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The business derives its license to exist and grow its advocacy to set new standards in balancing corporate enterprise / institutional governance with business performance, from the fact that the world is in fact growing in complexity and the challenges we face today pale in significance when compared to those of future generations to come.
Sustainability
It draws its strength from a moral imperative of selflessness to leave future generations a sustainable world with its institutions and formal enterprises placed on a sound footing, where each one of us would in however small a measure, have laid some foundation to build a better world order than destroy by either recklessness action, indecision or omission.
We are confident that the business’ navigation framework we provide shall usher in a new perspective, a new set of skills and a new breed of business, institutional and government leadership, which will focus not on the limited accounting measures, silo control panels or imbalanced scorecards, but go beyond to adopt navigation tools necessary for sustainability, accountability and some measure of foresight and predictability in matters of state or business globally.
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Has anyone ever wondered what sustained rather than cause the biggest corporate failures ever recorded in history this century, the past decade, or even the past five years? Many case studies have addressed the causalities, one needs to go further beyond the triggers and look into what sustained such failures, some going unreported and glaring risks merely ignored, a question of boards sailing right through the storm. The following companies went bust with internal and external auditors firmly on guard. These are some of business’ trusted and tested navigational control instruments albeit not on the main control panel, or is it a case of warning signals not flashing / that of general instrument failure? Facts have been told about the Titanic’s simple yet fatal errors; from a less number of life boats than the number of passengers on board, to the lookouts in the crow's nest who did not have binoculars. According to research into the Titanic disaster, having binoculars might have prevented the Titanic’s tragedy. Today’s look outs are the auditors, board committees on risk management and management in general; but what is the use of look-outs of the auditing profession and risk managers acting almost always post facto? Airline disasters provide similar lessons as in the Titanic case. Grave circumstances around the ill-fated flight 447 which involved the Airbus A330 which crashed into the Atlantic from Brazil, were contained in the preliminary reporting of the Times On Line of the 10th of June 2009. It was reported that the Airbus A330 went out of control as the electronic flight system failed after receiving conflicting airspeed readings via its three pilot tubes. According to airline research, these pilot tubes are known to be prone to blockage by ice, rain and insects. A failure in |
| Facts are that, while Air France was upgrading the signal probes on its long haul fleet which were made by Thales, the plane which crashed on June 1 had not been installed with the new sensors. Critical in this analysis is the parallel which can be drawn between modern passenger airliners and modern business, in that; pilots have less direct control. Given defective computer controls in the middle of the storm, the crew of the stricken Air France A330 may have lacked key information to keep it in flight. Similarly, the Icahn Report on Lehman Brothers highlighted serious signaling flaws including a board which was too old, had served too long and out of touch with massive changes in the industry. “Most of their working lives were tied to a different era - the one before massive securitization, credit-default swaps, derivatives trading and all the risks those products created," Icahn said, citing a Wall Street Journal report. Worse still according to Carl Icahn; even The Lehman Finance & Risk Management Committee, met only twice a year in 2006 and 2007 - years when Lehman’s crisis was brewing, according to testimony by the US Corporate Library research group. |
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Against this backdrop, serious issues can be raised about international credit rating agencies as well, in that; Lehman Brothers collapsed just under a year after an upgrade in the ratings by Fitch in the first and second quarters of 2007 with a stable outlook overall and in all its subsidiaries. Fitch upgraded the long-term and Issuer Default Ratings (IDRs) of Holdings Inc. (Lehman) and all of its subsidiary ratings, including Lehman Brothers Inc. Fitch had also affirmed Lehman's short-term ratings. The Rating Outlook was rated as Stable. This covered a Total debt of approximately $112 billion as affected by the action. At corporate level, Lehman Brothers Holdings Inc. the Long-term Issuer Default Rating (IDR) moved to 'AA-' from 'A+'.
