being loss of credibility and respect.  But in the short term pleasing others works because at least an uncomfortable confrontation is averted.

Such practice then raises an interesting question about language. What is the company’s home language, and does the boss need to know it? This was raised in an article in the Financial Times. One view is that knowing the national language of the country in which the company is located is important. Another interpretation is that the cultural idiosyncrasy of language of that company based on its legacy is what needs to be learnt. Do you have to know German, to perform well as the CEO of a German company? – well only if the German company goes out of its way to defend its parochial nature.

Research shows that being in tune with the cultural language of the company is a positive step towards enhancing market penetration, profitability and the continued success of the corporation.  In fact in certain global companies, there is a stipulation that the language of the company is English. I have been at meetings in a French company in France where everyone in the room spoke French, yet senior French managers were reprimanded for using their mother tongue rather than English.  The reason, the company was cultivating its own unique international profile and making sure that its cultural language was that of being global.

If you are a local company appointing someone from outside, then the individual is likely to need to understand the language of the country in which the company is based. But if you are an international company, then the language aspect is a ‘red herring’. Credibility and acceptance by the top team is the true issue here. When a senior individual is not accepted by the culture of the company then language and cultural difference is brought to the surface – “we should never have appointed this American in this French company”.

For international companies, local language is often of secondary concern. Credibility and engagement is the primary concern, and that is what makes the difference. Bosses would do better to truly understand the culture of the organisation than worry about being fluent in another language. Of course, if you do need to learn another language then by all means learn it, but most people learn this on a rudimentary basis – not enough to understand nuances of contracts, but enough to say please, thank you and to order a drink.  Culturally, for certain companies, that can make the difference between being respected and followed as opposed to despised.

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.

The resilience issue has arisen because we are asking people to constantly do two completely opposite things at exactly the same time, but without properly building their capacity to handle these contrasts. Resilience concerns are not of those who are, let us say, ‘unabled’. Rather, resilience concerns are of those who are actually very able and excellent; it is a concern of those who are great, not those who are not very good.

People who have resilience concerns rarely reach a point of breakdown, unlike people who are vulnerable to stress. They may face a point of diminishing performance according to their standard and level, but their reaction to the tensions is to be even more disciplined than they were before. The performance they are going to give is as good as it was before. These individuals have not fully thought through how to handle the contrasts, but their tensions do not show—at least not in the workplace.

In recent research my wife Nada and I conducted, we found that the greatest tensions amongst professionals arose day in and day out between the hours of seven o’clock and ten o’clock at night. For people who are constantly dealing with pressures, and dealing with them very well in the workplace, their tensions tend to surface and overcome their normal daily disciplines in contexts where they are relaxed and with less inhibition.

One of the most common places where this surfacing takes place is in the home and these tensions arise because people have little emotional strength left to deal with the normal mundane aspects of life, like a broken washing machine. Professional couples who were going through problems were basically fine as a couple, but their lives were pushing them apart and the issue was time. The quality of communication between 7pm and 10pm slowly diminished, leading to alienation between them over a period of a decade or fifteen years, and interestingly enough, this is the period when divorces amongst professional couples tends to take place.

Unfortunately, the research on resilience has not focused on this notion of contrast—asking people to do two opposite things at the same time. There has been considerable research on resilience, which has only recently hit the popular journals and press—an example being the recent Harvard Business Review article, “Building Resilience”, but it has not quite hit on this issue. The article discusses critical elements such as understanding how to respond to trauma, reducing anxiety, and engaging in constructive self-disclosure, but these words do not capture contrast. These words simply capture stress, and stress is about how you personally handle your day-to-day affairs—this is not resilience.

What I do not see in the debates, both at board and at personal level in terms of personal development, is how to govern yourself and how to govern the organisation at exactly the same time. To get the extra out of that person and for them to develop a healthier balance requires them to think about how to better handle tensions. This more acute resilience building will not happen until there is a broader understanding and acknowledgment that resilience is about contrast.

