• Categories: General
  • Published: Feb 17, 2023
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Each month we sign post for you some good reading on governance from around the web

The governance of subsidiaries

You can download an excellent webinar (Subsidiary Board Governance: Getting it Right) from Independent Audit (UK). Featuring Richard Sheath and Jeremy Small, it explores the ins and outs of effective governance of subsidiaries. Among other things, Sheath and Small explore whybecause of the multitude of factors at playone approach does not fit all circumstances. They emphasise why great care and attention need to be applied to the interactions between a group and its subsidiaries; this must be a two-way process.

They highlight the importance of knowing where subsidiaries fit on the ‘autonomy spectrum’. Different subsidiaries in a group may require different levels of autonomy and attention. What level of assurance is enough? Who needs it and why? How explicit and codified should mutual expectations be? Where and in what form should they be expressed? These and many other relevant questions are addressed by the knowledgeable presenters. Well worth an investment of an hour of your time, whether you are a director of a parent company or one of its subsidiaries, and very informative from an executive perspective.

Why the use of sensory language is critical to effective performance management

All too often we see strategic plans and executive performance plans featuring performance measures that are of little, if any, use in assessing performance. Typically they are so replete with ‘weasel words’ and full of ‘wriggle room’ that they are an open invitation to a frustrating debate about unfulfilled expectations. Australian KPI expert Stacey Barr has explored this endemic problem in a recent piece ‘Want Great KPIs? You Have to Get Sensory…

The essence of Barr’s argument is that “We can only measure what we can observe or detect. If we have no way of seeing or hearing or touching something, how could we ever know if it was happening or changing?”

Weasel words are vague, ambiguous and have different meanings for different people in different contexts. Check out Barr’s extensive list. Many of those she includes in the statements of performance ambition and expectation are bound to turn up in your organisation.

As a typical weasel word used in a performance management context, she offers that much overused term ‘effectiveness’. What do we count to quantify and measure effectiveness? This problem, she says, goes away when goals are described with sensory language.

Barr offers a local government example that demonstrates her thesis perfectly. After replacing the weasel words (enhance, protection, natural landscape) in “Enhance our protection of the natural landscape” it might become: “The fragile soils of ridges and escarpments, and valuable farming and urban land, are protected from unnatural erosion and loss of topsoil.”

We would add that this example also demonstrates the power of replacing the vague language of good intentions with words that are outcome or impact-oriented, that can be directly observed and measured. As Barr concludes:

“If I cannot observe or detect this goal happening or changing, what’s the point of having it as a goal?”

The disasters waiting to happen as a consequence of ‘technical debt’

Elsewhere we have written about the disastrous technology fail at Southwest Airlines. Contributing governance failures were the focus of our piece. However, a web search for ‘Southwest Airlines’ and ‘technical debt’ shows that the primary story is arguably one of the dangers inherent in the way software evolves in any substantial organisation setting.

To find out more, it is worth starting with a brief commentary that drew our attention to this likely hidden phenomenon. Duane Gran, in a LinkedIn blog, explores what is meant by technical debt and why it matters. He also illustrates his piece with a brilliant cartoon that sums up the problem.

In essence, ‘technical debt’ acknowledges that in many organisations, software and the processes it enables undergo continual change. New code is layered on top of existing code. If developers (as they are often incentivised to do) choose a ‘quick and dirty’ short path over a ‘slower and clean’ approach, quality assurance becomes exponentially complex over time.

This risk needs to be better understood (and managed) but is hard to identify. Gran offers advice on how to sniff it out. We strongly suggest you read it and discuss at your board table.

Increasing concern about directors who are overcommitted

In GG #83 we reviewed Canadian governance commentator Scott Baldwin’s thoughts on the question ‘are you overboarded’ (ie, on too many boards). A further useful piece on this subject is by Nick Rockel (‘Directors Overboard: How many seats is too many?’). Rockel points to the increasing attention investors and their advisors are paying to directors, particularly of publicly listed companies, who appear to be over-committed.

While director capacity varies according to personal circumstances and the complexity and current demands of their positions, directors’ duties generally are continuing to increase as new expectations are placed on them. Rockel instances growing digital complexity and emerging issues like ESG and DEI (diversity, equity and inclusion) as examples of “new ideas and complex problems that boards are engaged in that they weren’t before”. He also notes that average board size is decreasing while boards are under increasing pressure to pay more attention to the detail. All this adds up to a reasonable concern that many directors are in danger of being insufficiently attentive to their responsibilities, and not adding the value they should. Rockel also points to academic research emerging that suggests perception of overboarding affects share values in some situations.

This all points to boards needing to be more active in assessing the contributions of directors and taking active steps to ensure there is adequate refreshment and updating of board composition. Directors who others may consider are overboarded should expect to find themselves under increasing pressure to stand aside.

Why your board might need to discuss dress standards

There is a long term trend towards more casual dress in board meetings even though some (mostly older?) directors still show a strong preference for formal business attire (suit, tie for men and the equivalent for female directors). For them it is mainly a matter of showing respect for their colleagues and the work they do together. Even where dress standards were once formally prescribed, it is rare now that the pandemic response has made it common for directors to beam into video meetings from home. There is even a new style: ‘business casual’.

This does not mean that appearances are no longer important, underlined by a recent article by Vanessa Friedman in the New York Times (13 December 2022). In Hey Silicon Valley, Maybe It’s Time to Dress Up, Not Down, she points directly at the deliberately dishevelled figure of disgraced cryptocurrency entrepreneur Sam Bankman-Fried. She suggested, following his arrest on fraud charges, that it was not just the next stage in his downfall but a signal that “the mythic figure that is the billionaire tech genius in the nowhere man tee may finally be about to meet its long overdue end”. While Friedman accepts that SBF’s dress- down appearance may have evolved naturally, in her view it became a signature as he rose to prominence; a look, she says, he realised “…was as effective at pushing the Pavlovian buttons of the watching public (and the investing community) as the Savile Row suits and Charvet ties of Wall Street”. One of her informants commented further that “It’s the ultimate billionaire white boy tech flex: I’m so above convention. I’m so special I am not subject to the same rules and propriety as everyone else”.

Suddenly, however, Mr. Bankman-Fried has cast the whole dress down look in a different light. As Friedman says, “His sloppy dress seems less a reflection of a higher calling or of a decision to devote his own finances to ‘effective altruism’, than a red flag about a sloppy approach to other people’s money. A clue that someone who doesn’t care about showering or style is maybe someone who doesn’t care about audits and the co-mingling of funds.”

Is it time to look around your boardroom and nearby executive corridors, and think about whether there are any sartorial red flags in full view?