The above rating agency’s confirmations together with internal financial records, point to the weakness of relying exclusively on inadequate signals in business historical financial data, while these are critical dip sticks, complex multi-stakeholder focused modern business like the automobile in motion, does not necessarily have to grind to a halt, signals and controls have to engage in full flight, hence the need for real time navigational tools / management systems such as the patented and integrated Bridgehead Global Enterprise & Institutional Governance FrameworkTM and the Outcomes Based Performance Management System TM
Perhaps the Lehman Brothers saga should give even more impetus to what we have seen in this decade just over five years ago, the biggest shift in corporate governance from a laissez faire and self regulation approaches to varying extents by boards, to a more rigorous and firmer regulation by governments such as the US in particular, or a more centrist approach of South Africa. The European Commission, and the OECD countries’ deregulation of corporate control and corporate governance by way of voluntary adoption of codes.
Whatever approach each country adopts, the common purpose still remains; to reign in the failing system of board self regulation and protect broader stakeholder and shareholder interests.
| Bridgehead Global sees a weakness in all the above approaches though; for as long as these guidelines or codes and legislation do not become practical day to day management or board leadership systems, companies and institutions. Economies, countries and the world will never be fully sustainable. Corporate / enterprise / institutional governance should be embedded in the pattern of corporate or institutional behavior, more of good habits like that of rats so used to running in mazes. Habits of good governance can only be formed by subscribing to and using management systems or real-time flight signals.
In support of Bridgehead Global’s researched view above, is the most obvious fact in most of the major world economies, including the European Commission states and the US which advocate tighter regulation by state law, the failed companies and decades old institutions, have over and above laws and voluntary compliance codes, had their own internal control and “balanced” performance measures or scorecards in place. Some of these have had to do with broader indices of shareholder return, business performance, enterprise-wide risk management, business sustainability and to the extreme case; business continuity, however business failed to continue notwithstanding these elaborate indices firmly in place. Cynics may argue perhaps correctly and say that the failures arise as a result of the centuries old argument of misalignment of |
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Performance in the latter sense is no cheap talk though, and in fact would make it quite a steep challenge for executives to rake in good retention and performance bonuses. The easier option is for boards influenced by a handful of executive directors and the executive team, to rely on market performance for bonus triggers and opportunity to exercise their share options than focus much on the limiting internal business performance measures. In case some argue, that the latter is the terrain of management than the boards have anything to do with it. In a nutshell corporate governance is played by the very referees who are at liberty to steer the course of the game, noting which side their bread is buttered.
Hence Bridgehead Global’s view that the future skills and wisdom necessary in leading organizations of the future transcend those of present day management.
When Bridgehead Global TM looks at the above scenario against the backdrop of unprecedented corporate failures of this decade, the most common denominator is inadequate signals and controls; unbalanced internal performance metrics that is, and sheer neglect of business sustainability if not continuity just for selfish sectoral interest of the few who will always advocate a softer approach to dealing with the grandest forms of larceny by professionals and unscrupulous boards, South African not spared; considering the Leisurenet and the Fidentia cases amongst many.
On business and environmental sustainability, one may wish to ask Rick Wagoner ex- Chief of GM for instance, as to why has GM in the past ten years failed to read the big tell-tale signs on the wall; which said the world market was growing loathsome of waste as in disproportionately barge type automobiles with conventional engine power guzzling gallons of fuel with higher grams of CO2/ KM emitted to the atmosphere by his products. While he is not alone in carrying the brunt of corporate disregard for climate change, had GM looked at the shift in their PESTLE environment and responded with major research investment, re-design and re-tooling earlier than it has, GM’s sustainability could notwithstanding the economic downturn and credit crunch, have been assured albeit in different form and or size.
The same could be said of the world’s financial industry which built its sand castles over excessive lending beyond collateral thresholds, investment in futures and derivatives markets. Again these institutions take pride that they have in place; performance measures, risk frameworks and do sustainability reporting, however some of them like Lehman Brothers, Chrysler and others filed for bankruptcy while the same including the giant American Insurance Group and many others in Europe sought bail-outs from their respective governments.
