Lessons from a hospital turnaround chief executive

Queen's Medical Centre, Nottingham University Hospital
Queen’s Medical Centre, Nottingham University Hospital

I read an inspiring interview in Health Service Journal last week with the fairly recently appointed chief executive of a large NHS Trust facing a massive turnaround challenge.  Anthony May, recruited last year to Nottingham University Hospital following many years as a successful chief executive of a large local authority spoke of the importance of providing the organisation with “hope” and of his visibility throughout the Trust.  He also commented that the problems faced by the organisation had resulted in it spending too much time looking inwards and that it now had to rebuild relationships with its stakeholders.  This resonated with my experience chairing to two NHS organisations through turnaround where I worked in support of two outstanding chief executives.  A sense of hope and what I recall describing to colleagues as “something to believe in” is part of the “Dark Matter” that makes organisations more than the sum of their parts.  And these are things that can only be created and communicated by a leadership team who are highly visible.

It has taken a few days for me to find time to blog about the interview.  Returning to the on-line interview, I discover that it is now accompanied by a dozen or so comments from May’s colleagues.  They are all anonymous (which enhances rather than diminishes their credibility) and all clearly come from within NUH.  Some are very supportive.  All confirm the scale of the task confronting May and the Trust.  Some more sceptical, although they suggest an impatience in the delivery of the turnaround – but, as another comment points out, given the toxicity of the culture that May has come into it seems unreasonable to expect a turnaround to be completed overnight.  Other comments have descended into a mudslinging between front-line and support services staff, only confirming the cultural challenge.  Others display a degree of cynicism: one expresses this in a constructive tone, remarking “Always conscious a few quotes could be taken out of context but CEO needs to be careful here he doesn’t look to subscribe to the ‘great man/heroic leader’ school of management. Always implodes in due course.”

The commentators also remark on the intrinsic challenges that NUH faces because of its size, its spread across multiple sites, and its complexity.  They also comment on the distraction provided by past M&A activity, regrettably something that has been, and continues to be in fashion in the NHS (many years ago I undertook an analysis that suggested an inverse correlation between NHS trust size and both financial performance and quality of care), and is consistent with most of the work undertaken in the private sector suggesting value destruction from M&A).

The delay in writing this blog piece is fortuitous.  My enthusiasm for Anthony May’s comments is undiminished, but the comments highlight the challenge he faces and the need for him to sustain his effort and commitment as he has a long, hard road ahead.  I wish him well.

Secret sauce – or obfuscation discount?

19th century copybook example used by Wikipedia to illustrate Kipling's poem
19th century copybook example used by Wikipedia to illustrate Kipling’s poem

A headline in this morning’s FT – Secretive active ETFs[1] lose out to their fully transparent rivals – leapt out at me and put me in mind of Kipling’s October 1919 poem Gods of the Copybook Headings.

FT journalist Steve Johnson notes that “The new portfolio shielding models were expected to encourage actively managed funds to enter the ETF market, something many active managers had been reluctant to do because they feared daily holdings disclosures would reveal their “secret sauce” allowing other investors to front-run their funds and steal their intellectual property.”

The idea of some fund managers that they possess “secret sauce” suggests a dangerous hubris, redolent of aspiring Masters of Universe heading for a fall.  Even if some may develop some special insight or clever algorithm to give them a temporary lead until their competitors catch up or until their perceived advantage turns out to be no more than a couple of rolls of the dice falling their way, the underperformance and lack of appeal of the non-transparent ETFs to investors suggests that any perception of the existence of “secret sauce” is outweighed by the discount that investors apply because they can’t see what is going on.

My instant reaction to the story was “What Dummies?”.  While transparency of the composition and activity within an exchange traded fund may fall short of the “perfect information” ideal, investors in ETFs are a reasonably sophisticated bunch and will want the assurance that goes with transparency and be naturally suspicious of anything short of transparency.

Which brings me to Kipling’s poem.  It was written in the aftermath of the First World War, with Kipling expressing pessimism about the nostrums that he perceived taking hold at the time. The current edit of Wikipedia describes what is going better than I can: In the poem, Kipling’s narrator counterposes the “Gods” of the title, who embody eternal truths, against “the Gods of the Market-Place”, who represent an optimistic self-deception into which it supposes society has fallen in the early 20th century.  For my purpose, the believers in “secret sauce” are the God’s of the Market-Place, and the God’s of the Copybook Headings are the students who stayed awake during Economics 101[2] and acknowledge the existence of the obfuscation discount.

