The question is "what are appropriate performance targets for an independent director / independent chairman?"

Cash flow, adequate funding, suitable processes, strategy are all legitimate tasks undertaken or contributed to by boards and their members. However, the question is around "appropriate performance targets" and the difficulty relates to how you measure the contribution of an individual when a small or large group (including scores of management) have contributed to the task or outcome. How do you separate the CONTRIBUTION of a single individual in a group milieu?

I've seen directors make magnificent contributions by "merely" asking the right question, at the right time in the right way. Similarly, I've seen magnificent management tactfully overcome the idiocy or self-interest of some directors to still enable the required outcomes to be achieved. What and who then do you measure?

The comments of other commentators on this topic clearly demonstrate the point of the contextual nature of tasks. If a particular director was recruited to, say, oversight the selection and implementation of a new accounting system, then surely he/she should be assessed by his/her performance against that objective, among others.

There are of course other criteria that directors must satisfy and they can be assessed through the chairman's evaluation, 360 degreee evaluations or group discussions/workshops. Each have their advantages and disadvantages. Yet the core issue here I think is the measurement of a director's "core responsibilities" and those responsibilities that justified that director's appointment.

All of this reinforces the original comment that it depends on the context and the specific "roles" assigned to each director.

The Coalition's desire to make the two-strike threshold 25% of all shareholders effectively lifts the threshold to unachievable, and therefore meaningless levels - particularly since many/most voters don't bother to vote. Maybe that's the Coalition's intention?

Institutions use proxy recommendations because it's too hard for them to resolve voting strategy, and they don't have the resources to do the work required to determine the issues themselves for all the companies in which they invest.

If the desire is to have institutions determine all voting issues themselves (thereby making the proxy advisors redundant) then there are two options: increase the resources of the institutional investors or make the job of determining the issues easier.

The first option will increase costs and lower margins and is unlikely to happen.

The second option is the most realistic - but how?

If a corporation declares its objectives as being based on quantified shareholder objectives (metrics) then the corporation's performance or non-performance can be easily determined against those metrics.

The majority of issues that require a shareholder vote impact the orgsanisation's ability to deliver its objectives. When managers determine what a corporation will pursue (as they do now), shareholders have little means to determine the underlying issues and the appropriate voting response. This is compounded when those same managers are rewarded by KPIs that they themselves determine.

If the subject of a shareholder vote impacts shareholder-determined required outcomes, the shareholder can much more easily assess the arguments for and against the issue and determine their impacts on required outcomes.

Essentially, this is what proxy firms attempt to do but must struggle with management-derived KPOs, management-incentivised initiatives that may or may not benefit shareholders and they are in complete ignorance of what ALL shareholders really want because no one asks them. No wonder it's hard to determine the appropriate voting strategy on most issues.

This is a very shrewd appointment by Solly Lew and his board. The "elephant in the room" is obvious to all therefore no "skeletons in the closet" anymore. McInnes has "paid for his misjudgements" and is now moving on. By admitting his error, and being very mindful that if he repeats it he will be well and truly finished, he can now get on with his core skill set.

However, I doubt that if McInnes again transgresses, he will find much forgiveness in Lew and his board.

For McInnes, its an incredible opportunity to "erase" the negatives by demonstrating his retailing prowess and delivering to his "saviour" the financial returns he desires.

Leadership is context based. Leadership in a growth market, for example, requires different attributes, strengths and personality compared to leadership in a mature market or one in decline. The point here: there is no generic/universal answer.

Furthermore, not all corporate outcomes are in financial terms. Most commonly, they are couched in the terms of value (what shareholders consider 'value'), benefit (how do shareholders want their benefit), growth (what do shareholders want to see grow), and risk (what do shareholders regard as risk).

If in any particular industry performance is determined by, let's simplistically say the ROI generated; and one particular company achieves the highest ROI, then is that company's leader the best? What if the ROI was secured through high gearing and high risk when shareholders were risk averse? Is the leader still the best?

The board's role is to appoint the most suitable leader in the corporation's context and needs. He/she must 'lead' the corporation to the delivery of its corporate objectives. Whether the leader exhibits 'classic leadership attributes' is virtually irrelevent.

There are many (notorious) leaders of corporations that have led the company down an erroneous path that was not congruent with the needs of its shareholders.

Give me a leader who can deliver shareholder objectives any day over a leader who subjectively pushes his/her own vision.

In my experience, the best ways to "deal with" an activist shareholder is:

1. Find out what they want as outcomes from their investment against the criteria of value, benefit, growth and risk. In other words, establish their Metrics based on their perception of value, how they want their benefit, what they want to see grow, and what is their definition of risk.

