Wednesday 19 January 2011

The Good and the Bad of Governance Beyond Boardroom


Running counter to the current commentary on the financial services sector, a big cheer to Goldman Sachs and a big raspberry to Barclays for today's reports.

On the upside, it appears that Goldman's new governance culture (see previous post) does have some teeth. It is reported today that Kevin Connors, co-head of global forex sales in G10 currencies, was fired last week for breaking internal compliance rules. However, and here the cheers are deserved, he had not acted illegally nor harmed clients. So undermining the firm's culture and reputation, even if no external rules have been broken, is now a sackable offence. I wonder if other financial services firms will follow suit...

On the downside, Barclays was fined £7.7m by the FSA for misselling Aviva funds. The reaction from IFAs has been a little predictable. However, this fine comes on top of having to refund £60m to complainants. This is a significant governance situation and evidence of a sales culture misaligned to corporate strategy. Whether senior management announces a recovery programme in the next few days will be a sign of how seriously they are taking their governance culture mistakes.

Tuesday 18 January 2011

Governance reform in the NHS

In all the commentary this week around the Government's plans to radically devolve power in the NHS, there has been little about the governance challenge this represents (honourable mention to the exceptions: the Chartered Management Institute here and Michael Tremblay here).

Are GPs ready to take control of 80% of the NHS's £100bn annual budget? While some run thriving SMEs, the management challenge to take on commissioning their services is a step change from a small rural practice.

In particular, do GPs have the right governance culture for their new role? By this I mean no disrespect to GPs but simply question whether their existing culture - necessarily elitist, authoritative, closed, collegiate - is the right culture to fit the new NHS strategy.

Working with a plethora of private sector providers requires acute attention to contractual detail, considerable strategic vision of the kind of services mix required, entrepreneurialism, innovation, and (dare I say it) some marketing nous as the reforms bed down and GP consortia start competing for business.

According to my insider sources, these are not the cultural values taught in medical schools nor fostered by the Royal Colleges. It seems like the NHS reforms represent a considerable research and practice opportunity for Governance Beyond the Boardroom network. Please drop me a line if you wish to pursue it.

Friday 14 January 2011

Goldman Sachs governance report

As an example of what leading financial service firms are doing in terms of their governance culture, this week's report from Goldman Sachs sets three interesting precedents for the sector.

1. The extent of the reputational damage when a firm's actions stray so obviously from its espoused business standards. 

Goldman's first business principle is: 'Our clients' interests always come first'. This ideal looks a little hollow as the details of Goldman's investment in Facebook have leaked out. Their last business principle is: 'Integrity and honesty are at the heart of our business'. Again, hard to square with the news that Goldman lost an additional $5bn in proprietary trading in 2008 but have only just announced the loss.

2. Getting your culture right is key to overcoming reputational woes. As the report notes (p. 6):
'The firm's culture has been the cornerstone of our performance for decades. We believe the recommendations of the Committee will strengthen the firm's culture in an increasingly complex environment. We must renew our ... constant focus on the reputational consequences of every action we take. In particular, our approach must be: not just "can we" undertake a given business activity, but "should we".'

3. Firms are right to be concerned about the intuitive link between culture, governance, and reputation. As the report says (p. 8):
'[Goldman's reputation] can be affected by any number of decisions and activities across the firm. Every employee has an equal obligation to raise issues or concerns, no matter how small, to protect the firm's reputation. We must ensure that our focus on our reputation is as grounded, consistent and pervasive as our focus on commercial success.'
Despite the poor reception the report has generally received on Wall Street, Goldman might again be ahead of the pack in one major aspect. Instead of addressing governance failures in a simple rearrangement of committee armchairs and more internal procedures, they have taken a more root and branch approach. Under the rubric of improving governance, they aim to address: improving client relationship management, making adherence to the Business Principles reportable, better oversight of new products, taking transparency seriously, and incorporating culture and values into KPIs.

At least Goldman is coming up with a public response to the seriously flawed culture of banking that led to the financial crisis. I hope, but don't expect, more international banks will follow Goldman's new approach to governance reform.

Thursday 6 January 2011

Governance Beyond the Boardroom in Oil Industry

Deepwater Horizon Oil Spill
Yesterday's scathing report by the presidential commission into the April 2010 Deepwater Horizon oil spill paints a picture of a disfunctional corporate culture at BP and across the oil industry. The report is very useful in explaining what exactly went wrong in the build up to the explosion. But the most interesting aspects for this blog's readers lie in the 'Overarching Management Failures by Industry' section [p. 122]:

"The most significant failure at Macondo—and the clear root cause of the blowout—was a failure of industry management. Most, if not all, of the failures at Macondo can be traced back to underlying failures of management and communication. Better management of decisionmaking processes within BP and other companies, better communication within and between BP and its contractors, and effective training of key engineering and rig personnel would have prevented the Macondo incident. BP and other operators must have effective systems in place for integrating the various corporate cultures, internal procedures, and decisionmaking protocols of the many different contractors involved in drilling a deepwater well." 

As this case demonstrates clearly, some of the greatest risks in the oil industry are faced along way from the boardroom. Without a robust governance culture that proactively addresses the integration of various corporate cultures, internal procedures, and decisionmaking protocols" of the various contractors", the report concludes that:
"the root causes are systemic and, absent significant reform in both industry practices and government policies, might well recur."
This isn't the current governance culture of the industry. Rather, it is summed up by BP engineer Brett Cocales in an email a few days before the explosion [quoted p. 116]:
“But, who cares, it’s done, end of story, [we] will probably be fine and we’ll get a good cement job.”

Wednesday 5 January 2011

Open Source Toolkit Framework goes live

The project team is very pleased to announce that the 'Governance Beyond Boardroom' toolkit framework has gone live on the website today. It is open source and freely available here.

Please all have a play and test it to destruction! I'm sure there are things we may have missed so let us know where we can improve. It's an ongoing research and practitioner project so all ideas for improvements most welcome!

In the next few months we hope to be using the toolkit framework with some pilot sites. We have some volunteers already but are happy to work with more first movers. If your organisation would like to be involved in this innovative approach to governance, please let us know by replying to the project team at andrew.tucker@pol-soc.bbk.ac.uk.