As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: “Stick to the Devil you know.” 

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: “The Wages of Sin is Death.” 

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.” 

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more. 

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

 And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

[1] Exchange Traded Funds

[2] I could equally have used this poem to illustrate the disastrous budget of Lizz Truss and Kwasi Kwateng and, who assumed office (briefly) as prime minister and chancellor of the exchequer exactly a year ago.

Who is selling what to whom?

One of the Elzabeth Frink stratues that used to greet salesmen visiting the WH Smith Retail Head Office in the 1980s
One of the Elzabeth Frink statues that  greeted salesmen visitng WH Smith Retail in the 1980s

I led a very successful team of retail buyers in the 1980s.  In only three years they improved our margins by over 3.5% of the retail selling price.

The salespeople we dealt with didn’t stand a chance.  As we were the market leader in most of our product categories, we were always looked after by the senior national accounts manager or the sales director – more often the latter, or that is what their business card said – whose status meant they were generally well into middle age.  They would arrive in their Ford Scorpios, which would always be reversed into a parking space so no-one could see whether they had the top of the range model or vanilla version without the bells and whistles.  In a less equal and inclusive age, they were almost universally male. In common with most people working in sales functions at the time, they were outwardly sociable types – you need to be comfortable with people if you are engaged in face-to-face selling – but whose roles condemned them to spend most of their time away from close colleagues, sitting in alone in a car as they headed off to schmooze their customers.  More than anything else, they needed to be liked and to please people.

Our buyers were almost the opposite. Sure, they were great colleagues and a privilege to work with, but they didn’t need to be liked.  They were the gate-keepers to some of the most profitable shelf space on the high street, and had a clear view of how they were going to make that space generate profit for the company.  They were highflyers who had been recruited into sought-after graduate jobs and were still in their twenties and early thirties, were mostly female and often blonde, and tough as nails.  Although we visited our suppliers’ factories and warehouses from time to time to understand their business, most of the key meetings took place on our turf.  And if all this had not already put the buyers on the front foot when it came to seeking discounts from the (remember, generally male and middle aged) salespeople, their adversaries in the negotiation had been unmanned on arrival by having to drive past four well-endowed nude male sculptures commissioned by the company’s chairman from Elizabeth Frink (subsequently sold by a successor lacking any insight into the commercial benefit they provided).

On a recent visit to New York, I recounted this to a Wall Street banker who deals in fixed interest securities, “selling” (his words) to large corporate customers (again, his words) who are raising debt.  He questioned my description of salespeople as needing to be liked. I had to explain that, although he was competing with other banks for the business of the big corporations, it was much less clear in his world who was doing the selling than when I was working for a market-leading high street retailer.  I have not worked as Chief Financial Officer or head of treasury in a big corporate, but I spent a significant amount of time trying to raise money from private equity investors and from suppliers of senior debt (to provide financial leverage for the ventures that I hoped would make my fortune). It was very clear who was selling what to whom – I had the investment opportunity and was trying to sell this to the people with the cash.  I wanted to be liked (or at least for them to like the risk-reward opportunity that I was pitching).  Although, subsequently, I found myself counselling entrepreneurs entertaining offers from venture capital firms that they should look beyond the cash that was on the table and to understand that the investor needed to demonstrate whether they would be attractive people to work with and add value to the business they were “buying” into (ie do a bit of selling), most of the time, the people with the cash needed persuading to buy the opportunity.

The Escondido Framework posits that all commercial transactions (and this spills over into non-commercial transactions – such as those in politics) involve both parties selling and both parties buying[1], albeit with the balance of power (particularly informed by competitive considerations and the availability of alternatives for one or other party to the transactions) influencing the degree it feels to the parties as though they are buying or selling.   This, of course, feeds through to what sort of people you need to charge with leading the transactions with the other party, how they should work, and what tools they need to do the job well.

 

[1] I have written elsewhere about the experience early in my career as strategic planning manager for WHSmith, working with WHSmith Wholesale, which was the dominant player in the UK distribution of newspapers and magazines.  The business thought of itself as having retail newsagents as its customers and newspaper and magazine publishers as its suppliers.  But, as evidenced by the way that the industry subsequently developed (all this, prior to emergence of on-line channels for news and for magazine content), the core role of the business was to provide a distribution service to the publishers, who were buying the distribution service rather than selling newspapers and magazines to a wholesaler.