2. Know what the rest of your shareholders want in quantifiable terms against value, benefit, growth and risk.

3. Construct a curve of these metrics.

4. If the activist is an outlier (extreme high or extreme low) on those metrics, then the organisation's argument is that it satisfies the majority of its shareholders and the activist agenda would harm the majority of shareholders.

5. If the activist metrics align with the majority of shareholders, then the majority of shareholders want what the activist wants but the activist is the most vocal or confrontationalist. Therefore, you better listen as the activist is only saying what the majority of shareholders are thinking.

Most corporate responses to activist shareholders assume a defensive stance rather than accept that the activist has a legitimate right to declare his "outcome expectations". Needless to say, shareholders get really irate when this happens.

The corporation's "defense" is merely to establish whether that activist requirement is with the majority or the minority and then act accordingly.

The distinction must be made between "outcome expectations" and desire to influence strategy. Although all intelligent board and senior management would listen to any strategic or operational suggestions provided by activist or anyone else for that matter, shareholders do not have the depth and breadth of information available to the organisation; so making strategic or operational suggestions is inevitably sub-optimal. In any case, shareholders proxy the board and management of the corporation to manage - that's what they get paid for.

However, it is absolutely the right of shareholders, activist or not, to voice their "outcome expectations"; afterall, that's why they invest in the corporation. And it is the responsibility of the board and management to know what their shareholders want and not to guess what they want or to "give them" whatever management feels is appropriate.

"Activist" is not a dirty word - it is merely legitimate owners pressing for their rightful outcomes (subject to the comments above.)

Remember too, that research has validated that corporate performance is generally better within an activist environment than a non-activist environment.

How is it that when the Libyan uprising started, those opposed to the establishment were termed "democracy fighters"; and now they are being called "rebels"?

Whose perceptions are being worked on, by whom and for what purposes?

IMHO opinion, the independence or otherwise of the chair, or for that matter the board members, is not the issue.

In clients for whom I have resolved such issues, the problems appear always to be differing personal objectives of the players.

The technique I use to resolve the issues are as follows:

1. Meet with each individual on a one-on-one basis and in strict confidence ask them what are their personal objectives in staying with the company, what do they want out of it and what are the issues that they feel need resolution. What do they propose is the resolution to those issues?

2. I then conduct a workshop tabling the varying issues, problems and resolutions proposed in the confidential interviews. No issue or solution is attributed to any particular individual so we always deal with the issues rather than the personalities.

3. The outcome of the workshop is a plan of action dealing specifically with the issues agreed by all as requiring remediation.

Leaving aside legality and corporate compliance, the corporation can effectively do whatever is wants to satisfy its family owners. No one has ever said that private companies need to "maximise" - they need to do whatever they wish - it's their money, their time and their risk - provided that whatever they do is ethical, fair and legal.

Other issues I would raise at the workshop would include:

• management expectations - decision-making and relationships with employees
• succession plans
• role of board and its members
• adherence to board directive

Once upon a time, there was a guy named Peter. He was the sole survivor of a huge accident where 250 people died.

People of Faith approached Peter and said, "God has looked favourably upon you and saved your life. Let's pray to God."

Peter responded, "If God favoured me to save my life, then why did 250 people need to die for me to live?"

The People of Faith answered by saying, "God saw that you had great things to do and give, so your life was worthy."

Peter responded, "There is nothing I can do in my life that justifies the death of those 250 people."

The People of Faith said, "God has his ways and reasons and we are not to question why."

Peter said, "If God could only 'show me the way' and save my life by sacrificing 250 other lives, then God is either unmerciful or God is not omnipotent. Furthermore, if I am to learn a lesson in my life, there is no more worthy lesson than that of mercy, compassion and tolerance. If you claim that God has caused this calamity, then this is a God I can't accept as my own."

[Instead of Peter, read Ahmed, Zvi, Ravi, etc]

Where do we start indeed!

What I do with my corporate clients and NFP and government organisations that I work with is the following:

1. I secure clarity and agreement on the purpose of the corporation or organisation. If it's a for-profit organisation, then this comes from shareholders (refer: my book on the subject http://www.jacobyconsulting.com.au/books/business.htm). If it's an NFP, then it comes from its Constitution, Articles or other chartering document. If it's a government department or organisation, it will usually come from an Act of Parliament.

2. I then workshop the board and/or owners/shareholders to identify the outcome metrics associated with each of the organisation's objectives. This is stated in terms of $, %, # or some other quantifiable form.

3. The board or managing authority of the organisation then interprets those metrics in terms of the organisation's context, it's capabilities, opportunities, competitors, industry structure, status of the economy etc. The nuancing of the metrics then represent's the corporation or organisation's Statement of Purpose. In order words, it exist to deliver those outcomes.

