Category Archives: Leadership

Integrity and the Acid Test: How Would it Look as Front Page News?

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We have been hearing a great deal recently about allegations of political corruption in Australia, culminating in the resignation of a State Premier. This has raised questions about integrity in public office, given the steady stream of stories concerning dubious donations to election campaigns, murky business deals involving politicians and party power-brokers, misuse of trade union members’ assets by officials who were also prominent party figures, opaque political lobbying by industry, tawdry backroom deals to preference election candidates… oh, and the gift of a $3,000 bottle of wine.

Premier Cru-elled de Chateau ICAC?

I won’t dwell on the whys and wherefores of Mr O’Farrell’s resignation, except to say this: If the Premier genuinely believed he did not receive the bottle of wine in question, and his assertion was subsequently shown to be wrong, does this amount to giving false witness? Surely, the act of giving false evidence involves the commission of a deliberate lie, either with the intention of causing a deception or creating an erroneous version of events. It seems that had Mr O’Farrell, as a Member of the New South Wales Parliament, remembered to declare the gift on his register of pecuniary interests, but later forgot about it or failed to recall it when giving evidence, he might have been made to look merely foolish. However, failing to register the gift was either a costly mistake or a grave error of judgement, and by forgetting it altogether (including his handwritten letter of thanks) it reveals a certain level of incompetence. Yet, how many foolish and incompetent politicians manage to keep their jobs, and even get re-elected?

Some commentators have suggested that the nature of the Premier’s resignation showed real integrity – but the truth is, once the facts contradicted his evidence, his position became untenable, and he realised he had no choice in the matter. (The relevant inquiry had in fact already cleared Mr O’Farrell of any suggestion of wrongdoing in the matter under investigation, but now his reputation is probably tarnished by the implication or perception of corrupt behaviour.)

The big lesson from these latest events is that when we get wrapped up in process or get sidetracked by personal, political or financial outcomes, we can easily lose sight of the need to act with integrity and to exercise our authority and powers of influence with transparency. Otherwise, we end up colluding which allows the smell of corruption to permeate. Politics is not alone in these matters – religious institutions, professional sport and corporate boardrooms have more than contributed to the current malaise.

I experienced a small but significant test of personal integrity early on in my career, when I was working as a paralegal in local government. Part of my role was to provide impartial legal advice to local residents facing housing problems. At the time, the area was undergoing intensive gentrification, and many private tenants were being “persuaded” to move out by landlords and property developers. In many cases, all I could do was advise parties of their respective rights, particularly the tenants who had protection from harassment and unlawful eviction under the relevant housing laws. In some cases, the council could mount criminal prosecutions for more serious offences, but this was rare.

So, one day, one of my “clients” (the advice service was free to the public) brought me a personal gift: a bottle of vodka and a bottle of champagne (probably no more than $50 in total value). I initially refused because I did not feel it was necessary or appropriate that he reward me in this way for simply doing my job. However, because my legal advice had enabled him to negotiate a lucrative payout from his landlord to vacate his home, and because he had been brought up to value displays of gratitude, he insisted I keep the gift and refused to take it back.

I could have just taken the bottles and not said anything to anyone, as there were no witnesses. But whether it was my conscience, or the thought that the client might have said something to a third party that may have compromised me, I immediately raised the matter with my manager. He acknowledged my honesty in reporting it (even though I wasn’t really sure what the council policy was on gifts), but said I could keep the present as it was of nominal value, and because I hadn’t sought or solicited a personal benefit. (He also said that if it was a bottle of gin, he might have taken it for himself… but I think he was joking?)

Nowadays, I’m not so sure that I would have got the same response, and over the years, having worked in some high-profile and highly regulated industries, I am aware that there is far more scrutiny around formal compliance, self-regulation, voluntary codes of conduct and business ethics. Of course, individuals need to feel comfortable about the organization they work for and the role they are expected to perform, to ensure there is alignment with their personal values. In addition, I’m often reminded of three questions you should ask yourself in corporate life whenever you have any doubts about the integrity of your actions:

  • Would you still do it if the CEO or Chairman was watching?
  • What might your clients or your shareholders think?
  • How would it look if it made front page news in the morning?

