Another decade, another spate of spectacular corporate collapses – and another bout of collective soul searching about corporate governance.
The names may be different from those making the headlines 10 years ago, but the circumstances are so familiar it would be easy to dismiss all those committees as a waste of time.
Now, as then, there is much discussion about the role not just of auditors but of non-executive directors – and concern that their greater responsibilities might put many off taking up such appointments. If that means politicians and other worthies with little obvious knowledge or relevant experience are at last disqualified from this particular gravy train then some good will have come of this sorry period for capitalism.
But it is not just the role of non-execs that should be questioned. The end of the boom has also highlighted general management problems. Indeed, Mary Chapman, director general of the Institute of Management (soon to be called the Chartered Management Institute) seemed to admit as much when she told a gathering of members and guests recently that there were “a lot of management failings”. You only have to look at the number of accounts black holes, sudden profit warnings and fire sales of businesses bought for handsome sums at the top of the market to see what she means.
This is depressing. The UK’s response to the difficulties of the early 90s was the Cadbury report on the financial aspects of corporate governance, a greater emphasis on training of the sort provided by the Institute of Directors and – of course – a more robust set of accounting standards.
The idea was that such measures should prevent things like this ever happening again.
Some of the recent failures can be put down to the increasing attention paid – both by bosses and in pay packets – to performance. In the drive to keep meeting expectations it must be tempting to twist the numbers a bit in one or two quarters on the grounds that everything will come right in a month or two.
Related to this – and arguably more important – is the fact that a good deal of this much-vaunted performance is based on inappropriate, out-of-date or irrelevant information. Even after the Barings collapse, it appears many executives have little idea of which parts of their operations make money and which do not – even though there is technology available that enables them to drill down in such detail that they can discover just about anything about the performance of their business.
Yet even technologists are these days apt to point out that technology is only an enabler. But what an enabler! Thanks to increasingly sophisticated software, detailed information about, say, the cost of doing business in a certain segment of the market, or the cost-effectiveness of serving a particular customer, can be obtained almost immediately. Moreover, managers can use applications to carry out “what if” planning exercises.
And yet evidence suggests that take-up of such technology and the adoption of the questioning thinking to go with it has been slow. Managers still appear to put great emphasis on acting on instinct and following the herd rather than basing decisions on hard facts.
During the last recession, there was much discussion of what became known as the balanced scorecard, essentially a means of recognising the part played in corporate performance by non-financial measures. But it did not go far beyond helping to introduce “stakeholders” to the language – despite repeated claims that trying to run a company using only the established financial measurements was like driving a car while looking in the rear-view mirror.
Now we have come to the end of a period when many companies made lots of money there may be greater willingness for executives to improve their management systems. SAS Institute, a leading provider of business intelligence software, says that this will require a certain amount of work and a repositioning of the finance director as “the information choreographer”. It says enterprises need to present “a fuller, yet consistent picture of corporate activity to the widening group of vested interests that reflect shareholder value”.
Of course, one happy side effect of presenting such pictures should be that they would go some way towards persuading investors and the wider public that there is not another Enron around every corner.
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