We then start to drill these metrics down the organisation. The method is outlined at (http://www.jacobyconsulting.com.au/knowledge/planning_schematic.htm)

4. Once the metrics are understood, we then determine the market that will deliver those metrics. For example, some markets can only deliver an ROI of 10% while others can deliver 25%.

5. Once we have resolved the nature of our market, we then determine the products and services that need to be placed into that market in order to extract those outcomes (metrics).

6. Once we know what products and services we will use, we then need to determine the optimal manner in which those products and service will be delivered to market (channels); what level of product and service support is required; and how we will communicate and promote the products and services to the consumers / market.

7. Once these issues are resolved, and only then, can the organisation determine what sort of people it needs and what sort of systems (eg I.T., processes, procedures) it needs to enable all of the above to operate efficiently and effectively.

8. Only then can the organisation determine what management is required and what board skills are required. This is the organisation structure stage. Unfortunately, most companies mistakenly start here.

9. All of the above decisions, when accurately modelled, will deliver a set of outcomes. When these outcomes equal or exceed the Statement of Purpose, they can be finalised and formalised into a Business Plan.

This hierarchy of decision-making is really important. Making decisions out of their logical sequence commits the organisation to strategies and structures that are sometimes illogical and harmful to owner and corporate interests.

This process works for private, listed, NFP, government, large and small organisations.

On one hand, strong corporate governance, avoidance of related party transactions and similar, are all important but "only" reassure the investor that there has been no malfeasance. This focus is about avoiding "detracting" investors.


An investor will be "attract" to an investment when the investor has a high level of confidence that the investment will deliver that which the investor wants.

Much movement on the share registry of a corporation is commonly interpreted as representing instability and is therefore seen as negative. Boards and CEOs therefore attempt to “quieten” their registries, using a range of techniques including, promotion, advertising, communication to shareholders, communication to analysts, promise of bigger benefits, strengthening corporate governance, etc..

Although volatile movement on a registry may be unfavourable, it should by no means automatically suggest that all movement on a registry is negative and that stability of the registry, per se, should be aspired to. Except in a market in free-fall, every transaction has a buyer and a seller. Where an existing shareholder is selling because of the corporation’s inability to provide a high probability of satisfaction, then it is likely that the shareholder may discount the sale price asked in order to cut “losses” and reposition in another registry that offers greater probability of satisfaction. If many of the company’s shareholders feel the same way, then prices will fall.

Conversely, an investor wishing to gain entry into a registry or wishing to buy a greater holding will see additional value in that stock over the purchase price. If there is no such perception of “extra” value, then there is not much point in the purchase. When there is “extra” value perceived by the intending investor, and when many investors perceive such “extra” value, then there is a likelihood that prices will be pushed up to a level that equates to the perception of value.

This is no more than normal supply and demand mechanics at work. Therefore, when existing shareholders wish to sell their holdings due to a negative perception of the future, then prices will tend to be depressed. When external shareholders want to enter the registry, then they tend to push prices up. Depressed share price causes market capitalisation of that company to be depressed while rising prices enhances market capitalisation.

Companies therefore should attempt to minimise all churn on their registry caused by disenfranchised shareholders because this will constrain share price and market capitalisation. The methods used by companies to achieve this might vary, but can be summarised as methods that enhance shareholder satisfaction and positive perceptions of future performance.

On the other hand, all companies should “chase” positive churn, i.e. registry churn caused by investors wishing to enter the registry. Particularly when fewer existing shareholders are prepared to exit the registry. This forces share price up which is to the advantage of all existing shareholders. One is not able therefore, to deduce merely from the existence of churn, whether the instability is “positive” or “negative”. One conclusion is clear however, positive churn is very much to the advantage of existing shareholders and corporate governance is only part of that process.

Context defines their challenge and often, their ability to meet those challenges.


In consulting to literally hundreds of companies over 30 years, I have come to the following conclusions - not necessarily what you would expect.

1. Most corporations try to do the right thing by their shareholders and stakeholders.
2. The level of incompetence at executive and board levels in many corporations is simply astounding.
3. I have witnessed BILLIONS of dollars of shareholders funds being wasted over the years as a result of well intentioned but intellectually bankrupt thinking.
4. Ego and reputational and career risk is the most destructive and destabilising influence within most organisations.
5. Individual subjectivity is the principal determinant of corporate strategy and activity - with corporate outcomes being determined by subjective judgement rather than by a factual understanding of shareholder requirements.
6. Corporate performance is often determined by power and charisma rather than logic and evidence (acknowledging however the important role that business intuition plays.)

 How sad!

 

 

 

Few companies have the luxury or patience of "honing" skills in existing or prospective incumbents of the board - as logical as it is. If decisions are made in the new appointee's first meeting, that person is expected to make a robust decision or contribution from the getgo.

