Tuesday, December 27, 2011

Why so few women directors?

Today's WSJ discusses the paucity of women directors (here).  There are good reasons and bad ones for appointing women to any board.  I don't believe that women automatically have an inherently different point of view or that their mere presence on a board will change its dynamics.  (Check out Enron's former board, which counted Wendy Gramm among its members, for example.)  But I do believe that individual women may have individual characteristics that might help particular boards.  Every organization has its own needs, and those needs will change from time to time.  But when an organization is searching only for directors who have been directors elsewhere (regardless of performance), and when most directors historically have been male, guess what happens?

For why I might be a useful board member for certain types of organizations, see here.

Tuesday, November 8, 2011

Not just one but two great op-eds.

The first, from Nassim Taleb, in today's New York Times, points out that bonuses are not the best idea when it comes to bankers taking on too much risk (here); the second, from Joe Nocera, showed up in today's Las Vegas Sun but isn't on the Sun's web page.  It is on the New York Times's webpage (here).

Both op-eds remind us that it's important to pay attention to the facts:  study the behavior of people whose compensation isn't linked to the prudence of their decisions (Enron, anyone?) to see if bonuses make sense; pay attention to the the factors pushing people toward strategic defaults on their mortgages and try to think of sensible solutions (reductions of principal) as a way out of the mess.

What doesn't work?  Ignoring the facts.  For example, check out Andrew Ross Sorkin's column today on the continuing saga that is the H-P board (here).

Boards that don't pay attention to actual performance before awarding incentives?  Check.  Bonuses not linked to actual performance?  Check.  Reasons why underperforming boards need to consider different ways of finding good new board members?  Oh, about a few trillion.

Wednesday, November 2, 2011

Tuesday, October 18, 2011

It's easy to get too cozy to clients.

See Floyd Norris's report in today's New York Times (here).  Seems as though some Deloitte folks were taking the word of the execs of the companies they were auditing, rather than doing some digging on their own.  So much for learning from Enron (see yesterday's Wall Street Journal report on Enron 10 years later, here).

Why don't we learn from our mistakes? Well, I have some theories.  I think that we combine a failure to pay attention to history with some common cognitive mistakes that even the smartest among us make, and we get the same-old, same-old.

Stop me if you've heard these phrases:

"I know these guys.  They wouldn't lie."
"If there were really a problem, someone would have told us by now."
"I am not getting too close to my clients."
"Everybody does it."

So I'm not particularly surprised by this Deloitte issue, or by Andrew Ross Sorkin's report on what may be massive overvaluing of Groupon by Goldman Sachs.

It's enough to make one an avowed pessimist.

Monday, October 10, 2011

A few thoughts on the composition of boards.

Last week, I read about Chelsea Clinton's appointment to a corporate board (here).  (I have to admit that I felt seriously jealous of Ms. Clinton after I read this.  The good news about her appointment is that she's exceptionally smart and well-connected.  But she's also ... 31 years old.  These days, 31-year-olds feel like kids to me.)

This morning, I read Lucy Kellaway's column on how important it is to have someone on a board who's unafraid to speak up (here).

Let's combine the two stories.  I've never met Chelsea Clinton, but I have a feeling that she's tough enough to be able to speak up if she sees something hinky happening.  I hope so.  It's important to have people who can fight groupthink in organizations, and boards are especially susceptible to groupthink. 

For more of my thoughts on why boards (and other organizations) need naysayers to slow them down, see this PowerPoint I did (here). 

Friday, September 30, 2011

The rest of us are obviously in the wrong business.

The business of getting fired may, occasionally, be more lucrative than I had thought.  See here and here.

Update:  AND here.

Tuesday, September 27, 2011

Want a healthy company? Reward failure.

See here, from today's Wall Street Journal.  Organizations that give people room to mess up and (this is the important part) learn from their mistakes will do better than ones with incentives that encourage either (1) hiding mistakes or (2) avoiding risk.

I have always learned more from mistakes than from successes.  My dad's a chemist, and he always cautioned me to question results that agreed with my hypotheses.  We don't tend to examine our successes.  We should, but we don't, because we like the results.  But we should also examine our failures to figure out (if we can) what happened.

And it's not just giving people room to mess up that matters.  It's rewarding those mistakes publicly because the people who made them were trying to do something good and have learned something from the effort.

Monday, September 26, 2011

OK, it's not a scandal (yet).

My buddy David Smith, who does really interesting research over at the University of Virginia (see here), pointed me to this article about Nevada's corporate climate, especially the shell-friendly regulations (here).  And I quote:
At the same time, Nevada is attracting an outsize number of companies with shaky financial reporting, according to a study published in March by Michal Barzuza and David C. Smith of the University of Virginia.
Want to read that research?  Click here.

Friday, September 23, 2011

More on the HP board's latest decisions.

Look, I don't know Meg Whitman.  I like eBay, but that's not the point.  Here's an interesting take forwarded to me from my buddy Richard Peck (here).

A few take-aways:
  1. Process matters.  Follow the procedures for, say, hiring and firing, and there'll be fewer reasons to attack the decision.  (Not zero, but fewer.)
  2. If something isn't working well, perhaps it's a good idea to figure out what's gone wrong before jumping into something new.  History is a useful tool when it's ... used.
  3. Seriously, I need to be on a public board or two.  I think that I could be useful.

Wednesday, September 21, 2011

Character matters.

For those of us who love "the pinks" (Financial Times subscribers), this morning brought a lovely piece about how character isn't innate--it's earned.  Luke Johnson wrote A Crisis Is the Only Way to Test Your Value (here).

He's right, for several reasons.  First, it's easy to behave well when everything's going right.  That's no test of character.  Second, experience shapes character.  Character is a series of decisions over someone's lifetime, not a static quality.  And third, someone's reaction to an event will be affected both by his own experiences and the group he's in.  We're affected by social pressure more than we realize, so being alert to that social pressure matters.

Leaders need to understand that it's not "who they are" that matters as much as how they behave, especially when things aren't going well for them.

Monday, September 19, 2011

UBS and the wrong checks and balances.

Kim Krawiec has a great post over at The Faculty Lounge (see here) about the UBS rogue trading scandal and the patterns of behavior that make such high-stakes exposure possible.

Saturday, September 17, 2011

"Too good to be true" never is.

In yesterday's Wall Street Journal, Michael Rothfeld reported (here) that Société Générale may have ignored a red flag on Allen Stanford's account.  He writes: 
     At issue is a Swiss bank account held by one of Mr. Stanford's companies at SG Private Banking (Suisse) SA, a Société Générale subsidiary, that was allegedly funded with investors' money and used to make payments into Mr. Stanford's personal accounts and for bribes to his Antiguan auditor. Prosecutors in the criminal probe are examining whether Société Générale failed to follow due diligence procedures or to ask questions about irregular banking activity, the people familiar with the matter said.
I've been working on a mini-essay for an upcoming conference on the intersection of white collar crime and bankruptcy law (see here), and this whole issue of why smart people can ignore red flags fascinates me.  I'll be following this story.  More on the conference as we get closer to the event.