I think the problem for many modern politicians is that they hardly ever say exactly what they are thinking, for fear of letting slip a personal opinion that may differ from their public persona or their party’s stated policy position. (How often nowadays do Ministers resign on a point of personal principle?) Worse, it has been suggested that “loyalty to party” has been displaced by “loyalty to faction”. As a consequence, they are compromised because they forget about individual accountability; and they collude because they either prefer to toe the party line or hide behind the collective shield of cabinet, ministry or faction. In doing so they demonstrate a lack of personal integrity. Unfortunately, when even “benign” or “innocent” collusion emerges, corruption is never very far away.

 

POSTSCRIPT:

Since drafting this blog, I have heard several “wise after the event” comments from the chattering classes, which can be summarised as follows:

  • If the original enquiry was not interested in a bottle of wine, was the Premier “mere” collateral damage of the anti-corruption investigation?
  • How could he possibly have forgotten about such a significant gift, and his written note of thanks? What was going on? What was he thinking? What were his staff doing?
  • The 1959 Grange vintage is somewhat overrated (and well past its best drinking) – which might suggest it was worth less than $3,000 (NB: gifts under $500 do not need to be declared on the Parliamentary register of MPs’ pecuniary interests…)
  • On the other hand, bottles of 1959 Grange are being advertised at over $4,000 because the notoriety has boosted its value
  • It again raises questions about whether the electorate can trust any of our politicians – the backdrop being “lies” and “broken promises” over pre-election commitments

Management Consulting 101 (or: Think Before you Tinker About)

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Management consulting often gets a bad rep because practitioners typically come into an organisation knowing that there’s a problem that needs fixing, but spend too much time playing with their toolkit, or taking things apart, rather than focussing on practical solutions to the issue at hand.

HowThingsWork Worse still, consultants often disappear without finishing the job, leaving someone else to clear up their mess and patch up the damage afterwards. Until the next round of management consultants come in.

As consultants, when we are invited into a client’s place of business, we are placed in a highly privileged and trusted position, one that we must not abuse or take for granted. Yes, we are there to identify problems and help develop solutions, and in some cases we are given the responsibility of implementing them. But in our eagerness to deconstruct an organisation, we can overlook the need for some foresight and advance planning.

When analysing a client’s operations, and before making any recommendations for strategic change or process improvement, I often recall the words of my father, who was a mechanical engineer. At a young age, I had dismantled a clockwork motor (to see how it worked) – but then found it was impossible to reassemble all the cogs. He simply said:

“Before you take something apart, know how to put it back together again.”

 

10 Obstacles to Startup Funding in Australia

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The increasingly popular Lean Startup Melbourne kicked off 2014 with a session on Melbourne’s Startup Ecosystem. And while the tag of World’s Most Livable City is a draw card for attracting startup talent, the apparent lack of institutional investor interest in the startup movement is creating a barrier to funding options.

The Panel: Susan, Brendan, Leni - Chair: Indi Photo by @marksmithers via Twitter

The Panel: Susan, Brendan, Leni – Chair: Indi
Photo by @marksmithers via Twitter

After the traditional beer’n’pizza, an audience of around 300 people was first treated to a couple of lightning talks: Scott Handsaker’s presentation on Melbourne’s startup infrastructure was a great survey of the networking events, meet-up groups, co-working spaces, incubators, tech co-founders, angels and media resources. It also confirmed what everyone already knew, that the local startup community is thriving, and represents a positive force for change and innovation especially in the SME space (which is traditionally seen as the backbone of Australia’s economy). This was followed by Simon Moro’s guide to offshoring/outsourcing development and coding projects – including many helpful and practical tips.

Then came the main event, a panel discussion chaired by Indi from OutTrippin featuring serial entrepreneurs and startup gurus Susan Wu, Leni Mayo and Brendan Lewis. (For a brief but succinct write-up, see my fellow blogger Chris Chinchilla’s account.)