 

Not Useful but True – “the space is never static because the problem keeps changing all the time”

Nick Ormerod and Declan Donnellan
Nick Ormerod and Declan Donnellan

During lockdown, Declan Donnellan and Nick Ormerod, artistic directors of Cheek by Jowl[1] recorded a weekly podcast “Not True but Useful” about their approach to working in the theatre.  They have now released transcripts of the first series of stimulating conversations.  The following is an extract from the second of these podcasts “Space and Shakespeare”, published in April 2020[2].  I reproduce it here because I find the visualisation of the firm and the organisation as something existing in space, bounded by its interfaces (which are themselves dynamic) with outside world very helpful when thinking about the firm, what it is there for, and how people interacting with the firm or setting its strategy from inside.  Listening to Declan and Nick in conversation with interviewer Lucie Dawkins, I was struck by parallels between what happens to actors on stage and to the managers of the firm.

Lucie   So, today we’re going to focus on the way that you think about space when you stage your plays together, both in terms of what it means for the actors, and how it influences your design. And later in the episode, we’re going to use Measure for Measure as a test case, and I suspect we’ll probably talk a bit about Macbeth as we go along. But let’s start at the very beginning. Why is space so important to you?

Declan   It’s very difficult to explain what we mean by space. I can put it in this form, I can say that what happens when we die? When we die, the space gets taken away from us. So the space is an enormous thing.

Lucie   So what has space got to do with acting?

Declan   Everything. It’s got to do with our whole existence.

Nick  Human beings live in space. They’ve spent their lives dealing with the space, they are formed by the space, everything. The character (Macbeth, for example) lives in a space, a changing space from second to second. Each character has their own special space. And it’s very subjective. You look at a chair, perhaps your mother sat in that chair, that chair means something to you in your bedroom. The character deals with the space. And we as human beings spend our lives dealing with a space.

Declan  Yes, sometimes it’s a criticism, a lot of people say, oh, you know, ‘he’s at the centre of the universe. He thinks he’s the centre of the universe.’ And of course, it’s very annoying if somebody’s self-obsessed like that. But unfortunately, we are at the centre of our own universes. We invent the world that we see. There is a reality, I’m sure, but we have no access to that reality other than through our imaginations. Nick and I are looking at a microphone now but we’ll see different microphones. The microphones we see we have to invent somehow in our heads. One can’t explain these things, but we can get used to these ideas. And we can say things about the space, which is different from defining it.

Lucie  How does the space influence the behaviour of a character, for example?

Declan  Well, there would be no character if there were no space. And the thing is that, in a mysterious way, we are not independent of the space, we only exist as part of this big binary. And that’s the very hard thing to get one’s head around.

Lucie   That’s a striking statement, that there’s no character without the space around them. So, let’s unpack that a bit. How, for example, does the space define Macbeth in the scene we talked about last week, Act 1 Scene 7, when he leaves the dinner party in the next room offstage to talk to the audience about why he wants to kill Duncan.

Declan  I think that first we shouldn’t in any way have the idea that space is something that only afflicts Shakespearean characters. You know, Nick and I are sort of hunched over a microphone and we’re looking at your face, and we’ve the laptop open, and I’m trying to not make noise on the table. And I’m pinned in space.

For Macbeth, there’s a million different ways of doing it, but the space will be central to all of them. There is no world, there’s no life beyond the space. The space is what gets taken away from us when we die, and death is what happens when the space gets taken away. Macbeth gets the feeling that he has to leave that table. Yes, we can interpret the stakes: because he feels suffocated; because there’s no air in the room; because he has to get away from the man he is murdering; he needs space to think – and he comes out, and maybe doesn’t want to speak to anybody, and maybe he sees us, and there are all sorts of stories that one might evolve in order for him to do that. But whatever solutions he comes up with, these will all be absolutely dependent on the space, and on him allowing that space to come before he does. That is the important thing. So it’s not me and I spray a space around me – it’s that is a space and I’m in it. I try to control that space. And so I imagine it to be all sorts of things other than it is. But it’s going to be there before me, during me, and after me, and my perception of it will be continually changing.

If we need to break it down into steps, we can say – it’s a bit leaden – but if we run into difficulty, we can say that one of the shapes of life is that I’m in a space, I have an impulse to cross a threshold to go to another space to find something which turns out to be different from what I had expected. And that last one gives us life, the fact that it’s a continual surprise. When we look at any space, we see it’s just one long transition from one space to another. There is no state of a space, the space itself is transitioning, and we are normally trying to keep up with that space that’s changing much faster than is comfortable for us. It’s like, you know, we think that the world is spinning too slowly. Actually it’s spinning uncomfortably fast. And in all of these plays, events run out of control, and that they’re trying to slow things down. It’s rather sad to say to actors, you know, you must drive the play, because actually the space, the thresholds, the predicament, drives the action. And the characters are struggling to keep running with this thing that’s running wild and out of control.

