1. Corporates need to address new realities
Gregg Barrett
INTOXICATING euphoria - and no I am not referring to Japan’s finance minister,
Shoichi Nakagawa, who resigned recently after being accused of being drunk at a G7
conference. It’s rather a reference to the level of management incompetence during times
of prosperity when it seems that it was not just Elvis that left the building, but in fact Mr.
Common Sense and Mr. Corporate Governance as well.
The story goes along the lines … unbridled greed, selfish behaviour, a failure to consider
the needs or interests of others … these are the tendencies that have unleashed anger
against the world of business and its leaders.
While the governance scandals of recent times have revealed some fraudulent characters,
much of what has gone wrong is due more to incompetence than dishonesty.
In the excitement of a globally expanding economy, the fear of being left behind
transcended good judgment in making business and political decisions. The collapse has
demonstrated a failure of among other things, today’s organisational and regulatory
structures and management information systems.
In drawing a parallel to Cinderella at the ball and to add a little spin to comments from
Mr. Buffett - during times of prosperity most hate to miss a single minute of what is one
wonderful party. The giddy participants all plan to leave just seconds before midnight,
the problem is that they are dancing in a room in which the clocks have no hands.
Currently businesses face a backlash because of the failure by some to make sound moral
and ethical judgments and rightfully so. This includes many CEOs and their Boards that
awarded excessive personal remuneration. Society reluctantly accepted the argument that
remuneration that ran into the millions in terms of salaries and bonuses were merited
because of the exceptional growth these individuals were driving.
The question is: ”Where is the accountability now that things have gone wrong?”
Surely these rewards should now be reversed? The current situation could be equated
to:”So we as management are responsible for success, failure on the other hand has got
nothing to do with us!”.
In rebuilding trust and staving off interference from regulators, auditors and NGO’s, part
of the corporate sectors’ work must be to address the new realities of networked
communications and technologies that support not only speed of communication, but also
greater transparency. Executives, who believed that decisions could be hidden from the
public view, or that business complexity somehow absolved them from personal
responsibility, need to think again.
In his blog, Tim Cummins recounts the method used at IBM called ‘Balanced Business
Decisions’.
Balanced Business Decisions forced people through several discrete yet simple phases. It
made clear that everyone owned risk and was responsible for its management - unlike the
world of today, where ‘experts’ are hired to relieve management of the need to take

2. personal ownership.
The philosophy of ‘Balanced Business Decisions’ is based on concepts of trust,
teamwork and collaboration. It demands thought and consideration of viewpoints and
perspectives that go beyond your own narrow interests. What business needs today is not
socialism, but social responsibility.
The approach:
First, you have to describe what you are trying to do and what outcomes you want to
achieve. Second, you face a long checklist of stakeholders - internal and external - and
have to describe the impact on these stakeholders and what their reaction might be. Third,
you have to develop and document a risk mitigation strategy for any identified issues or
dependencies, with particular focus on the steps needed to reduce probability. Keeping
things secret is not an acceptable risk strategy.
Finally, you have to write an imagined press article that resulted from your initiative,
remembering that the job of the press is to expose and ridicule, rarely to praise.
Certainly the system is not foolproof, but it is easy to understand and to follow, unlike
many of the horrifically complex enterprise risk systems imposed by ‘experts’. Perhaps
corporate executives would have done well to adopt such a simple yet rigorous approach
to their business decision-making.
In Tim’s view restoring the credibility of business, requires:
- Executive management must de-mystify risk and ensure that all employees and trading
partners understand their responsibility for its assessment and management. Ignorance is
not an excuse.
- Businesses must introduce risk management techniques that do not depend on experts
and outsiders, but which every employee can understand and use.
- Responsibility and accountability for making good decisions - and learning from bad
ones - applies equally to everyone in the company and its selected trading partners. That
accountability starts at the top.
Reminded of the teachings of Benjamin Graham which seemingly only a few
remembered during the prosperity party that was taking place: “You’re neither right nor
wrong because other people agree with you. You’re right because your facts are right and
your reasoning is right—and that’s the only thing that makes you right. And if your facts
and reasoning are right, you don’t have to worry about anybody else.”
The point is that corporate governance and corporate responsibility transcends market
levels and the behaviour of the masses. For many organisations, governance, risk
management and responsibility are part of the organisational fabric, embedded in the
culture, ever present, ever considered and never compromised. For others (which we
don’t even need to name, just browse the headlines) it is just a fad – a fire that needs to be
extinguished for the time being, before moving onto the next one.