The main takeaways for me were:

1. Strong local infrastructure, but not yet as robust or scalable as Silicon Valley, London or even Dublin (Melbourne ranks #18 in the world)
2. Great community enthusiasm, but not clear what the role of government is or should be (e.g., should public money be used to “pick winners”?)
3. An established coterie of successful angels and VCs, but total lack of interest in the sector by institutional investors (e.g., still focused on investing only for profit, not in changing market behaviours)

In fact, the conspicuous absence of institutional investors at this type of event simply underlines why they actually represent a barrier to funding options for local startups. Here are 10 reasons why I believe instos have not engaged with the local startup community:

  1. They don’t understand the technology – this is not a new complaint; I have heard many entrepreneurs and corporate advisers bemoan the lack of appreciation for new technology developed locally.
  2. Not made here – conversely, there is suspicion about successful technology from overseas that is not yet proven in Australia (which is a challenge for local licensees seeking to develop local market opportunities).
  3. Preference for asset-based lending – partly influenced by regulatory attitudes, banks and other lenders prefer to lend against secured assets, such as plant, equipment or the family home. However, many startups and young entrepreneurs don’t own such assets (or their businesses are designed to be less capital-intensive). Instead, especially in the early stages, they would like to see funding based on cashflow lending linked to their current and future revenues (which are increasingly subscription and annuity based).
  4. Don’t understand the business models – with new technology come new business models, which traditional lenders and investors struggle to get their heads around. Traditional lending criteria are tied to traditional business concepts.
  5. Restrictive investment criteria – post-GFC, banks are more risk averse, and the regulators are also stifling investment product innovation with more stringent risk and regulatory capital management. In addition, institutional operating costs are eating into investor and lender margins, and local investment banking is diminishing, especially as foreign banks continue to scale back their local presence or exit altogether.
  6. Lack of a credible second board for smaller listings – if you don’t want, or cannot justify the cost of a full IPO on the ASX, then your options for raising wider shareholder capital are limited to platforms like ASSOB or NSX, neither of which have quite the same profile as London’s AIM or Hong Kong’s GEM.
  7. Restrictive crowd-funding options – yes, there are active crowd-funding platforms available in Australia (e.g., Pozible), but in most cases the “investor” has to be rewarded by tangible products and services (which has stymied some crowd-funding efforts by local film-makers), otherwise the financial market regulators might come knocking on your door. (This may change, if/when VentureCrowd begins to launch.)
  8. Tax structures can favour equities – without getting all technical, the use of franking credits by Australian companies offers considerable benefits to their shareholders via relevant tax concessions. As such, this makes equities (especially highly liquid stock) attractive to institutional and retail investors, and therefore inhibits the use of alternative funding options.
  9. Limited corporate bond market – most corporate bonds in Australia are bought by institutional investors, and despite various attempts to stimulate demand among retail investors, the vast majority of individual investors can only access these bonds via managed funds (which carry manager fees and other administrative costs), or more complex financial instruments such as hybrid securities. The institutional market itself is not especially liquid (there is limited trading activity), and if the federal government scales back public borrowing, this reduces the availability of treasury benchmarks for corporate bonds.
  10. Lack of loan syndication – it is common in many overseas capital markets to establish small syndicates of institutional investors to participate in corporate lending opportunities. This can help spread the risk for lenders, and diversify the funding base for borrowers. However, because of the loan sizes, and the highly concentrated banking market, there is little need or demand for loan syndication among Australian banks.

Until there is a better way to fund local startups beyond the initial rounds of angel and VC money, Australian entrepreneurs will continue to beat a path to Silicon Valley to raise capital. The irony is, a lot of Australia’s $1.6tn in assets under management are allocated to US money managers to invest back in Australia – in my opinion, this is an expensive boomerang. Instead, we need to build better dialogue (and more direct dealings) between the local startup community and our institutional lenders and investors.

5 Challenges for Performance Management

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I recently facilitated a round-table discussion on Performance Management, with senior executives from commercial, not-for-profit and public sector enterprises. Our topic was current practice in Performance Management, and was hosted together with my colleagues at Bravo Consulting Group.

At the outset, we posed a number of discussion points, including:

Are there direct correlations between Performance Management, Employee Engagement and Productivity?

How is Performance Management linked to Rewards, Recognition and Compensation?

Do your people understand the context for Performance Management?

We also discussed the true costs of Performance Management systems (time, resources, software, administration), as well as the different attitudes of management, team leaders, HR and employees toward current processes.

The good news is that all the organisations represented are running annual or semi-annual employee appraisals. There was also an increased focus on performance outcomes (i.e., it’s not just about effort expended on job-defined tasks, but more about what is being achieved and how). And our participants reported the importance of using appropriate tools to deliver effective employee communications around corporate strategy, organizational goals, change management and project roll-outs to ensure greater alignment with, and context for Performance Management.

