Crelos December 2009 Newsletter

Crelos Newsletter

December 2009

Welcome to The Crelos Quarterly

Thank you for your support in what has been a remarkable and special year for Crelos - made possible by your enthusiasm and support.

I write this just one month after our contribution to Sir David Walker’s “Review of Corporate governance in UK banks and other financial entities”. The final report suggests a series of reforms to improve the quality of Boards, strengthen the role of shareholders, and increase transparency of pay and bonus structures. Above all significant focus is given to the Board construction, training and to the dynamic and unconscious factors that can influence the behaviour of individual members of Boards and the behaviour of Boards-as-wholes of banks and other financial institutions.

These changes are targeted in the first instance at Banks and other financial institutions but some will soon be extended to other sectors. The Financial Reporting Council (FRC), custodian of the Combined Code which promotes high standards of corporate governance in UK companies, has announced that it proposes to adopt the recommendations of the Walker Report that it considers, after consultation, are appropriate to all UK listed companies, into a revised version of the Code due out next year.

I am struck by the cumulative impact and continued relevance of our key arguments - recognizing the importance of leadership behaviour and talent in delivering sustainable business. At Crelos, we are firmly of the belief that inherent within the role of leadership and stewardship is responsibility for continuous development and education. Furthering the knowledge and skills of others as well as furthering ones own knowledge and skills is a primary requirement of leaders. Leaders who engage in this way in their own personal development are the ones who are best placed to inspire, harness and engage the talent of future.

Over the past few weeks, I have come to discuss these proposed changes and propositions with our clients who are keen to understand what this means for their organisations. Our conversations have mostly been around the sort of evaluation and development processes that are most applicable to Boards. There is no doubt that whilst there are examples of Boards who conduct regular thorough, externally facilitated reviews, professional Board evaluation and continuous development of executive and non-executive directors is not yet common practice. Developing an approach that will capture the imagination of forward thinking chairmen will require collaboration and new thinking.

At the heart of the Walker Review is a multi-disciplinary approach which combines Board responsibility with the expertise of law, finance, psychology and social science. The coming together of such disciplines to consider Corporate Governance and the evolution of BOFI Boards creates a mindset for organisational learning. It is the benefit of a learning mindset and a focus on collective responsibility that will improve governance; nothing less, nothing more.

So for those of all faiths and none, best wishes for the season - and Merry Christmas and a Happy New Year.

I’d welcome your comments so please do contact me at ali.gill@crelos.com
Ali Gill
CEO, Crelos

Read more about the Walker report, the FRC’s revised Combined Code or Crelos’ Board evaluation services.



At A Glance...

Thinking aloud:
The Walker Review and the Dynamics of Risk

Events:
Being a non-executive Director in an FSA regulated organisation

Shaping our current thinking:
Psychological and behavioural elements in board performance

New research:
Did you know?



Thinking Aloud

The Walker review and the Dynamics of Risk

The Walker Review of Corporate Governance in UK banks and other financial industry entities is a recipe book, not the meal itself. It is a lot bolder and more innovative than first meets the eye. But, the real work still has to follow.

It asks the pivotal question: how can we address risk more strategically and sustainably? What must our minds and senses be alert to, especially when we need to overcome our own resistance to confront the uncertain and unexpected?

Read on

To find out more about the topic or discuss any of the above, please contact claire.topping@crelos.com.

Events

Being a non-executive Director in an FSA regulated organisation

On 25th November, Crelos were invited by the FT’s non-Executive Director’s Club to contribute to their networking event dedicated to the financial industry. Ali Gill challenged non-executives to become experts in behavioural change and group dynamics emphasising that these are the skills that directors of the future will embrace.

Sharing the panel with Ali were:

  • Peter Snowdon, partner at Norton Rose, who discussed the duties and liabilities of NEDs in the sector and looked at the implications of the recently published Walker Report
  • Andrew Whitaker, Director, General Counsel, FSA. Andrew explained what the FSA's expectations of NEDs are in the sector
  • Davida Marston. With a successful 30 year career in international banking and five years of non-executive board experience and pensions consultancy, Davida put forward her personal view.

Here are the key points Ali made:

  • The role of NEDs in the financial sector is under strong scrutiny and the responsibilities that come with it are increasing. NEDs are expected to be schooled in how to manage the group dynamics in the board room, become more effective at constructive challenge, managing controversy, avoiding passive riding and take a more proactive approach to risk management.
  • Behaviour is observable, describable and learnable – it is the vehicle through which board performance can be managed. NEDs therefore need to be aware of how their behaviour can and will change that of the board, especially when taking up a new role.
  • For NEDs to meet all these criteria a clear commitment to their support and development is needed on the part of the company Chairman and the Board.
  • Crelos’ experience of NEDs who have chosen coaching to help with their development shows that they have developed faster than others.

To find out more about the topic or discuss any of the above, please contact claire.topping@crelos.com.

Shaping Our Current Thinking

Psychological and behavioural elements in board performance

Boards and board behaviour cannot be regulated or managed through organisational structures and controls alone. Behaviour is learnable, changing and dependant upon situational demands such as strategic context, social influence and the dynamic of the group itself.

It is the Chairman’s role to ensure that board members are appropriately skilled and that they are schooled in behavioural change and group dynamics. Surfacing and discussing board behaviour ensures that group dynamics such as ‘groupthink’, passive free-riding and ineffective communication are exposed and replaced by positive behaviours.

But what is the requisite behaviour of an effective chairman and what are the differences and importance of transactional versus transformational management styles? This paper explores leadership behaviour traits, the appointment and induction of executive and non-executive directors as well as the optimum size of boards and sub-committees. It was published as part of Sir David Walker’s final “Review of corporate governance in UK banks and other financial industry entities” on 26th November 2009.

If you have any comments or questions, please contact claire.topping@crelos.com.

Did You Know?

Did you know…?

… that according to a recent survey carried out by McKinsey designed to look into how individual leaders lead and how that has changed in the past year, they found that:

  • The top two organisational capabilities executives say most help their companies through the current crisis are:

    • leadership: The ability to shape and inspire the actions of others to drive a better performance
    • direction: The capacity to articulate where the company is going and how to get there and align people appropriately
  • When looking ahead to the period after the crisis, however, 46% consider Innovation as the most important capability, with Leadership as second.
  • The two most important behaviours for managing corporate performance during the crisis were expected to be:
    • Inspiring
    • Defining expectations and offering rewards

    However the behaviour most exhibited by executives instead was ‘monitoring individuals’ performance and taking corrective action’, even though it is perceived as among the least relevant for managing through the current crisis and afterwards.

  • The behaviour executives see as most helpful for managing performance through and after the crisis –inspiration and defining expectations and rewards – has been shown by a previous McKinsey study to be the ones most used by women, yet the most recent survey shows that only one third of respondents consider gender diversity to be among their companies’ top ten priorities.

If you have any comments or questions, please contact claire.topping@crelos.com.