The future cost of arrogance?

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Rob Campbell is someone I admire. He is well-informed and sees the world in a big picture view - bigger than most people do. A comment he recently posted on LinkedIn has a great deal of relevance when one considers stakeholders and their importance to the bottom line of companies.

What was his comment?

It implies that one should consider broader stakeholder issues in order for a business to deliver the best possible value for shareholders. His comment: “I do think from my experience that the wider issues that matter to people and their positive impact on performance are important. Maybe not in a week, but subject to the economics of the business being valid they will be a value differentiator.”

Plastics sector arrogance

The global plastics industry paid PR firms for years to present the view that it was consumers who were responsible for the rapid growth in global plastic pollution, rather than themselves. Now, a tsunami of anti-plastic sentiment is building globally and that will likely have a negative impact upon their bottom line

Arrogant Microsoft

Microsoft is annoying individual and business customers who rely on the Windows 10 operating system. There have been so many issues with online automatic updates creating problems for users. Microsoft has told some users that it could be months before they can fix update issues and that users will have to “put up and shut up” in the interim. In my small business, the cost to fix Windows 10 updates problems amounts to several thousand dollars – plus a lot of stress. The level of arrogance at Microsoft is unbelievable. It must be opening up huge opportunities for competitors who can offer a reliable alternative operating system and not have to pay to fix up supplier-caused issues and lose thousands in down time.

Arrogant Facebook

The arrogance of Facebook, when it comes to the way personal data has been used and abused, just to make money for the corporation’s shareholders, is giving rise to a wave of concern and dissension that can only be ‘bad for business’. There is growing evidence that the trust of Facebook users has been damaged and that increasing numbers are looking for alternatives. Other social media networks are also facing a growing backlash.

Arrogant politicians

Angela Merkel is unpopular in Germany because she failed to recognise local concerns regarding her open arms policy towards refugees and migrants. As a result, even more arrogant politicians, such as those in the AFD, are gaining power. Boris Johnson is another arrogant politician who essentially writes off the concerns of the nearly 50% of voters who did not want to leave the EU. He and a small group of supporters want a total break, which could have serous ramifications for the UK if they end up with a ‘hard Brexit’. No compromise. Time will tell how much gain (or pain) there will be for the broader group of “stakeholders” (i.e. all UK citizens). Examples of arrogant leadership.

The future costs of arrogance?

As Rob Campbell commented, businesses and organisations that consider “the wider issues that concern people” are likely to enjoy better long-term financial performance than those which ignore such issues. At the end of the day, every director and leader has to understand one simple fundamental fact of life - that without happy customers, clients or voters, their longer-term future will be in jeopardy because people will simply look elsewhere for better personal outcomes. And that always impacts the bottom line!

Food – ‘something has to die for us to be able to live’

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This view was in a recent opinion piece in our local newspaper. There’s been much recent publicity about plant-based artificial meat, like the Impossible Meats burger patty. But I am starting to wonder if it is all that it is cracked up to be. It seems to me that there is a great deal of hype that may be leading us astray and from a basic fact of life - everything we eat is from biological sources.

The argument for plant-based foods

Many say we could feed the world’s population a lot more effectively if we only consumed plants because the conversion of plant into animal products is inefficient. It takes 7kg of grain to produce 1kg of beef and 4 kg to produce 1kg of pork. The argument is that more people can be fed with 7 kg of grain than with 1 kg of beef. Another argument is that plants don’t have the same welfare considerations as animals. In simple terms it is quite appealing – eating plant-based products and forgoing animal derived-products will help save the planet, not harm animals, and feed the world. However, only a proportion of world meat production is grain-fed so a shift from eating meat to plant foods may not free up as much resource as is suggested. And plants also have to ‘die’ when consumed as a food – whether raw or cooked! They are living biological entities.

Some interesting thoughts

Tim Worstall says that animals often graze on areas unsuitable for plant food crops (e.g. hill country). In addition, some plant material is not suitable for human consumption (e.g. plant waste streams such as straw). Another factor often overlooked is the availability of water. In major grain growing areas, e.g. in China and Australia, water is becoming a limiting resource and future productivity is under threat. Is it somewhat simplistic to promote a view that vegetarianism will help feed more people? There is a much greater complex of factors in play globally than just a simple ‘meat to plant’ switch. It is the health of all our biological systems – plant, animal and microbiological - that is of real concern, along with global over-population and resource scarcity.