South Africa has not been spared in this saga, credit goes to the South African Government than the banks themselves, with the introduction by the state of earlier protectionism stances like those of the South African Reserve Bank’s conservative monetary policy and the National Credit Act to reign in irresponsible lending and the burgeoning yet unsustainable credit market.
The common denominator in all these failures is that the sirens of performance and risk metrics went flat while complacency set in.
Open Competition
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It is the strong view of Bridgehead Global that sustainability as the world knows it today, is a narrow definition of the term, and points a huge credibility gap / inconsistency as it is more often done by business simultaneously with the firm’s total destruction of its value chain to remain industry competitive. Cases abound in South Africa where executives and directors raked in millions leaving in their wake, massive destruction of their value chain and erosion of real economic value. A case in point is one in the retail sector in South Africa where an executive director amassed R45m in one year while the supply side of the retail business being farmers of Mozambique who supplied the retail chain with fresh produce went for a few months without payment. South Africa has witnessed a wave of anti competitive practices and millions of fines paid by companies who collude to alter the industry structure and form cartels, either inadvertently or by blatant disregard of the Competition Act to regulate pricing of their products / bar new entrants in their industries. The common yet very lame argument is that these corporates were not aware of what their managers’ practices were in the above regard, otherwise they could not have allowed it to happen. |
SA Government Calls for Enhanced Service Delivery & Good Governance
From a political front, it is a fact that while Africa has to a greater extent achieved relative independence and democracy with the exception of a few lately; the continent’s citizens have to a greater degree not enjoyed the civil liberties which are a direct result of a maturing democratic dispensation. This again has been prevented by the village politics of ethnicity, incompetent leadership and tyranny leaving scores of innocent victims reeling in unwarranted poverty and deprivation. Africa can account for millions in lost generations of resourceful humans whose capabilities are not developed and just laid to waste by greed, incompetence, tyranny and political myopia, as well as unsound raw economic policies and rhetoric of the cold war era.
The scramble for Africa seems not over yet. The reality of milking the cow until it is dry and failure to take care of it underpins even current business practices in Africa and the world. Given South Africa’s positioning as a springboard / launch-pad into the rest of the African continent, Bridgehead Global acknowledges efforts by South Africa and the New Program for African Development (NEPAD) with the introduction of the African Peer Review Mechanism.
However it notes similarities of this framework with other international frameworks like the founding UN Global Compact, Global Reporting Initiative, the Global Corporate Governance Forum of the World Bank, the OECD Principles of Corporate Governance as well as other country codes like the Berlin Code for Corporate Governance, South Africa’s King Committee, et al. Where Bridgehead Global differs from all the above is that it does not call for business and institutions to “comply or explain” or rather “comply or be compelled” it calls for adoption of its integrated system arising from the careful study of the above frameworks, as a management system and compliance becomes a predictable end result with no reason to explain non compliance nor statutory compulsion necessary.
| Having noted the calls for a Performing StateTM by the South African Government under the leadership of President J.G. Zuma, to improve service delivery and root out corruption, cronyism misdirected / misaligned and mediocre performance. Having also been reminded of the need for comprehensive metrics and what the Chairman of the King Committee Mervyn King calls the need for boards and executives to be measured on multifactor indices. Bridgehead Global has come up with a system of corporate/enterprise / institutional governance and performance management for all state and business value drivers to be brought up, seen and managed on one and the same radar. Indeed this raises the bar and calls for a different skills set of boards and executives, the skills and mindset which go beyond management. This indeed is the performance and good governance season for South Africa and the world. Citizen expectations arising from the recent successful national election of April 2009 in South Africa are quite high on eradication of poverty and elements of corruption and increased service delivery, especially at local government level. The management systems of a corporate / enterprise and institutional governance that Bridgehead Global has developed, stand to compliment the efforts of the state. Bridgehead Global applauds the establishment of the dedicated Ministry in the Presidency to manage performance and looks forward to a public/private partnership relationship to help the state deliver on this performance and clean governance mandate. |
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