THE FOUNDATION FORUM
THURSDAY 16TH NOVEMBER 2017. WRITTEN UP WITH THE HELP OF SIMON CAULKIN
Losing touch is the easiest thing in the world on a personal level. It’s also remarkably common at work. It’s hard enough to stay in tune with customers and colleagues. It seems harder still to stay in touch with the mood of the nation. If the people in charge of the nation’s institutions prioritise themselves, feathering nests, looking out for their own, then unsurprisingly, eventually, support wanes. If at the same time organisations we buy from and work for treat hitting the numbers as everything with people’s wellbeing a bonus at best, despite the good words on the website, you can see how a country might start coming apart at the seams.
So managers are evil? That may be a bit hasty. Any group of people who spend time working closely together develop a shared view of the world and common beliefs about what matters. As social animals we’re good at fitting in with our tribe. What it looks like from a distance, standing in other people’s shows, is hard to empathise with, at least without deliberate effort. Out of sight is out of mind. No one means to become out of touch – it happens naturally. So what can be done? And is there more to this than the thoughts above?
"Almost certainly, and so we asked three people to share their views one dark November night, people who know about the boardroom and about the real world, people brave and honest enough to say it how it really is. They were…"
Rita Clifton, who has a long and strong-speaking background in brand and communications with Saatchis, Interbrand and now as a Non-Exec at Nationwide, Asos, Ascential plc and Populus.
She has also served on boards including Dixons plc, BUPA and Emap plc. She has publicly challenged high pay (and some highly paid individuals), and is closely connected to the world of the customer and to issues faced by society more broadly. She saw environmental challenges coming in the late 80s and started to urge the business world to act. Now, a scarcely believable 30 years on she’s just as vocal and even better informed, seeing what to be inspired by and what to worry about from groups of leaders around Board tables and groups of ordinary people around the world.
Danuta Gray, ex of O2, now sits on the boards of Aldermore, Direct Line Group, Old Mutual and at the Ministry of Defence.
O2 in its prime was famously and customer-led, pioneering all sorts of industry changes in a bid to make the world of mobile work better for the people it served and better for the people who worked there. It took bravery and conviction, qualities she brings to her Non-Executive roles. From these experiences she feels strongly, and more than ever, that it’s essential always to have customer and people on the Board agenda.
And Anthony Hilton, a business journalist and writer who speaks as he finds and whose honesty and experience led to early calls that all was not well on the subject of which we plan to speak.
He is at his paint-stripping best around issues like this, and he’s been banging on about the risks of business leaders remaining in their own over-paid bubble for many years. He’s challenged leaders directly and seen occasional outbreaks of common sense, but more often it’s been pointing out that what feels wrong is indeed wrong and foreseeing the issues that follow.
So what did they say? And where did the discussion take us? Can the country be put back together again? Simon Caulkin has summarised where we got to, which was arrived at via a strikingly bold and challenging discussion.
How can leaders stay in touch with the real world?
The discussion that followed, summed up by Simon Caulkin
It’s the paradox of the age. Never have we been more connected. Never has so much been known about so many by pollsters, marketers, probably governments and also crooks. We quantify ourselves and almost everything else.
Yet the age of Big Data is also the age of the Big Disconnect. Elites from the just-about and really-not-managing. Politicians from voters. London and Washington from their hinterlands. News media from those they aim to inform. And business from customers and workers.
"The speakers at The Foundation’s November Forum on ‘reconnecting managers with the real world’, in a conversation that was both fascinating and sobering, all agreed that business and the people it serves increasingly appear to inhabit different planets."
‘The values that business executives run on are increasingly divorced from the values of society’, observed the Evening Standard’s Anthony Hilton, the gulf between the two neatly reflected in, and exacerbated by, the widening pay ratio between CEOs and the average worker. The pay disparity between top and bottom currently stands at 140 times, compared with 33 in 1984. The resulting evaporation of trust in business, was indeed ‘the elephant in the room’, according to brand guru and experienced non-exec Rita Clifton.