Lucie   So, one way of looking at what’s driving this character through the space is that there’s a problem in one space, it drives them into another space, but the new space only keeps presenting him with more problems – that the character’s journey through the scene is dealing with the problems that the space is serving up to them.

Declan   That’s exactly right. Yes, the space is never what he wants it to be. The space keeps presenting new challenges. And we all think, oh wait, if only the threshold changing would stop, if only the carousel would stop, then I can deal with it – if only it would stop! But it doesn’t. It just keeps going. And there we are. And that’s what we do. And yes, he’s continually dealing with the new things that he sees.

Lucie   So it sounds like the space is never static because the problem keeps changing all the time. I guess the longer he’s out of dinner, the more he realises that he’s going to be missed, and it looks suspicious, and the bigger his problems keep getting, and every face that he speaks to in the audience presents another source of discomfort, as if he’s trying to persuade each one that the murder is a great idea. So the space is always changing, either serving up new problems or letting the existing ones grow worse.

 

[1] I have been one of Cheek by Jowl’s patrons for many years, having enjoyed their shows for most of my adult life and almost certainly seen performances involving Declan and Nick in my first year at student at Cambridge University in the 1970s.

[2] Full recordings and transcript available at Not True, But Useful Podcast – Cheek by Jowl

Applying the Escdondido Framework to Dark Ages Britain

The First Kingdom cover

I often wonder about the applicability of the Escondido Framework model of the firm to organisations in other cultures and at other times to the developed world in the 21st century .  One of the claims of the Escondido Framework is the degree to which it can be applied universally.  Certainly, the model can be applied to public sector and third sector organisations, and can be applied wherever there is some sort of corporate collective structure that can be shown to create value that is greater than the sum of the efforts of the people who are working together within the structure if they were together in a set of discrete collaborations brought about by a set of separate agreements (whether explicit or implicit).

I have just completed reading Max Adams’ account of Britain in the 5th to 7th centuries, The First Kingdom[1].  This covers the period often known as the Dark Ages, following the departure of the Roman Empire and before settled control of England by Anglo-Saxon rulers in the Heptarchy.  He pieces together the considerable research undertaken in recent years to describe a fragmentation of society, depopulation of most cities and towns and replacement by what may in many respects to a pre-Roman pattern of village economies and local tribal leadership, subject to incursions by Viking and north German raiding parties, but still with some loose links to continental Europe, with the Christianity that had arrived in the Roman period hanging on in places prior to reintroduction both from Ireland with Colme Cille (St Columba) and with St Augustine from Rome, and with continuing trade.

One of the key themes of the Escondido Framework is the identity of the corporation independent of stakeholders, the “societé anonyme” whose ultimate purpose is to survive, and which outlives its “controlling mind”.  Adams marks the end of the period that he is describing by an important transition, from one in which the individual “kingdoms” were pretty fluid, some very small and sitting within and subject to other kingdoms (in a system described as Tribal Hidage), and most regimes pretty ephemeral.

“Victory on the battlefield and political success measured in tribute and booty secured the loyalty of secular élites for their king and his eligible successors; but for a life interest only.  Defeat, if not fatal, weakened a king and exposed him to internal coup of external domination…..The luck of the tribe was invested so heavily in the person of its kings that when they died any imperium that they may have exercised over rival kings was void.

“As Bede so vividly described it, the pagan supernatural experience was in some sense like the passing of a sparrow into and out of a hall whose warmth and fellowship matched their brief period of Earth while all before and after was cold darkness unknown…..