What about the health factor?

There has been much hype about artificial plant-based meat products, such as the Impossible Meats burger. But let’s stop and look behind the hype. We are seeing hi-tech companies, some being major corporate groups such as Tyson, investing heavily to develop highly processed food products that, in some cases, contain ingredients which some might find unhealthy. For example, a genetically modified yeast is used to provide the haem (the ‘meat’ factor) in the Impossible burger. Other ingredients have been through significant pre-processing. The Impossible Meats burger patty is hardly natural. Are we being offered something that we have been told over and over to avoid?

Busting through the hype

We have been advised to avoid, even eliminate, highly processed foods from our diet and instead eat as much fresh and minimally processed food as possible if we want to be healthy. In countries where people eat large amounts of highly processed foods, diabetes, obesity, heart disease, cancer, and other lifestyle diseases are major public health concerns. Way back in 1931, Dr Weston Price vividly illustrated the impacts of highly processed foods on indigenous groups around the world in his fascinating book, ‘Nutrition and Human Physical Degeneration’. Plant-derived artificial meats are highly processed foods. Processing strips out many natural health factors found in raw bio-materials. Is the boom in investment and sales of plant-based meat substitute products truly good for human health and wellness or just another example of the tech sector finding a way to make huge revenues from a 'fad'? I guess time will tell if this fast-growing ‘fad’ is good or bad for us. The Mediterranean Diet is healthy – but it’s not meat-free and things still ‘have to die for us to live’ – whether from an animal, plant, or microbial source. That’s life!

Postscript

Maori in New Zealand believed all life forms – trees, plants, humans, animals, birds and insects – descended from a common source. Some sources say the plants and trees came first and humans and other animal life were ‘descendants’. All living things are part of Maori whakapapa. Traditionally, I was told by a local tohunga that there was also an intimate connection between the giant 2000 year+ old kauri tree, Tane Mahutu (Father of the Forest), and the whale. In this vein, local journalist, Joe Bennett, noted that the word ‘meat’ originally meant any type of food, and not just animal flesh. Around the year 1300, the word meat became more associated with animal flesh, although the term ‘green-mete’ (meaning plant foods) continued to be used in the Middle Ages. Whether one believes in the Maori myth, creation, or evolution, there was a start point for all living things on this planet. Many of these living things became food, or ‘meat’, for humans – whether plant- or animal-based. It is only in relatively recent times that plants have been ‘relegated’ to a category of ‘lesser beings’ and animals characterised as ‘higher beings’, even though they have all evolved as living things down the same pathway since ‘the beginning of time’. Both were part of the original definition of ‘meat’. Everyone has the choice to be what they want and eat what they prefer. However, this postscript supports the postulation that when we eat, ‘something has to die for us to live’ – whether it be an animal, plant or micro-organism. That applies to vegetarians as much as it does to non-vegetarians.

The uniqueness challenge

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I recently read a post by a local politician who attended the opening of Spring Sheep Milk Company in New Zealand. It was interesting because it was unique and not a traditional business producing cows’ milk for Fonterra – a giant group that has delivered mixed results due to its strong commodity focus and record of rewarding staff handsomely for poor performance. The post reminded me of how a small country like New Zealand struggles to understand and exploit what is ‘unique’ and tends to do what ‘everybody else does’.

Some background

Several years back, I built a database listing research reports focusing on attributes associated with New Zealand’s indigenous flora, much of which is totally unique globally. It seemed that more overseas researchers investigate the unique attributes of our flora than locally-based researchers. One German researcher completed a detailed biochemical profiling of kawakawa, and probably knows more about that profile than all New Zealand researchers combined. Local researchers appear to be undertaking R&D projects relating to improving pasture, finding super strains of broccoli, adding value to various types of berry fruit, producing and deriving more from cow’s milk and improving our exotic forestry sector – not our uniqueness. The only significant exceptions relate to manuka and kanuka, mainly honey. Most effort seems to be focusing on ‘big’ (largely commodity-based) rather than ‘unique’.

Why’s that?

