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Lessons in Leadership It's lonesome at the top To whom can senior management turn for advice? By Robert L. Bailey Great leaders generally have a clear vision of the direction they want to take their companies. They know precisely where they want to go and how they want to get there. And they are able to build teams of competent people who buy into that mission and who are able to propel the companies toward those defined objectives. Still, every determined, clear-thinking leader periodically has reservations or concerns about that vision and direction. Every capable manager needs to test an idea now and then—to get a new perspective regarding a problem—to evaluate a direction or strategy. To whom can a senior manager turn for advice? Although it may not be apparent until one is in the boss’s shoes, it is indeed lonesome at the top. For a small family-owned business—and even for some not so small—a “mastermind group” often fills the bill. This group consists of folks in different non-competing businesses who have respect for one another’s business insight and judgment and who can discuss problems in complete harmony and in confidence. When it comes to discussion of intimate details of a business—in harmony and in confidence—it obviously is not easy to assemble a compatible group. It may begin with just two people—you and one other. Perhaps a third can be added when both members are entirely certain that the additional individual can add value to the group and can operate within the harmony and confidence guidelines. The group shouldn’t be too big. Several mastermind groups have as many as nine or ten members, but I personally think this is too many. In my view, four or five are enough. Partnership pitfalls Some small businesses attempt to get advice and counsel by forming a partnership. Hundreds of times during my corporate years I advised agencies considering a partnership that America’s most successful partnership—marriage—is successful only about half the time. Most partnerships are formed for the wrong reasons. Two small, weak agencies form a partnership, resulting in a larger weak agency. Or one agency principal wants to “slow down” in anticipation of retirement but wants the income of an active agency participant. In nearly every case, each partner believes that he or she is contributing more than 50% to the ongoing agency. Whenever I learned of a new partnership in the making, I reminded participants to decide how they were going to break the partnership apart—now, “while you are still speaking to each another.” It is easier to decide such matters while relationships are good rather than later when rational discussions are less likely to occur. Although I didn’t keep count, I’m certain that we spent more time breaking apart partnerships than we did putting partnerships together. The bottom line is: Think twice before committing to a partnership. For corporations, the process is formalized with boards of directors. Although members of the board are sometimes friends of the CEO, the board members should always be respected for their business judgment and insight. The process should be similar to that of the “mastermind” group. This, in my view, is the ideal board arrangement for a successful, well-run business. Directors aren’t managers It is never the directors’ responsibility to “run” the company. The board is not qualified to do so. Nor does time permit with, say, four to six board meetings a year. It takes a management team with many years of experience in a specific industry, I believe, and with a sterling track record of getting results, to lead a company successfully. This is not a 40-hour-a-week job. This is a job that demands attention nearly 24/7. With a publicly held corporation, the picture becomes even blurrier. Institutional investors, government agencies and the media consider it evil to have inside directors, or directors who are friends of the CEO, or directors who work with management in harmony, or directors who otherwise understand the role of the board. Long ago I vowed that I would resign rather than to work with a board in a hostile atmosphere. “If I can’t produce results,” I told several of my directors, “fire me. Or I will resign if I can’t deliver the goods.” The head person in any organization carries enough burdens and has enough stress without handling continual conflict with the group that should be giving advice and counsel. Although the efforts are undoubtedly well intentioned, a number of outside pressures are contributing to board incompetence. For instance, the SEC, in an effort to make public corporations more accountable to shareholders, is considering a proposal to permit shareholders to nominate board candidates, without regard to the candidates’ ability to contribute to the company’s success. This would likely give control to organized groups who have a special interest to advance—such as labor unions, or institutional investors interested in a fast buck but with no interest in building a foundation for long-term success. Conflicts of interest will become rampant. Solid, long-term success requires a balance of the interests of constituencies served. For example, my former company served policyholders, agents, employees and investors. The involvement of all four constituencies was essential. Remove any one and the company fails. The SEC has already mandated that every mutual fund must have an independent chairperson—an outsider with no ownership in the fund’s management company. I’m certain the SEC has a lot of people smarter than I am, but I’m unable to understand how a person with no ownership interest, and perhaps only cursory knowledge of the industry, can somehow prevent abuses and protect the interests of owners. It’s interesting to note that some of the worst offenders in the mutual fund industry—funds with the highest fees and poorest performance—had independent chairmen and a preponderance of independent outside directors. I believe that as many companies are damaged by bad boards as are damaged by bad management. Sarbanes-Oxley fallout The passage of Sarbanes-Oxley on July 30, 2002 (often called SOX—so named because it has scared the socks off management and directors?), was intended to prevent the accounting shenanigans that have made headlines for some high-profile companies. Compliance is time consuming and costly, paperwork is onerous, and the law is complex (no one knows for sure what is required). From this a new industry came into being—thousands of lawyers and consultants (a group I call “sons of the board”), most of whom have a primary interest in protecting themselves from liability and building an ongoing stream of personal income. About the only advantage to management and directors is that when a decision is questioned, they can answer, “Don’t blame us. We hired a consultant.” It’s an honorable goal to have board “independence.” But this objective should not be diluted by selecting directors who are so skittish about their liability that they can’t give sound advice and counsel; directors who are more interested in their own perks and pay than in the interests of stockholders; directors with no sound business experience; or directors with no track record of business success. This brings us full circle, to the “mastermind group” or “independent” board that consists of folks in different non-competing businesses who have respect for one another’s business insight and judgment and who can discuss problems in complete harmony and confidence. I know this isn’t a popular view right now, but these are the groups to whom managers should turn for advice. * The author |
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