posted June 23, 2005 03:19 PM         

We doubt seriously that we are your only hope, but are happy to make a comment on your search. We believe you are our first forum participant from Pakistan.

We agree that the purpose of an equity corporation is production of shareholder value. For listed companies and some others, that shareholder value is monetary. (In small companies or family companies, often the shareholder value includes monetary value, but may also include the ability to work together or some other non-monetary payoff.) In any event, every company will confront ethical choices. Although you could make a case that high ethics puts a company at a disadvantage in the market, some would disagree. You’ve quoted their point of view—that in the long term treating employees, vendors, and other stakeholders ethically enhances corporate success. We don’t know how true that is and, of course, we don’t know how true it is in one part of the world versus another, in one market versus another, or for one definition of “long term” versus another. But we do know every company has to make choices about shareholder value versus proper behavior.

posted November 09, 2004 03:54 AM         

The fact that the current (or currently envisioned) product of a company is inextricably linked to initial investment and incorporation does not affect the ends/means distinction. You are right, of course, that an investor decides to invest based on a number of factors, one of which is the current or planned products. But that is not because the investor wants those products produced, it is because in wanting a monetary return, the investor has greater or lesser confidence that a satisfactory return will be forthcoming based on his/her assessment of those markets or that company’s ability in those markets. If you asked the investor to choose between (a) lousy return but the company produces the expected products and (b) great return but the company completely abandoned expected product lines, the choice would be a no-brainer.

If GM were a charitable organization (in which case, it would be smarter to incorporate under non-profit statutes), it might have an Ends statement like “Citizens of North America have personal transportation units for a cost of no more than 25% of the national average annual income." And, in fact, GM might still see such an achievement as one way to produce its desired shareholder return. But it would abandon that intent if it did not contribute as expected to shareholder value. (The technical reason that prevents such a lower level Ends policy is that it doesn’t further define anything in the higher levels.)

Now, consider for a moment a situation in which owners really do want a social outcome for their investment as well as a monetary return. Could they do something like that? Of course, they are the owners, after all. In fact, they could want nothing but social impact outcomes. And if that is what owners wish the company to be for, then it becomes a legitimate ends issue. In family companies and in small start-ups, you might find such a phenomenon (as was covered in “Corporate Boards That Create Value”), but for a publicly listed company you’ll look far to find a company with a substantial number of shareholders who want anything other than monetary return.

By the way, just because something is an owner wish with respect to the company does not make that something an ends issue. For example, owners might want the company to respect certain environmental protections or to be a good community citizen; the board merely translates these matters into its limitations on executive means.

posted November 01, 2004 09:35 AM         

Unfortunately I have not resolved my "chicken and egg" issue. I am still conflicted as to how to address the products or services an organization produces. In an earlier response in this thread you stated "The specific product of service sold by the company is a means issue." You have also been clear in stating that "With extremely rare exceptions, a business is established for the purpose of shareholder value". If I test this logic at its extremes I run into difficulty in the start up scenario of a corporation. In its inception the owners made the decision to invest in an entitiy which would produce some benefit or difference that they felt woud result in an aceptable financial return. The product of the company is inextricably linked to its initial investment and incorporation. The evidence is that a name for the entity must be supplied when filing the application for the incoporation, so you have to think that when General Motors was incorporated they had some idea what it would be about.

Where does it cross the principles of the model if GM were to have a sub-Ends policy of the nature "Citizens of North America have personal transportation units for a cost of no more than 25% of the national average annual income." I would see this as a further refinement of the owners' wishes as opposed to a means.

posted October 28, 2004 08:29 PM         

Ends for a listed company will almost certainly be some form of shareholder value. Issues of the environment, “living wage,” social responsibility, etc., are matters not ordinarily of Ends, but of the board’s values about ethics. The board can certainly affect such things, but does so in Policy Governance through the Executive Limitations route as discussed in the book. (By the way, I cannot take sole credit for a co-authored book. Caroline Oliver was my co-author on that.)

posted June 30, 2002 07:14 AM         

Caroline Oliver and I wrote the book to make available to the beleaguered and incoherent field of corporate governance a theory-based resource as an alternative to the scattered, piecemeal solutions widely being offered. We cover both theory and practice. We take a strong stand about inside directors, separate the ceo and chair roles, and introduce the CGO (chief governance officer) title. We include a set of sample board policies.

posted June 06, 2002 06:48 AM         

The corporate governance book will be available in August there (you are in Switzerland, n'est pas?). It is the best. But until then, get Boards That Make a Difference, even though it is written for nonprofits.

posted June 05, 2002 01:41 PM         

I am totally unfamiliar with your books. I am trying to decide which one to buy!