I asked a person at the Ministry of Business, Innovation and Employment (MBIE), who plays a role in deciding how New Zealand government R&D funds are allocated, why we focus so much on ‘big’ and not so much on ‘unique’ – in particular the inherent value in New Zealand’s indigenous flora. His response surprised me. He said it was easier to justify investing in R&D projects in the ‘big’ area because these commodities are known internationally and listed in various approved foods/food ingredient registers. He said that to try and introduce something derived from our indigenous flora would mean a great deal of effort was needed to add them to these approved lists. The suggestion was that it was simply ‘too hard’ and easier to keep doing things with things that everybody else also did things with!

Illogical?

I was quite taken aback by his response but it explains why so much R&D funding is allocated to ‘big’ and much less to ‘unique’. It seems ‘unique’ fits in the ‘too hard basket’. But, when one sees how much value is now being created from manuka (honey and derivatives) and the exciting prospects for kanuka and horopito, we are talking about uniqueness with billion-dollar potential. These are only a couple of examples amongst hundreds of indigenous species imbued with recorded uniqueness characteristics in the health, wellness, food, natural pesticides and fragrance areas.

The challenge for business

It’s clear that New Zealand businesses need to invest more into their own R&D projects (rather than relying too much on state funding) in order to enhance their value propositions and quality of revenues - and focus more on ‘unique’ rather than ‘big’. Small countries everywhere in the world don’t do ‘big’ well because they don’t have the critical mass. But they can do ‘unique’ really well. And that’s something that a greater number of Boards of Directors need to think about - perhaps more than they currently do. Our indigenous flora is a truly unique resource that we have - yet we still largely ignore it and do too much of ‘the same as everyone else’. We need to be more proactive and less reactive!

CEOs versus Teams

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(This is an update of a trend monitoring post originally written by Kim Ivey-Stephens in March, 2012.)

The original 2012 post discussed how the effectiveness of the CEO-based business model was being challenged by one based on team-leadership. It’s interesting to re-visit the thrust of that post, given some of the controversies surrounding some high profile CEOs in recent times, such as the former CEO of Fonterra in New Zealand, the value destruction caused by the CEO of Theranos in the USA, and the recent ousting of the CEO of GE for failing to deliver.

What’s the background?

A 2010 survey by IBM of more than 1,500 global CEOs found that 79% believed they will face greater levels of complexity in the future.  An article posted online in 2012 by Doreen Lorenzo, President of Frog, suggested that collaboration and a team-leadership model comprised of strong, flexible, driven and solidly aligned leaders would be the key to meeting challenges ahead. 

 What are the advantages of a team-leadership model?

 Lorenzo suggested that group decision-making is a necessity in order to meet the increasingly complex challenges of the future market-place, something that cannot be achieved by a solo decision maker.  When selected effectively, the team can provide in-depth expertise across a number of challenge areas and drive strategy with greater consideration of all business functions.  Furthermore, she proposed that diversity in the leadership team was a key factor that drives both success and innovation. A number of organisations have adopted a co-CEO arrangement – SAP, Motorola Mobility. At the time, SAP co-CEO Jim Hagemann Snabe suggested that, because the world is a multi-dimensional place, to divide and conquer is logical in order to achieve the large number of demands a CEO is faced with.

 But, what about the disadvantages?

 Teams are significant where there is need for debate, where a wide range of advice is required, to implement, invent, create and communicate. However, team decision-making can be less effective. Despite being a collective formed to benefit the overall good of the business, team members can find it difficult to reconcile their area of expertise within the organisation with the need for them to take a holistic perspective.  Ultimately, they are accountable for their functional area and, where there is conflict between the needs of their business area and the greater good, this can be challenging.  Furthermore, where there is no consensus on an issue or opportunity, decision-making can be prolonged and disabling. That’s where a single decision-maker, such as a CEO, can speed up the process – but they also run the risk of getting it wrong, as the Fonterra, Theranos and GE cases illustrate.

 What does this mean for businesses?

 Whilst there are examples of both successes and failures associated with either the CEO-led or Team-led models, it is ultimately a combination of both that is needed to enable organisations to thrive in the future. An individual operating in isolation does not have the capacity to deal with the emergent complexities arising from working in an increasingly global marketplace, and collaboration becomes essential for future success. However, without a singular decision maker, organisations may not have the agility or alignment with which to progress. As many Boards of Directors have been finding, it’s a real challenge to balance the CEO and team ‘power balance’ in a way that leads to the best possible future outcomes for all the stakeholders they are responsible for delivering to. Some CEOs have become far too dominant in the decision-making process and sometimes this has jeopardized the future-fitness of the businesses they lead.