“Pagan kingship was not stupidly irrational.  Rulers were bound by conventions of honour, reciprocity and political pragmatism.  They calculated odds as coolly – and with about as much reliance on superstition – as any politician or football coach whose tenure might be equally precarious.”[2]

But this changes with a new social contract, between church and king, that reflects the new world being constructed with the arrival of Christianity and the conversion of the rulers, whose souls continue after death.  Adams cites a law of Wihtred, king of Kent 690 -725: “The Church shall enjoy immunity from taxation; and the king shall be prayed for”  before noting:

“The rapid seventh-century establishment of monastic communities across the Insular kingdoms, supported by extensive, formerly royal estates and nurture by their relations with kings, parallels the history of secular territorial lordship founder on the right to exact and collect renders from lands and communities, but with a a critical difference.  The unique brilliance of this new social contract was to convert landed assets otherwise held for a mere life interest – the so-called folcland held by the thegns and gesiths form the king, which returned to the royal portfolio on their death – into a freehold bocland of abbots and abbesses.  Bocland or bookland – what we would call freehold – was fundamental to a relationship meant to last for eternity on Earth and in heaven.  It allowed the church to invest in physical labour and material wealth in permanent settlements free from the obligation of military service and taxation; to capitalize agriculture an technology.  It laid the foundations for a literate, institutional clerical caste and formation concepts of obligations owed by kings to their people.”

Permanence is the key word – even if in due course the success of the monastic corporations became the seed of their undoing at the Reformation.  The monastery or convent was greater than the abbot or abbess.  The kingdom also secured more permanence, even if an institutional fluidity remained  until the major kingdoms of the Heptarchy progressively consolidate and became on under Athelstan in the 10th century.

[1] Adams, Max (2021). The First Kingdom: Britain in the Age of Arthur. ISBN-13 : 978-1788543477

[2] Ibid. pp 398 -399.

Investors and consumers both need good sustainability reporting

Sustainable fashion? (Financial Times)
Sustainable fashion? (Financial Times)

The FT has been carrying stories for the past two weeks about improving the quality of information provided by companies to their investors on the environmental impact of their activities and the sustainability of their businesses in the face of climate change.  It may just be a coincidence, or it may be a conscious decision of the editorial board, but the Fashion Editor writes in “Life and the Arts” section of the Weekend FT on the same subject under the headline “Sustainable fashion? There’s no such thing”

On 5th November, Erkki Liikanen, Chair of the IFRS Foundation Trustees, delivered the keynote speech at the UNCTAD Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting, introducing the Trustees’ Consultation Paper on Sustainability Reporting.

On 9th November, Rishi Sunak, Chancellor of the Exchequer, delivered a speech to the House of Commons on financial services.  In the course of setting out his plans for supporting the City at the end of the transition period as the UK leaves the EU and plans to launch a Sovereign Green Bond, he declared:

“We’re announcing the UK’s intention to mandate climate disclosures by large companies and financial institutions across our economy, by 2025.

“Going further than recommended by the Taskforce on Climate-related Financial Disclosures.

“And the first G20 country to do so.

“We’re implementing a new ‘green taxonomy’, robustly classifying what we mean by ‘green’ to help firms and investors better understand the impact of their investments on the environment.”

On 10th November, the Financial Reporting Council launched its Statement on Non-Financial Reporting Frameworks, opening with the preamble:

“Climate change is one of the defining issues of our time and, by its nature, material to companies’ long-term success. Boards have a responsibility to consider their impact on the environment and the likely consequences of any business decisions in the long-term. Our 2020 review of climate-related considerations in corporate reporting and auditing found that boards and companies, auditors, professional associations, regulators and standard-setters need to do more.”

before recommending that companies should try to report “against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures and, with reference to their sector, using the Sustainability Accounting Standards Board (SASB) metrics” and setting out its own plans over the medium term to help “companies to achieve reporting under TCFD and SASB that meets the needs of investors”.

Today, 14th November, the FT’s fashion editor writes about the dilemmas facing those of her readers who are concerned about the impact of their purchasing decisions.  She recognises that the best way to live a sustainable life is to buy less, but also that her readers want to find ways, while supplementing and refreshing their wardrobes, to plot their way through the “greenwash” claims of the fashion brands.  Both these consumers and some of the brands themselves want clearer and more reliable accreditation of products that come from supply chains that are, if not truly environmentally friendly, at least less environmental unfriendly.

Following up the themes in this article, I found a great piece written by Whitney Bauck in Fashionista, in April last year:

“If you’re aware that there are ethical issues baked into making clothes but don’t have time to do in-depth supply chain research every time you need a new pair of socks, there’s a good chance you’ve thought at some point: ‘If only someone could just tell me for sure if this brand is ethical or not.’

“You wouldn’t be alone in that desire. In years of writing about both sustainability and ethics, it’s a sentiment I’ve heard from fashion consumers a lot. While many people want to be more conscious with their consumption, they also wish it were easier to tell which brands are truly being kind to people and planet.