It is one that many boardrooms have had the utmost reluctance to acknowledge and the panel described the way some boardroom conversations were capable of making them cringe. ‘Most people don’t live in the bubble that those making decisions about their lives inhabit. There is a disconnect that has got greater and greater as the years have gone on’ confirmed Danuta Gray, also in demand as a non-exec as well as being a member of the Defence Board at the Ministry of Defence.
Business people like to tell each other that they have a communication problem. No, said Clifton: the problem is that they do alien and unacceptable things that distance them from the society of which they now seem only nominally a part.
Evidence of the divergence is everywhere. Business people often look and sound different from ordinary folk, noted Clifton, their strange jargon sometimes reflecting the linguistic strain of trying to euphemise the unjustifiable. Banks and telcos unwittingly demonstrate what they think of their customers by placing their service centres on the other side of the world. Ignoring the evidence that many people prefer humans to machines, retailers and airlines automate check-ins and check-outs, and governments boast of making their services digital by default, irrespective of human cost – see Universal Credit.
Boardroom discourse centres on the numbers, share price and City opinion, pointed out Gray, which is also how success is measured, while customers and workers who make it happen barely get a look in. According to Gallup, the thing most people in the world want more than anything else is a steady job and a paycheck. Yet work gets ever more precarious and oppressive (think Amazon, Ryanair, social care), and as Gray noted average pay has lagged behind economic growth for the past three decades.
"In other words, the disconnect with business is not an illusion. We’re not stupid. Interests have diverged. What’s good for business is no longer necessarily good for society as a whole."
How this happened? Several hypotheses emerged. Hilton noted that fear and loathing largely centred on large and remote public companies, as opposed to the local shop or enterprise – an important distinction. Among the former, herd behaviour and fear of standing out from the crowd play a part; Paul Polmans – leaders who are willing, like the Unilever CEO, to speak up for sustainable, inclusive business – are rare. Clifton felt that issues of high – and low – pay could be difficult to discuss in many or most boardrooms. A generally macho, aggressive business culture didn’t help. As Hilton remarked, business is a game played by alpha males to norms devised by men, to which many women understandably decline to submit themselves. ‘On that basis many people get to the top not because they are the most talented or aware or sophisticated, but because they are best at corporate infighting, or luckiest, or both’.
A weightless economy coupled with an abject race to the bottom in national tax regimes has allowed large corporates to swerve taxes for which everyone else believes they are liable. And Hilton described a version of Gresham’s law in which bad business methods drive out good – a prime example being the rapid spread of unscrupulous sales tactics by banks and derivative houses chasing seemingly unlimited profits in the early 2000s, culminating in the great crash of 2008. If you acted responsibly your figures looked poor next to competitors who didn’t play by the rules. Pressure was applied to the good guys to behave like the bad, who didn’t get found out until years later.
"Because questions weren’t asked about how such good news was being generated, we sowed the seeds of bad business. And it’s still happening now. Just as striking is the adoption by recent Silicon Valley ‘unicorns’, copiously backed by venture capital, of business models incorporating tactics clearly bordering on the unlawful."
The big unsaid here, as hinted at by both panelists and questioners from the floor, is the doctrine of shareholder-value maximisation, which despite increasing criticism from outside business still holds hard-to-question sway in most boardrooms, at least in the Anglosphere. By demanding overriding allegiance to capital markets, and by linking executive pay to this narrow result, current corporate governance orthodoxy is itself responsible for driving a wedge between executives and other stakeholders. At the same time it both legitimises the behaviours that have fostered the great disconnect and creates a formidable vested interest behind the status quo.
‘Although a lot of chief executives I know are well aware of the problems and can articulate them better than I can, whether they will follow through with embracing the wider stakeholders is another matter. Ultimately their personal financial interest is against change,’ reflected Hilton. ‘Does this mean the gap is now so wide as to be unbridgeable?’
