Time for a Reset

07/01/2019 Subscribe to de-cooded

Happy New Year. As people return to work, full of good intentions and new year resolutions to live more healthily, be more present and make more of a positive impact, it’s worth reflecting what new year resolutions the business world should be making in 2019.

All change

There’s no avoiding the fact that 2018 was a difficult year for business as well as for many familiar business leaders: The combination of accelerating disruption in a number of industries; increasing government and regulatory intervention; public defenestrations of long-standing corporate leaders; and a series of governance failures all lead an observer to the conclusion that the business world is struggling to change at the speed and to the degree that is needed.

Mirroring the destabilisation in the geopolitical and economic spheres, the business world is in the midst of a period of major transition, where long-established assumptions and ways of working are no longer appropriate or, in some cases, acceptable. Two factors are central to the current dynamic:

The ‘invisible hand’ – not waving but drowning

Firstly, business’s social contract – and therefore its licence to operate – has changed. Reinforced by concerns around inequality (and the headlines around greedy bosses that feed it) there is a realisation that the unfettered form of capitalism that characterised the first decade of this millennium, and the exclusive and relentless pursuit of profit that it espoused, has been discredited. A belief in Adam Smith’s ‘invisible hand’ of the market providing a self-regulating mechanism have been seen to directly or indirectly contribute to increasing inequality and accentuated the market cycles that harm the people in society least able to deal with its more damaging effects.

Stakeholders, not just shareholders

Secondly, the doctrine of shareholder value, where profit maximisation was the sole responsibility of an organisation’s board and management, has given way to an appreciation that businesses have a broader set of stakeholders that should inform strategy and decision-making. Considerations around a company’s social impact and the interests of the environment, employees and suppliers now enjoy equal or even greater billing than financial profit. This not only reflects the changes in sentiment in society as a whole, but also has profound implications for the nature of commerce in the future.

These are powerful and generational shifts in the context that business operates within, with their effects being felt in a number of ways:

No Longer Acceptable

Reflecting a rapid change in what is considered acceptable, as well as a strengthening unwillingness to tolerate unacceptable behaviour in broader society, behaviour in business is also being held to a higher standard than in the past. The tsunami of the #MeToo movement has unearthed serial acceptance of harassment in numerous industries, which followed the backlash against the hard-driving culture at Uber that cost its founder and CEO, Travis Kalanik, his job. More recently in the UK, the CEO of Ted Baker, Ray Kelvin, has been suspended, pending an investigation into allegations of long-standing and serial harassment. By the end of 2018, we were even being treated to the ‘Big 4’ professional services firms (more of which later) competing to advertise how many partners have been forced to leave because of behavioural reasons. This strange spectacle does leave one with the question of why, if such behavioural patterns already existed (as they surely would have done), did they make partner in the first place?

Control & Regulation

Another impact has been government’s increasing willingness to provide guidance on the responsibilities of business and to actively regulate how this is manifested. It’s a full-time job just to keep up with all the new governance codes and government-sponsored studies being published to demonstrate its resolve to tackle this area. The UK’s FRC has published its new Corporate Governance Code in July 2018, stating that a company’s board “should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned.” – a major shift in emphasis. A government panel, headed by James Wates has created the UK’s first Corporate Governance Principles for Large Private Companies, hitherto left to their own devices.

These examples are just in the UK. The record-breaking money laundering scandal in Danske Bank’s Estonia branch has stimulated tough action from the governments of both Denmark and Estonia (as well as leadership changes at Danske itself). Even Facebook is facing growing calls for regulation after the data scandal involving Cambridge Analytica and its subsequent slow and tin-eared response to the developing PR crisis.

From the ‘Great Man’ to ‘Great Team’

Numerous leaders of global companies have been shown the door (or the window) in recent months demonstrating a distinct change in the weather for corporate bosses. Carlos Ghosn – long considered an alchemist in the hard-bitten world of car manufacturing – spent Christmas in a Japanese jail, accused of false reporting and misuse of company property. Martin Sorrell was ejected in April 2018 from WPP, the company he built and led for 33 years. Elon Musk narrowly held onto his job after he was found guilty of misleading markets with his tweets and his behaviour became increasingly bizarre. Even Paul Polman, Unilever’s CEO, long the darling of sustainability and corporate responsibility, came off second best when taking on investors over the move of Unilever’s HQ to Rotterdam. It may be a little early to celebrate the demise of the ‘great man’ era, but it does indicate a welcome attention to the dangers of allowing power in a business to overly concentrate in one person. Perhaps we are entering an era of the ‘great team’ instead …

Do not pass ‘Go’

Competition in a number of markets is also lacking and not just in the digital/social media area, which has been taking all the headlines of late. There have been growing calls for dominance of the ‘Big Four’ professional services firms (PwC, Deloitte, EY and KPMG) to be reduced as a way of increasing audit quality. The government seems increasingly willing to act after a succession of corporate and audit failures in recent years, both in the UK and worldwide. A critical and uncompromising report by the UK’s Competition and Markets Authority (CMA) was released in December, at the same time as a government-sponsored report into the audit sector, led by Sir John Kingman. Sir John suggested establishing a new regulator for the audit sector and weighed the forcible splitting up of the companies to properly demarcate the audit and consulting areas of these firms.

Expectations of behaviours are changing faster than businesses, and particularly their leaders, can respond to

Where does this leave us? Companies that put results above good governance such as Facebook, Danske Bank and Uber are being reined in. Expectations of behaviours are changing faster than businesses, and particularly their leaders, can respond to. The ‘court of public opinion’ provides an immediate response to situations that used to take months, or even years, to come to light, establishing a level of transparency and demanding a degree of responsiveness that organisations are finding difficult to handle. Individual leaders are under unprecedented levels of scrutiny.

Hit Refresh

All this indicates that in many areas, what is needed is not reinforcement of the status quo or incremental reform but a fundamental reset in underlying assumptions and ways of working. As Satya Nadella describes in his excellent book about taking over at Microsoft (‘Hit Refresh’), such a reset involves root-and-branch transformation both at a personal and an institutional level. This involves a willingness to take on your own and the organisation’s established ways of thinking, the vested interests and sacred cows within an organisation. It also implies a requirement to lead the organisation with empathy – as the change is a human one – and through the lens of mindsets and behaviours, as it is at this level that change first needs to happen if such a reset is to be successful and sustained over time.

Such a shift is not about just re-branding, as Weight Watchers discovered when they changed to ‘WW’, which was embarrassingly found to spell out “double u” (which, surely, is not the point at all) nor simply about ethics, as the Australian cricket team discovered last year. Rather, it is about how an organisation’s leadership thinks, behaves and the culture that it subsequently creates. May 2019 be the year of courageous leadership and a greater willingness to ‘Hit Refresh’.

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Coode Associates supports and advises companies on leadership development, organisational effectiveness and alignment and shaping culture. If you’d like to know more about our work, we’d love to hear from you: info@coodeasssociates.com.