I did not start out in governance, but in using holistic thinking methods to help businesses to get the most from their assets (fixed, people or otherwise).

The methods I use are quite successful - when applied - BUT current measures in most companies are locally focused - by function and/or business segment. This fact makes it very difficult to cause change at lower levels - at least the best possible change.

So, a recent tactic of mine is to get into your area of expertise in the hope of finding a way to get businesses to truly manage in a holistic way.

In your response you mention a list of items a board can say it does not want to see happen. I agree it can do that - BUT this is an exclusionary technique and requires the board to think of 'everything' that must be excluded.

I am hoping for an inclusive philsophy and direction from the board eg they say this is the way we want you to behave (vs don't ever do this or that.)

Deming goes a long way - but not all the way and he is anyway far to in the weeds for a board. Peter Senge is also in the right place, but systems thinking the way he does it is not for most people. Goldratt's Theory of Constraints is easy to understand and has the right direction - it just needs to be worked on to create a viable tool (I believe).

I am now very interested to see what is in your book - and a recommendation on what to read first would be helpful.

posted June 04, 2002 01:03 PM         

You seem unfamiliar with the governance principles that I developed. They address your issue. This summer Jossey-Bass (a Wiley company) will release a book I wrote with co-author Caroline Oliver, titled "Corporate Boards That Create Value: Governing Company Performance from the Boardroom." I think the book will answer your question better than I can in a brief response here.

For the board to be an adequate protector against short-sighted business practices, it has to understand its role in the matter. You said “Governance, I believe lies within the CEO’s role also, but that primary accountability is with the board.” The confusion in that sentence (OK, just who is accountable for governance then, board or CEO? It cannot sensibly be both.) reflects the confusion in corporate governance today. Without clearer accountability, boards will be poor at governing no matter how committed they are to good business philosophy.

For a board to tell management what strategies to use and how to carry out “holistic management,” requires that directors themselves are skilled in doing so . . . . a likelihood you don’t accept (I don’t either). But a board can say what kinds of short-sighted, unethical, imprudent conditions or activities it wants not to happen (then demanding monitoring data to confirm what actually does happen). In other words, the board can protect these long term interests by putting certain practices off-limits, rather than “getting in bed with management” to help make the management decisions.

Change can happen, but it must begin by redesigning the board’s job and the board’s relationship with shareholders and with its CEO.

posted May 30, 2002 01:21 PM         

Governance, I believe lies within the CEO's role also, but that primary
accountability is with the board. The board should not meddle in the
activities of the CEO and his employees.

However, there is an area where I think it is very important for the
board
to direct a CEO - and that is the philosophy of business. What are the
strategies of management the CEO should use to achieve the goals that
the
board sets him. I am talking about how the business should be managed.

Why do I say this? I think everyone in business does believe that a
business
should be managed in a holistic way. The problem is not with the belief,
it
is in the execution , practically no one does it. A business is carved
up
into smaller components - functions or business segments and each piece
is
charged with optimisation, optimisation of itself. The sum of all these
optimisations can never be an optimum for the corporation as a whole -
it
has got to be a sub-optimisation and usually the difference is huge.

My business experience tells me that functions compete for resources in
order for their bosses to succeed - hurting the company. My experience
tells
me that business segments with P&L responsibility do exactly the same
thing
causing misuse of assets so that again company results are lower than
they
should be. In any case, this calls for someone (the CEO or the
directors) to
make sure companies do perform in a holistic way, that the optimise the
whole instead of the parts.

One could expect what I am asking to be a part of the CEO and his
management
team's responsibility and accountability - the problem is that largely
it
does not get done. A part of the problem stems from the requirements of
the
GAAP (or other such standards) that are unsuited for the management of a
business - OK for statutory reporting, but not for the running of a
business. Another part of the problem is that most managers at a general
management level do not have the knowledge or education to truly manage
holistically. They need help and direction.

Common practice found in most businesses sub-optimises and hurts us
shareholders. We need directors who know what managing holistically
means
and who can direct/demand a control system that helps cause a holistic
behaviour throughout a business. At the same time business strategy is
reviews are another opportunity for directors to make sure they guide
correctly.

As I said in the beginning, everyone knows they should manage
holistically.
The problem is that it is not common practice. Should we start with
directors - it would be a way for them to take greater interest and
control
of a business. BUT it requires (very probably) education, because most
directors come from the same environment as the current crop of CEOs and
their management teams.

Am I right? Can a change be brought about? Looking forward to your
answer(s)!

Rudi