However, we identified a number of key challenges and critical issues facing any organization that takes Performance Management seriously, or who wishes to increase the effectiveness of their current practices:

1. Negative Perceptions of Performance Management

Despite the widespread use and acceptance of Performance Management systems, there remains considerable negativity around the process, the context, and the even discussions themselves. There appears to be a sense of foreboding when it comes to the mid- or end-of-year appraisal, a fact that was borne out for me just a few weeks ago: I was in the furniture display area of a well-known department store, when I overheard the floor manager say to one of her sales colleagues: “Mike says he’ll do your one-on-one at 3pm today.” What might appear to be a fairly innocuous statement visibly filled the employee with dread, at the prospect of his annual review. Surely Performance Management discussions should not be fraught with such unnecessary anxiety or stress?

2. Performance Management Systems Are All Different, And Too Rigid

Our round-table participants all reported using different software (and paper-based) systems, which is understandable given the proliferation of HRMS tools that support Performance Management. But many of these systems resemble accounting or project management software, and lack more qualitative or cultural performance measures. Alternatively, systems tend to be rigid, process-driven applications that often take a checklist and compliance approach to conducting Performance Management. They can also suffer from a “one size fits all” solution, and don’t readily help organizations to develop meaningful performance measures or point-in-time indicators, mainly because they are backward-looking and use retrospective data. Shouldn’t Performance Management help employees move towards the job that they want (and towards their longer-term career objectives), rather than confining the discussion to current or out-dated tasks?

3. Formal Processes Are Disconnected From Informal Processes

By making it a “process” (and an infrequent one at that), Performance Management becomes artificial, and divorced from day-to-day reality. This can result in performance issues being stored up and only “discovered” during the formal appraisal – which will add to the anxiety and stress if long-term resentments about manager-employee behaviours and relationships are only brought to light during the Performance Management process. A common outcome from the formal Performance Management process is a corrective or punitive response, due to the absence of continuing efforts to manage and direct performance. Why should employees only hear feedback about their performance at the end of the year, when it might be too late to address the issue, leading to knock-on implications for remuneration, recognition and promotion. Shouldn’t Performance Management be part of the everyday dialogue between colleagues?

4. Many Managers Are Simply Ill-Equipped To Have The Performance Conversation

Without the appropriate skills to foster meaningful and open dialogue with their direct reports, managers end up having to manage the Performance Management conversation, rather than helping their people self-manage their own performance. This awkwardness is compounded if there is a lack of organizational context for Performance Management; worse, poor performance is ignored or circumvented because managers do not feel confident to start the dialogue, which is not fair to the individuals concerned if they are not given the opportunity to discuss what might be the root cause of a performance issue. If there is no dialogue around Performance Management, how can employees know what they are being held accountable for, or appreciate the consequences of not meeting performance goals and objectives?

5. Performance Management Systems Ignore The Middle Majority

Most Performance Management systems (certainly the ones I have been exposed to) end up using forced bell curve distribution analysis to classify employees according to high, middle, low and under achievement categories of performance. I recall one former colleague who used to cite Garrison Keillor when annual appraisal ratings had to be allocated according to the expected distribution curve: “Well, that’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.”

When we asked our participants “what keeps you awake at night?”, one CEO commented that he worries about the middle 60%-65% of his employees – the bulk who “do a good job” – because more of his attention and focus is on the high and low performers (the top and bottom 15%-20% respectively). This “bias” can distort management perspective, and lead to disaffection in the middle band, unless there are adequate ways to recognize and reward solid performance independent of annual compensation or promotion. (This issue is particularly acute in Australia when we consider the impacts of slower economic growth, comparatively high wages and sluggish productivity – yet, employers face a war for talent as new and highly valued skills become harder to resource.)

Conclusion

If Performance Management could become a continuous dialogue, backed by meaningful performance criteria and underpinned by a greater emphasis on employee self-awareness and self-directed Performance Management, then organisations could spend more time on strategy and execution, and less time on managing individual performance. Not only would this create greater cost efficiencies in the Performance Management process itself, it would likely lead to improved productivity outcomes because there would be more clarity and engagement around goals, outcomes and incentives.