Research in neuroscience shows that ‘fluid intelligence’, or the ability to think and reason logically and solve problems in novel situations, independent of acquired knowledge, tends to decline with the age. On the other hand, ‘crystallised intelligence’, which includes a person’s depth and breadth of general knowledge, vocabulary, and the ability to reason using words and numbers to solve problems, may continue to improve with age. This may, at least partially, explain why in our recent 16-country international study on chairman’s capabilities we found that older directors tend to be more value-driven, better at thinking through consequences and better at seeing the bigger picture than their younger, perhaps sharper, counterparts. In this sense ‘crystallised cognition’ may be necessary for successful directorship.

We found that a significant proportion of older chairmen (aged 60 and over) were regarded as more effective than chairmen aged 50-59. Those in the older group scored significantly higher in the following areas: being easy to talk to, being professional in the search for CEO replacement, utilising the skills and experience of board members well, encouraging open debate, drawing out relevant contributions from each of the board members, driving through risk management protocols, handling tensions and sensitivities well, and displaying integrity.

Our findings suggest that older chairman do more by influencing decisions, rather than issuing commands. They are more likely to carry out the five steps toward effective influencing, which include surfacing sentiments, working through divisions, using dialogue, focusing on the salient points, and scheduling meetings to align expectations. They are also more likely to think about consequences through people, as opposed to through action. In other words, they might say, ““If I do this, then this director will act like this, and this reaction is going to impact of this director in this way, and then this will happen.” On the other hand, younger chairman tend to think about consequences through action—“If I do this, then this will happen.”

On matters where doubt and deliberation are required, such as handling sensitive strategic issues or individual egos, older chairman tend to deal better. Older chairman are also more likely to explore how things can be improved, such as the conditions in an organisation or society. Moreover, they are better at using their own faculty of opinion in judging matters relating to what is right and wrong for a board, company or society as a whole.

These findings could have significant implications for leadership more broadly—after all, when one looks at the history of world leaders, nobody aged 65 or over has ever taken a nation to aggressive war. Not only do younger leaders have a great deal to learn from older generations, but we should also not be so quick to drive older generations out of leadership roles. And how do we decide when he or she is just too old for the job? The matter is one of performance, not age.

Unfortunately, business schools do not think to generate models that really look at this overarching form of leadership. It is interesting how many bright people you get walking into interesting jobs and yet they are not educated for them. The business school of the future is going to penetrate the market by teaching students how major financial interests can now determine governments and how government relationships with business are determining their license to operate. This is going to be a fundamental issue for anyone who has the aspiration to be an executive director or a non-executive director. For instance, I am very impressed when I hear the marketing director of a major corporation switching topics from product to how they influence the German, French and Belgium governments on their regulatory frameworks.

This expertise in being able to talk from lobbying to product delivery and efficiency for the customer is going to be the benchmark that will assess the capacity of directors for the future. This also means that the team element of executive level roles becomes critical. Among the few business schools that integrate geopolitical thinking with strategic and operational application INSEAD is uniquely one of them; of the other few business schools that try to do it, it tends to be the hobby of one or two professors in the school.

Of course, a pressing concern for many directors is the issue of different governance regimes and different legislation on how products are traded and various standards developed. What may be relevant to one type of product or one particular sector may be covered in the business school, but what tends not to be covered is how a corporation is going to have to negotiate its way through these various regimes.

Undoubtedly having people with a wider set of legal and technical skills in these different areas is one step, and most business schools cover this. But the bigger corporate question is how to negotiate through governance structures as a corporation to deal with these different regimes. For example, as a multi-product company operating in China, how do your board structures in China reflect the Chinese context versus what you are doing in Brazil? This is not being taught in business schools.

Equally most business schools fail to prepare students for the range of concerns that top teams have to debate. In practice, what I am finding is that many of the directors that I meet who are able to cross over from one regime of governance to another learn that by happenchance. They learn by making mistakes and they build on experiences, as opposed to having a model of how this could be done well across the world. Business schools need to try very hard to understand the techniques and strategies for negotiating across governance regimes, yet it seems that still only the techniques are being taught.

I have mixed views on this. The intentions behind the ethical business MBA are totally honourable and to be supported, but what is the reality of its success and its own sustainability?