Sustainability versus scarcity

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Simon Harvey recently shared a link to an article by Naveen Jain titled ‘Sustainability is actually not sustainable’. Sustainability is such a buzz word these days and it is refreshing to see someone thinking about the whole issue in a big picture way rather than through the fog of buzzwords.

What’s the context?

For some years now, the World Wildlife Fund has published the annual ‘Living Planet Report’ . It is an interesting document with a strong focus on measuring and monitoring a number of key environmental and resource indicators. This report has consistently concluded that humans are using up the world’s natural resources at rates that are higher than their replenishment. Several years back, the report said that we are currently using up the planet’s resources at 150% of the rate they are being replaced and, if we don’t change our habits and the world’s population continues to grow, that rate will increase to 200% by 2030 and 300% by 2050.

What’s Jain’s take on this?

 He agreed that we are using up resources at an unsustainable rate and that the current focus on sustainability ‘actually constitutes our greatest peril’ because it fails to recognise that it is a growing scarcity of resources which is the fundamental issue. With the world’s population heading towards 8 billion and increasing demands for food, water, consumer goods and everything that delivers improved personal lifestyles and living, the issue of scarcity is not being recognised sufficiently as the real challenge.

That challenge

If you watch a population of aphids multiply on a lush, healthy fast growing rose bush, over time you will see the rose stems and leaves become covered with large numbers of aphids. Each one is sucking the sap out of the rose bush to the point where it can no longer sustain the population, i.e. the resource the aphids are feeding on has become scarce and reaches a point where the population rapidly dies off, the rose bush has been ‘sucked dry’, and can barely sustain itself, let alone any aphids. It’s perhaps an interesting analogy for the sustainability versus scarcity context setting.

The answers?

There are two schools of thought presented in Jared Diamond’s excellent book ‘Collapse’ published in 2005.

  1. ‘The world can accommodate human population growth indefinitely. The more people, the better, because more people mean more inventions and ultimately more wealth’. This appears to be a view that Jain supports along with people like Dr Peter Diamandis and his ‘Abundance’ views. The logic is that, somehow, we will be able to ‘create’ additional resources from something that will never be scarce and is essentially infinite. But the rationale for such a view is unclear and seems to be based largely on optimism and an assumption that humans have always been able to surmount challenges and will continue to dos so, even when living on a finite planet with finite and increasingly scarce resources.

  2. The other view is that we need to restore a balance between the world’s population and our known finite resources to avoid scarcity leading to a calamitous readjustment of the population (as happens to aphids on a rose bush). We have seen figures of 3.5 – 5 billion humans being about the level of population the world can sustain on an ‘infinite’ basis – which seems to have some logic, given that we are currently using up resources at 150% the rate they are being replaced. But, being humans, a large reduction in the world’s population is only likely to happen as the result of a major catastrophe, e.g. a nuclear war, pollution (plastics, chemicals, emissions etc.), climate change, a global famine, a serious global disease epidemic, an asteroid/meteor collision, etc., and not because people really care.

The challenge

The challenge for Boards of Directors is to determine what sustainability really means and if the businesses that they guide can either ‘create’ solutions, that mean scarcity is replaced by abundance (and what is needed to generate that abundance), or contribute towards ways that lead us back towards a global balance that is truly sustainable and can be maintained for millennia by ensuring that a scarcity of finite resources never impacts negatively on the world’s population. This latter option poses some difficult challenges, as part of the solution would be to reduce the global population. Not something that will go down well with your average human or a number of major business sectors - such as the fossil fuel, plastics, chemical and the arms industries.

About a business being bold

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For many years, I have been a small shareholder of a New Zealand-based company that has traditionally operated in the tourism sector, both locally and globally. The company is Tourism Holdings Limited. The reason I have held my shares for so long is because I have been fascinated by the way this company has looked at changing market opportunities and ways of adapting. The company is now going through a process of change that will largely reconceive a major part of their traditional business model.

What is happening?

For many years THL’s business included specific activities in a number of long-standing tourist destinations such as the Waitomo Caves, ski fields, Kelly Tarlton’s underwater world experience, as well as recreational vehicle (RV) manufacturing and rentals as well as tourist bus operations.  Over the past decade it has been selling off a number of the destination related businesses and strengthening their offer in areas related to their core RV business area. Today, it is the world’s largest motorhome rental company in the world and the strategies pursued have delivered in terms of both growth and profitability.