No, said the panel – although for all the above reasons doing so may be painful. But a burning platform is a powerful motivator for change: ‘Human beings only respond to catastrophe, and what has happened over the last year socially, politically, economically has certainly been a catastrophe. This is one good thing [that may come out of it],’ opined Clifton. One unexpected ally is social media. ‘I mean, you used to be able to rape and pillage with impunity, but now it’s out there so you can’t get away with it,’ noted Hilton. Turning it round, transparency mandates authenticity: ‘You can’t be a fat, lazy and evil business and cover it up by spending a ton of money on marketing and communication,’ added Clifton. ‘This is good.’
Perhaps ironically, the strongest argument for an impending break with the past may simply be that the pendulum has reached the end of its swing. Changing economic and working conditions are dramatically shortening the life cycle of the traditional large hierarchical public company, Hilton suggested. Too inflexible to cope with the new world of networks and distributed information, it is being left behind by flatter, fleeter, more fluid organisations in better sync with the needs of individuals and today’s evolving society, and thus ‘perhaps better able to avoid the mistakes of the past’.
This tallies with wider research showing that in both the US and UK the population of publicly quoted companies is in decline, having more than halved in the last 15 years – a finding that to many suggests that the short-termist, stock-exchange driven prescriptions of Wall Street and the City of London are simply not conducive to long-term corporate survival.
But even if the Darwinian thesis is correct, human effort is urgently needed to hasten the new age into being. As Stanford’s Jeffrey Pfeffer, a dispassionate observer of power in organisations, has put it, getting the powerful to do good is above all a matter of getting more of the good into power.
The case for gender (and other) diversity is incontrovertible – all the panel agreed that more women in the boardroom is a pressing necessity. Gray signalled that boards need to be uncompromising in their choice of leaders as well as how to reward them. ‘Having a leader who is genuinely curious and passionate about putting the customer at the heart of decision-making, and who also understands that to get great service you have to treat your own people really well’, had to come before financial track record in the selection, she insisted.
If we want a better, more inclusive business world, then responsibility is inclusive too. ‘Whatever capacity we work with in business, if it’s to do with driving diversity then we should own that personally. If it’s to do with challenging the thinking in a boardroom, then do that,’ she urged. ‘We should each reflect on how we consume goods and what messages we give to business by what we allow them to do on our behalf versus what they shouldn’t do; we should all take personal ownership of this as well’.
The Foundation's view
So we did we make of it all? The three points we took home with us at the end of the night were these, some of which Simon has drawn out above.
To really change the situation might take a catastrophe, which would explain what’s going on now and why it isn’t necessarily a bad thing.
As Rita said, we only make really big changes when we’re faced with disaster and there seems to be no other way. Danuta described the need to force it, to push hard and confront some of the dissonant behaviour going on. The panel seemed to feel there were often fine words about purpose and values, but then self-serving behaviour in remuneration committees and the Executive Suite (we’ll come on to language in a minute!) The force is needed because we seem to be stuck in some kind of social glue.
Carefully crafted language is used to explain outrageous decisions, such as what leaders are paid (as Anthony said, CEOs were paid 33x average salaries in 1984 and 140x now). The precise-sounding waffle makes the situation justified enough to allow the practice to continue, but it doesn’t convince anyone really.
Then we get plain speaking outsiders – think Trump and Farage – who talk in words that make sense even if the ideas behind them aren’t sensible. In a world paralysed by politeness, being forced to confront some of the catastrophic decisions that come from their rise in popularity will shake-up the status quo. Only when a current situation becomes untenable do we invest completely in creating a better alternative. The NHS and the European Union came out of the last World War. Let’s hope we use the unfolding crisis well before we need another battle on that kind of scale.
Changing the conversation, literally, is a much more crucial part of this challenge than it sounds.