I am of the view that a corporate context determines needs required on the board where context has both current and future dimensions.

Some of the considerations may include:

1. The corporation's context (present and future) determines the skillsets required of the board.

• C=P+F - Context equals present context plus future context
• C=>SKn - Context determines skills needed

2. Total skillsets required of the board less those that exist (and will continue) will identify skills needed in an incumbent.

•  SKi=SKn-SKp - Incumbent skills equals needed skills less present and continuing skills

2. An incumbent must:

•  demonstrate the needed skills (SKi)
• demonstrate an ability to work at board level (i.e. have a "Director" perspective rather than an "Executive" perspective) (SKb)
• have a very high level of emotional intelligence (Ei)
• have a mature ego (Em)
• have personal objectives that are fulfilled with success in his/her board KPOs (rather than in conflict with them) (Op=Oc)
• be able to identify what level of "training" and "guideship" he/she wants to better deliver their role (i.e. growth path) (GP)

Therefore the suitable incument = SKi+SKb+Ei+Em+[Op=Oc]+GP

Generally a mentor can provide experience, poise, judgement and expertise, networks - particularly if you are in unfamiliar territory. There are a number of mentor types that you might consider and they are not all the same. An individual mentor should be:

1. Someone you respect
2. Someone without another agenda
3. Is readily available
4. Ideally doesn’t charge a fee
5. Has different skills to you
6. Has broad experience
7. Will be honest with you and you with him/her
8. Will be ecstatic in your happiness

There is also a Business Coach. I differentiate between a “business coach” and an “executive coach”, A business coach is defined as a person skilled in a variety of corporate competencies who works with a CEO, senior manager, or nominee, to make better and more effective organisational and business decisions thus delivering improved organisational and business outcomes. Although aligned to a specific client, the business coach may be seconded (or “lent”) to another executive or manager to help them with their own area of responsibility for a project or limited time.

An Executive Coach is focused on the senior executive to largely, but not necessarily exclusively; help him/her deal with the issues that confront senior executives in large corporations. These issues are more intense, complex and involve greater career implications than the business coach environment. Unlike the business coach who may be “lent” around the organisation, the executive coach is client dedicated. Also unlike the business coach who is often seen as an informal member of the management team, the executive coach “belongs” to the client exclusively.

A Life Coach is a person who provides encouragement, direction, motivation and support to an individual seeking improvement in life as a whole. Career or profession form only part of the focus of a life coach, who sees career as a means to an end, rather than the end in itself. In the words of one coach, “A Life Coach is your own personal cheer squad, guide, mentor and motivator engaged with you to plan, create, solve and focus your energy on your goals.”

A Skills Coach is a person who provides specific “teaching” of defined required capabilities. Once the required skills are taught and demonstrably applied by the client, the coaching program is complete. Some skills coaching relationships extend informally after the formal relationship has concluded. The coach continues to act as sounding board or “mentor” for the student on matters relating to the taught skills.

An "Oracle Mentor" is much like a business and executive coach with the following differences:

1. The oracle mentor acts either for a relatively small fee or gratis, depending on the circumstance;
2. In some cases, oracle mentors acting in a private capacity exchange their managerial skill for equity in the helped entity;
3. The oracle mentor is often a retired or semi-retired individual who is driven not by a financial benefit, but by a desire to “give back” by helping others succeed;
4. Because of the benevolent nature of the mentor’s motivation, the mentor and client meet infrequently even though the mentor is happy to help by phone or email if the client requires urgent advice – although this is not common;
5. The oracle mentor represents wisdom and experience and is often a last resort for the client, rather than one who gets involved early in the client’s issues.

A Mentor-In-Confidence (MIC) is the highest level professional mentor available in the counselling market and is an amalgam of business coach, life coach, executive coach and oracle mentor. The MIC provides senior managers and directors in large corporations with confidential advice (hence the name) and technical support in a manner that is invisible to the client’s organisation and staff but with the approval of the Board of that organisation. This is normally a fairly expensive service.

There are two perspectives here: that of the purchaser in the deal and that of the vendor.


From the vendor's perspective, a "deal is done" when:

•  the terms of the contract are fulfilled and consideration satisfied;
• there are no blow-back issues such as misrepresentation, fit for purpose, etc claimed by the buyer against the vendor;
• all latent warranties, potential liabilities and other obligations from the vended asset expire, are expunged or transferred out;
• the impacts on the vendor's company from the sale of the asset have been neutralised.

From the purchaser's perspective, a "deal is done" when:

•  the terms of the contract are fulfilled and consideration satisfied;
• no hidden issues are discovered that escaped due diligence such as misrepresentation, fit for purpose, etc claimed by the vendor;
• the impacts on the purchaser's company from the purchase of the asset have been incorporated.