“If you fall into that category, there’s good news and bad news. The bad news is that a one-size-fits-all ethical fashion certification will probably never exist, partly because not everyone agrees on what qualifies as “ethical.” Should that word refer to job creation in impoverished communities or animal welfare? Should it mean making clothes from organic materials or recycled synthetic ones? Not every ethical fashion fan has the same standards or priorities, and that will always make a one-size-fits-all approach to ethical fashion certification difficult.”

I wrote in a blog post four years ago about the benefits that the team I led at WH Smith believed would arise from developing and selling green stationery ranges.  The issues described by Lauren Indvik in the FT are nothing new.  We faced similar challenges both in terms of selecting products and in terms demonstrating to our customers that buying these products would better than buying alternatives.

The challenges facing investors and consumers in taking environmental and other ethical considerations into account in what are otherwise commercial decisions are identical.  Both investors and consumers want the best information, to put into the mix with the other things that influence their decisions – the complex trade-offs of exposure to multiple risks, timing, and return for the investor, or look, feel, comfort, durability, after sales support and cost* for the consumer.

The similarity between these challenges is evidence for the symmetry in all businesses – investors are customers for investment opportunities presented by the company, in the same way that consumers are customers for products and, indeed, that employees are customers for the jobs that companies provide.  In an age when people – in their multiple roles as investors, consumers, and employees – want to invest in, buy from, and work for organisations that behave responsibly in relation to wider society and to the environment, they need reliable information to inform their decisions.

* and a host of other possible features depending on the product or service category

Rio Tinto’s dynamiting of the Juukan Gorge: Jean-Sebastien Jacques’s solution-space implodes


Juukan Gorge caves after Rio Tinto dynamiting
Juukan Gorge caves after Rio Tinto dynamiting

What better illustration could there be of the Escondido Framework approach to understanding ESG investing described in last week’s blog than the defenestration of Rio Tinto’s chief executive, Jean-Sebastien Jacques, by the company’s shareholders?[1]

In relation to the distinction made in last week’s article between the impact of regulation on the solution space available to executive teams, one of the interesting aspects of the dynamiting of Juukan Gorge and the two rock shelters is that the company had previously negotiated native title agreements with the Puutu Kunti Kurrama and Pinikura people, giving it rights to mine the area and had also secured regulatory approval.  In Escondido Framework terms, as illustrated in last week’s blog post, the company thought that it was operating within the solution space defined by the market transaction with the owners of the land and that the regulatory market interface had not reduced the solution space available to the company.

However, the executives had failed to appreciate the sensitivities of the company’s investors to such an egregious violation of the heritage of not only the indigenous population but humankind as a whole.

Perhaps the board and executive team at Rio Tinto paid too much attention to the likelihood that investors in mining stocks are already a self-selected group that is less sensitive to ESG considerations than the investment market overall.

It matters little whether the response of the investors whose pressure on the board finally persuaded chairman Simon Thompson (who previously had insisted that Rio Tinto would not fire Mr Jacques) was a reflection of the potential for the scandal to increase future regulatory pressure on the industry, or a concern for the response of the upstream investors in their funds, or the consciences of fund management executives themselves being pricked by comparisons between the dynamiting of the caves with the actions of the Taliban blowing up the Bamyam Buddhas in 2001.

Either way, the shape of the investment market interface was sufficiently different to that perceived by Mr Jacques and his colleagues for them to have placed themselves, not temporarily but at a personal level permanently, outside the solution space available to them.

[1] For anyone who missed the story, Rio Tinto blew up two 46,000-year-old Aboriginal rock shelters in Western Australia, offending not only the Australia aboriginal community for whom the sites were sacred but also a wider public sensitive to an ancient archeological heritage. Initially the board decided to withhold bonuses for the executives involved, but has now decided that Mr Jacques should go (albeit not until early next year and without any further financial penalties)

How is business adopting purpose around the world?

The British Academy’s Future of the Corporation – Purpose Summit is an important contribution to developing our understanding of what business is about, and a subject at the heart of the Escondido Framework.  Possibly as a result of the selection of speakers, this afternoon’s opening felt a bit like a vehicle for  Colin Mayer’s view of the world, particularly for those in the audience who stayed on for Mayer to answer the questions posted during previous hour – (including his final response, in answer to the question that I had posted “Is purpose the answer to the questions “why does this business exist?” and “what do we do that creates value for customers, employees and suppliers?”, which was an emphatic “Yes”).