A friend of mine from a foreign government asked me if I could provide contacts within investors to see if the projects of the foreign government would attract the necessary level of funding. One cluster of projects was concerned with green investment, community development and housing redevelopment in this country. The overall rate of return was about 8% or 9% for these investors over a number of years. The second area was arms, and an extensive investment in a whole number of different types of arms and military developments. The return on investment there varied from 17.5% to 20%. The green funds that were attracted came from all over the world. The moment those green funds heard about the arms side to the deal, they immediately switched to that and clamoured to invest in that area rather than the more public stakeholder-orientated requirements of that particular state. I asked some of those investors what had caused them to switch deals and their response was that while the green side is important, the maximum investment that you’re going to get is 9% – rather than the 17% offered by the arms deal. Then I asked about the stakeholder orientation, and they said that while this might be developing, for the next decade it would not have much impact.

So one of the things to watch for is whether we do in fact realise stakeholder value disciplines in a shareholder world. Alternatively, this is perhaps a trend of the day, which is that while the market is in downturn and the private sector and the financial services sector really doesn’t have the capacity to send people on MBA programmes nor has the interest to hire people from MBA programmes, the various universities that provide training in development and business have turned their attentions to third sector.

There definitely is an attempt to think more broadly, in a more sustainable way and in a more stakeholder-orientated fashion. However, when talking to investors, the impression I get is that this will only survive for the next twenty-four months because the markets are down. I really hope those investors are wrong. Yet having seen how the City and Wall Street really seem to be calling the shots even with the national political process, I hate to say that it is likely we will be back to what we saw before by about mid-to-late 2013. In the philosophy and curriculum of the MBA, “stakeholder” will just become another politically correct term with little meaning.

The counter to this is that the upcoming citizen is well versed with how to access information and the values of the new generation coming through could make a difference. The investor thinks not. I think the next 18 months will be a very telling period to see what really happens.

Perhaps the biggest concern is, according to one of the biggest think tanks, Eurasia, that the bombing of Iran will take place in 2011.  While attending a briefing with the think tank, a colleague of mine who works for one of the major funds in the City was told that Eurasia were absolutely convinced that the bombing will take place this year. What he wouldn’t tell me, for confidentiality reasons, was which week in 2011.

Prior to conflict breaking out, I think we’re going to see a race for positions between the Anglo-American allies and the Chinese allies. It won’t be pleasant. Because of continuous divisions within itself, the European Union will have little say in how world affairs are going to be conducted. The competitive behaviour will continue. Tension flash points will also emerge. What is so unpredictable is what will happen once Iran is bombed. There is no doubt: Iran will be bombed.

There have been a number of economists who for many years have been foretelling that China is going to emerge as the global power, not the US or Anglo-American interests. Now the question may be: why do you want to be a global power? This is especially the case when the world’s resources are diminishing and the majority of those resources are in Russia. The answer is that it is not to control oil, gas, minerals and so on, but it is to control space: to control all movement through space and control the unlimited resources in space.. What it actually means to control space is not yet clear. It could be the number of satellites and the number of manned space stations but ultimately it will be the technology that will take you to other planets so you can begin the process of excavation. This will require military technology to be put into space, allowing you to attack anyone threatening your capacity to penetrate space.

What has not been mentioned in the media is that the Chinese have just quadrupled their defence and military spending, of which a large portion is going towards increasing its space exploration budgets.  The American budget for space, however, is static or declining, even though their military budget is increasing.  It is not quite understood why the American space budget is decreasing, considering that they can see the Chinese budget is rapidly increasing. Perhaps the reason is that controlling the world counts before controlling space, but why not take that extra step and get to space first rather than trying to outbid the other side for what is essentially territory that will be of no use to anybody, and that’s land. If you look at the time frames of governments, they look ahead in 50 year terms, or 75 year terms; businesses in 5 year terms. With 50 years not being a great deal of time to rethink your whole military strategy, why spend your money chasing something where the resource space is declining when you could be controlling space where the resource space is unlimited?

So will it be the Americans or the Chinese who will become the global dominant power? The interesting point is that whoever it is, it is the control of space that counts. It’s a 50/50 question because despite the Chinese budget increasing, their technological position is radically behind the Americans. On the surface, it does seem that the Chinese are on the ascendancy and the US is on the decline, both in terms of the race for power but also in terms of the race for space.

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