Monday, 7 October 2013

Why You Are Probably A Negligent Director

The on-screen PowerPoint boasted “record sales and profit growth”. Charts screamed success. The MD punches the air: “onwards and upwards… The elephant in the room is…” You could see the success writ large, hear it in the voice and feel it in the room. Or so it seemed.

That was a year ago with a FTSE100 multinational. Then Groundhog Day: the next conference I attend (for an entirely different company) is identical but this time a thrusting, growing business. 

But all was not as it seemed. Today both businesses are writhing around on the floor, twitching in their final death throes.

Both boardrooms displayed similar psychotic tendencies: incapable of reading or interpreting the world around them they made the wrong decisions. They were incapable of acknowledging what was really going on internally and externally. The consequences became inevitable. 

The multinational blames the bank for pulling the plug... Pardon me but how about identifying the inevitable, terminal decline of a product that was out-of-date, dull and inappropriate for today’s market? I think they missed that one! 

Talk about “elephants in the room”. The growing business had ignored collapsing customer demand by a factor of about ten.

These two stories of how the board can get out of touch need a little reflection.

You ask what the role of a director is and most start mumbling about the board and responsibility for the business and share options and so forth.  Like parenting, you are not given a manual and most make it up as they go along. At all levels! Pathetic.

The board is the business brain – it links the short term and the long term; it links the external and the internal perspective (focusing on policy formulation, strategic thinking, supervision of management, and accountability).

Our boards failed to deal with the most basic of ‘directorial dilemmas’:
  • To simultaneously be entrepreneurial, driving the business forward whilst keeping it under prudent control
  • To be sufficiently knowledgeable about the workings of the company and yet stand back from the day-to-day management and retain an objective view
  • To be sensitive to the pressures of the short term and yet be informed of the broader trends and competition
  • To be focused on the commercial needs of the business while acting responsibly.

Both boards were irresponsible. Incompetent. Negligent.

What about you?

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