Tone comes from the top

Britain's business leaders should take their cue from President Obama by telling all stakeholders the unvarnished truth.

by Denise Kingsmill
Last Updated: 09 Oct 2013

In an inauguration speech of wintry clarity, President Obama indicated a clear break with the discredited policies of his predecessor, firmly emphasising a fresh direction for the US at home and abroad.

He not only talked the talk but walked the walk, following up with a raft of measures that demonstrated his commitment to transparency, ethical behaviour and the rule of law. And when two of his earliest nominees for senior posts - Tom Daschle and Nancy Killefer - turned out to have some ethical problems of their own, he did not hesitate to pull the plug on them, stating: 'I screwed up.'

Furthermore, it was no surprise that the first piece of legislation he signed into law was the Lilly Ledbetter Fair Pay Act. Naming a piece of legislation after the woman who inspired it, with her struggle for equal pay as a manager at the Goodyear Tire and Rubber plant in Alabama, also confirmed the new president's recognition of the importance of the individual in the broader scheme of things. The tone of his presidency was set from the very beginning.

This is an example that could usefully be followed by our corporate leaders. If CEOs, with their management teams, could be persuaded to set out publicly and honestly their objectives, values and goals, and how they propose to achieve these, we would have a yardstick against which to measure their success.

It might also be used to help establish the style and culture of the company, which together are often as important an indicator of the health of an organisation as its financial performance.

In theory, this is what the annual report is supposed to do, but so much corporate reporting these days is pure boilerplate. One is bored into submission by pages and pages of guff, interspersed with the occasional posed picture of a smiling worker who is apparently ecstatic with his or her lot, carefully chosen to demonstrate the diversity of the company's workers.

If I sound cynical, it is because I am. I sit as a judge on the PwC 'Building public trust' awards and, as such, I have probably read more annual reports than is good for my mental health.

One man who has read even more and is still commendably enthusiastic about the importance of corporate reporting is PwC partner David Phillips, whose creation these awards are and whose motivation it is to see a big change in the kind of information that companies share with their stakeholders. His view, unusual for an accountant, is that there is too much emphasis on financial metrics and that this is because these are easy to measure rather than because they convey useful information.

He would like to see more effort made by companies to report the truth about their values and culture, to tell it as it really is rather than how they wish it was. He suggests that one way of doing this would be for the remuneration committee to measure and report on the percentage of its time the board spends discussing any particular issue. This would be a way of demonstrating the priorities of the company.

However, corporate reporting can only go so far. Sometimes, an individual gesture from the top can convey more about the culture and style of a company than any number of carefully crafted value statements. I know of one CEO, a new father, who sent around a memo saying he would not be available for meetings after 5pm as he intended to go home for the baby's bath-time. Nothing could have signalled more clearly the company's approach to work/life balance than this demonstration of his personal values.

Some signals from the top, however, can have seriously adverse consequences. The bonus system of some banks, for example - intended to align the interests of the individual with those of the organisation - were usually focused, to the exclusion of all else, on individual financial performance. This encouraged a toxic combination of greed and ingenuity on the part of some financial engineers that has brought these institutions to their knees through excessive and destructive behaviours. The lack of transpar- ency in relation to the often huge bonuses awarded by some financial institutions has brought the whole bonus culture into disrepute. So much so that Obama has set a cap of $500,000 on executive pay for firms getting government bail-out support.

There has to be a better way of recognising and rewarding positive personal contributions. The desire for personal recognition is a powerful human motivation. You only have to go to London's Grosvenor House hotel almost any day of the week to witness 2,000 people from every corporate sector sitting on the edge of their seats hoping to receive an award for their personal performance at work.

Since most people outside the rarefied financial sector do work for more than just money and gain satisfaction from a job well done, could we perhaps return to awarding gold stars, as they do in primary schools?

Or should we follow a more lasting example of personal recognition? Under the bonnet of my husband's classic Aston Martin is a brass plaque attesting to the fact that the engine was hand-built by one Don Osbourne. Today, Aston Martin is one of the world's most admired brands because of the way, many years ago, it demonstrated the quality of its products by recognising the craftsmen who built them.

Even if the present recession threatens the Aston Martin company, the legacy of Don Osbourne will live on in our household, as will that of Lilly Ledbetter.

Baroness Kingsmill CBE has been a non-executive director of plc, private, charitable, arts and government boards. She is a non-executive director of British Airways.

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