The reality of the Board Remuneration Committee was described, including the fear of looking silly in challenging the easy conversation to do more of the same. It sounds like it shouldn’t matter but we are social animals and it literally hurts to be excluded. Despite some progress on diversity, diverse views are difficult to embrace. The language we’re surrounded by shapes our perceptions of what’s going on. As Anthony described, the media and the markets respond only to numbers and don’t question how they are achieved. So the business smashing sales out of the park without integrity puts massive pressure on the lower performing competitor doing the right thing. It is far harder for them to justify their approach than for the charlatans who might or might not get found out years down the line, bonuses banked, hero status enjoyed. We explored measurement and interestingly it is possible to measure the beliefs, or the discourse to give it a more precise anthropological term, of an organisation. Linguistic Landscapes http://www.linguisticlandscapes.co.uk/ is a company doing just that, and for leaders who want to make a change, something that holds a mirror up to people’s conversations can give a means to steer with a little more skill.
Fashion in business may have a part to play, with a new kind of leader becoming an aspirational role model for the next generation.
Part of the problem with money is that it becomes a proxy for status, and given the human quality that more status is good, more money becomes the aim whether or not you already have so much that you couldn’t possibly spend it all.
The focus is on the peer group in the race, not on what the race looks like from the stands. Individuals have bucked the trend. Richard Pennycook when he was CEO at Coop had to lead the difficult and painful turnaround from a proper disaster to something true to their values and commercially sustainable. But what stood out was his request in April 2016 for a 60% pay cut – he explained that the job had been very intense and would now be less so, and so he should be paid accordingly.
Paul Polman has tackled other parts of the problem, announcing on his first day as CEO that Unilever would abolish quarterly reporting because it was unhelpful in building a business to succeed in the long term and in the right ways. He reasoned that his first day was the one on which he was least likely to be fired.
What we need is for this kind of behaviour to start to equate to status, for leaders who do the right thing, who call out the system where it is failing us and take action not just say stuff to be the most admired of the lot. If enough of our next generation find this kind of leader, this kind of choice and this kind of organisation aspirational then maybe our human instincts can take us to a better place. Smoking used to be cool. These things can change.
So the situation is tough. But to have hope is not to admit insanity!
About the Foundation
The Foundation is a management consultancy specialising in growth. We help clients address big organic growth challenges; growing faster, growing into new markets or fending off threats to growth
What these challenges share is the need to influence customer behaviour, but this is inherently tough. Why? Because people in any organisation naturally see the world from the inside-out, with colleagues close and customers distant, and lots of assumptions about how things work that aren’t challenged
We help clients look from the outside-in, re-connecting them with what customers really value (the problem they want to solve, not usually what the client sells), then finding new and better ways to create this value
This means working both as expert advisors and facilitators. The issue with simply gathering outside-in information is that it lacks impact to get senior teams to tackle inconvenient truths in what customers want, and to believe their own organisation can be different
By using ‘Immersion’, personal conversations with customers and leaders of organisations in other sectors who have tackled parts of their challenge, we help teams get round beliefs that stand in their way. This helps them develop better answers for customers and new ways of achieving lasting success
We most often answer three questions:
Developing new propositions
Improving customers’ experiences
Developing customer-led strategies for broader issues such as increasing retention or lifetime value
Our clients include HSBC, JLR, O2, M&S and Ebay, with achievements including helping create Plan A at M&S, adding £100m of value to a Travelex travel money proposition, and giving Morrisons a competitive direction contributing to their return to growth.
Behind our work our most distinctive characteristic is our team and their outlook. Each individual is motivated to and experienced in crossing the border between the worlds of customers and business which often resist mixing well.
Charlie Dawson (Founding Partner): firstname.lastname@example.org / +44 7785 268 859
Charlie Sim (Director) email@example.com / +44 7958 574 917
Anna Miley (Director) firstname.lastname@example.org / +44 7816 261 987
John Sills (Director) email@example.com / +44 7990 943 402