It was a pity that technical difficulties meant that it was impossible to hear the opening contributions from Mayer or from Stefan Oschmann, CEO of Merck, and that Ashley Grice, CEO of BrightHouse (a creative consultancy owned by the Boston Consulting Group, not to be confused with the bankrupt business that used to rent consumer durables to cash strapped households in the UK) had a false start and when she resumed once the technical problems had been addressed, spoke thirteen to the dozen presumably being anxious that she would run out of time.

Grice is her own worst enemy, or her delivery and articulation of the importance of corporation purpose risks undermining what I think is her core message.  The technical problems today may have been part of the problem.  However, her claim to have been part of a movement born in 2003 sounded a little bizarre, failing to recognise those who have been ploughing this furrow for many years, including people like Colin Mayer, and also Mark Goyder from Tomorrow’s Company whose name cropped up among the questioners in the chat box.  No-one can doubt her passion, even if her references to the bionic company were puzzling.  The most compelling part of her message was the value of purpose as something to engage the people in the company, because people need to find meaning in their work and their organisations, which (I am paraphrasing here) means they benefit from doing something worthwhile.

Alan Jope, CEO of Unilever, brought the session alive.  He is a Unilever lifer, and comes across as a worthy successor to Paul Polman not only as a leader of the company but also as an advocate for a view that companies exist for a purpose rather than for profit, and that making profit serves the purpose of the company (in that without profit companies do not have investors or access to capital and, of course, if the chief executive fails to keep the investors happy they will be replaced as chief executive).  He remarked that “companies without a purpose risk foundering on the rocks of moral bankruptcy” and told us that the purpose of Unilever reflected a founding mission “to make cleanliness commonplace and lessen the load on women” that had been updated to the 21st century as “making sustainable living commonplace, improving livelihoods and respecting and protecting the environment”.  Jope’s commitment to corporate purpose is expressed in three beliefs: that brands with purpose grow; companies with purpose last; and people with purpose thrive.  He concluded by observing that collectively we have two big problems to address: inequality in all its forms and climate change, and that business has to play its part in addressing these.

The final speaker was the shadow chancellor of the exchequer, Annaliese Dodds.  Following Alan Jope, with his clearly articulated and well structured case for corporate purpose, was a hard act, but she made a competent fist of the challenge.  However, she did not manage to display the clarity of vision of what the corporation is about that Jope managed in his contribution or Colin Mayer provided when answering questions.  In common with many others, she blurs boundaries and does not have a clear model in mind that allows her to express why governments have a role to play in regulating and on occasion supporting private businesses.  I hope she did not intend to convey the impression that hitherto different industries were of different social worth (with ones that make or grow stuff at the top) and she had only come to recognise the importance of business such as logistics, retailing and social care as a consequence of the Covid-19 crisis. As someone who has worked in distribution and retailing, now works in an industry adjacent to social care, I know that the organisations that I worked in had purpose and that we created value for society!

The session ended with a short Q&A, in response to questions posted in a chat box.  It was depressing to see how many questioners struggle with idea that purpose and profit have a symbiotic relationship.  However, it is that very lack of understanding that justifies the efforts of those who are trying to deepen the popular understanding of the way that businesses actually work.  I was disappointed by Colin Mayer’s response to a question about charities in which he failed to recognise how much charities have in common with businesses that trade for profit, in the equivalence between the way that charities have to satisfy their funders and the need of “for profit” businesses to satisfy their investors. But, as mentioned earlier, he rescued himself with a clear articulation of purpose in the answer to the question planted by this commentator.

Lessons from a Warzone, by Louai Al Roumani

My NHS Trust has an annual “Lessons Learned” conference, for sharing the lessons that teams have drawn out from incidents that have taken place in the previous twelve months.  Don’t waste a crisis by failing to learn from the experience.  This book is about lessons learned from a crisis, but is much more than just another business book.

Louai Al Roumani was the fairly newly appointed CFO of the leading retail bank in Syria when the Arab Spring turned into the Syrian civil war.  Most of his family fled to the safety of Kuwait as conditions turned nasty (ironically, they had been living in Kuwait when Saddam Hussein invaded in 1990, but missed the occupation because they were on vacation in what was then a very safe Damascus), but Al Roumani chose to remain, loyal to his home city and his company.

“Lessons from a Warzone: How to Be a Resilient Leader in Times of Crisis” recounts the lessons learned by Al Roumani over the next five years.  In this time, despite mortar bombs falling in Damascus and ISIS reaching the outskirts, his bank,  BBFS, didn’t just survive but thrived.  It did this by doing things that when explained by Al Roumani, and you should already have realised if only you thought about them for moment, make lots of sense even if they fly in the face of what many less insightful managers and directors might do (and, indeed, was evidence by departure of the two directors appointed the one of the major investors).

The lessons include going the extra mile to look after customers (airlifting safe deposit boxes out of a local branch as ISIS overran a provincial town), providing them with reassurance (displaying piles of cash when they queued up to withdraw their deposits and not restricting the amount they could withdraw), looking after staff and avoiding redundancies and cost-cutting around workplace hygiene factors ,and  robust systems testing and disaster planning.

He draws on his heritage as a Syrian, living in a city that claims to have been longest continuously inhabited community in the world (a claim of Damascus that Aleppo contests), but also sharing the nomadic transitions of hospitality and reciprocity of Arabi culture.  There are great insights relating to thinking about the long term health of the company, informed in part by a different “concept of time” from the one that he had been exposed to during his Harvard MBA.  He argues that you should not treat profitability as a critical success factor but that if you see your objective the long term wealth of your shareholders you will from time to time have to sacrifice short term profitability.  Although his bank was a creation only of the 1990s, he argues for playing “the long game as a third generation family business does.”  He tells a charming anecdote of a large purchase from a shop in the Damascus souq where, in contrast the lady ahead of him who haggled hard and secured no discount, the old gentleman who been silently observing the young man serving Al Roumani gave the instruction that Al Roumani should receive a discount to reward him for not haggling.  The account provided by Al Roumani explains why BBFS displayed such resilience through the Syrian civil war that it both maintained sustainable positions in relation to the marketplaces it deals with and also built the corporate and social capital inside the organisation not just to survive but the thrive.

Don’t read this book just for the business lessons.  It is a powerful tale of the resilience of a man and a society in the face of enormous threat and massive upheaval.  You will learn about the experience of a slice of Syrian society during the last decade and about the cultural hinterland that supports it.  It is also a human tale, which keeps resurfacing through the book and continues right through to the acknowledgements at the back – just for once, make the effort to read these as the book keeps on giving right up to the final page.

 

 

Lockdown – through the Escondido lens

We are in lockdown with Covid-19.  Large parts of the economy are in suspended animation.  Other businesses are operating on a hugely reduced scale.  Others have recognised that their sales have dried up but have redeployed that assets and staff to help address the pandemic.  The Chancellor of the Exchequer has become the “employer of last resort”, funding 80% of staff wages as an inducement for companies to keep people on their payrolls.

How should we interpret the reshaping of businesses through the lens of the Escondido Framework?  In particular, what does it do those market interfaces that define the firm as visualised in a simple form by the Reuleaux Tetrahedron?

Are companies in the same business now that they were last month, before lockdown?  In some cases, it easy to say that, at least temporarily, they are: the Lymington sail maker who has turned over his computer fabric cutting capability to turning out fabric pieces for others to sew up as scrubs for NHS front line staff and the university engineering departments that have deployed their 3D printers to make components for surgical masks.  These companies have moved from one market into completely different one.  Their staff, capital, and suppliers are relatively unchanged, but they have exchanged the customer market with which they usually interface with a completely different one.

Others have been transformed into agents of the state: temporary distributors of transfers by a government that has banned their businesses (particularly those in consumer services: retail, hospitality, entertainment) from operating.  In their cases, the regulatory interface (not displayed in the 4 market interfaces of the Reuleaux Tetrahedron that describes the simplest companies, but has to be imagined in a multi-dimensional context) has moved inwards to the degree that the company is no longer creating value other than as a channel for transfer payments.

Another way of looking at the interpretation is that the company exists only in a shadow form, some ghost of what the company could become once again.  I suspect there is a quantum analogy here – the locked down company with furloughed staff as Schodinger’s Cat. Certainly, the physical assets remain present, the staff remain employed, the wiring of the corporate structure remains in place, and the Dark Matter of the soft things such as relationships, corporate memory, social glue, shared assumptions, implicit operational and communication protocols continue – albeit that they may be vulnerable the longer that the lockdown continues.  Zoom and its competitors keep some of the Dark Matter alive.  The efforts that the investor, directors, and managers make in supporting and communicating with their staff will help, but the longer the uncertainty remains, or if the companies scrimp on their effort and investment in maintain this soft stuff, the greater the risk that the Dark Matter will leak away.