What’s their go-forward strategy?

It is to add a stronger digital component to their business and build on their long-term experience and strengths in the RV market. Recently, they launched a portal called Mighway which enables travellers to book privately-owned RVs – a bit like an AirBnB type offer. This move has been quite a radical change from their traditional ‘build, own, operate’ business model - which has been asset and capital intensive. Their go-forward strategy is to further develop RV-related opportunities internationally through pursuing a strong digitalisation process that generate greater value all-round.

How can they cope with such radical change?

Because many companies find it challenging to have all the skills and capabilities needed in-house to pursue such a substantial change, progressive businesses tend to enter into alliances with other parties that complement their existing skills and capabilities and enable them to enter into ‘new territory’. And that’s exactly what THL has done. It has formed a US-based joint venture called  TH2Connect LLC which embraces the digital assets of both THL and the largest US manufacturer of RVs, Thor. That JV now employs more than 60 digital business developers and has access to funding directed towards developing new business opportunities that will not only benefit THL and Thor but also a wider range of stakeholders.

Why is this story interesting?

Because many businesses tend to adopt a far more conservative approach to disruptive change that is threatening many traditional sectors. Instead of being bold, companies often continue to ‘flog a dead horse’ and, instead of being bold, they are timid and focus on cost cutting and re-structuring to try and remain competitive. Such an approach often fails – Kodak and Borders are classic examples. Trying to do the same thing ‘forever’ is often a recipe for becoming irrelevant. A quote attributed to Einstein goes, “the definition of insanity is doing the same thing over and over again, but expecting different results”. And yet many businesses pursue strategies that are ‘insane’! The THL story is fascinating because they have a Board of Directors and senior executive team making bold decisions that some view as being radical and even ‘dangerous’. In reality they are being smart and doing everything to ensure that the company does not become ‘disrupted’ and lose its competitive advantage over time by being timid. I’m glad to be a shareholder of this innovative and bold company!

Being ‘stalked’ online by businesses

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We hear a lot about trolls ‘stalking’ people online and making life unpleasant for them. But it’s not just individual trolls that people are becoming increasingly concerned about. It’s businesses that are acting in ways that are intrusive and annoying and make people feel uncomfortable and as though they being ‘stalked’.

What is ‘stalking’?

You go online and look at a product or service and may or may not decide to buy it. But somewhere in cyberspace there are bots that are surreptitiously recording your site and app visits and then targeting you with advertising links on Google, Facebook and other social networks, that are closely linked to your search. Increasing numbers of people (65% according to a survey, even way back in 2012) feel that their privacy is being invaded by these covert online ‘spy-bots’ that are following their every move. It is almost a ‘big-brother’ type feeling – not from state agencies (who are also doing this) but from businesses who are essentially ‘stalking’ us online.  

What’s an example?

I have experienced many examples of such ‘stalking’. One in particular annoyed me. I booked accommodation in a small town in New Zealand on Booking.com for a one-off trip for a particular business purpose. It was not a place that I would normally visit. For weeks after I made the booking I received both online and email messages offering me special deals in this small town – from the day after I had completed my trip. This follow up ‘stalking’ was irritating because it was irrelevant and intrusive and I had already done what I wanted to do. In the end I registered a complaint with Booking.com and, to their credit, I received an email reply from a real person who said that they would ensure that I was disconnected from their online ‘stalking’ bot – and to their credit I have not received any further of these unwanted and unsolicited advertising prompts. However they ‘stole my time’ because I had to go to the effort to contact them to stop their ‘stalking’ otherwise it would have continued ad-nauseum.

People are reacting

The advertising industry seems to be slow to learn that people are people and have a limit to how much intrusion they can tolerate. A recent article reported how people were leaving ‘influencer’ pages on Instagram in droves because the people they were following online – whether celebrities, sports stars, famous people or self-made influencers – were becoming more like fronts for business advertising than interesting people who people enjoyed following. Increasingly people feel they are being conned by smart advertising agencies. ‘Audiences are essentially being played for fools through fake displays of everyday life’ said one industry commentator.    

The message for business

There are not many people who appreciate being ‘played for fools’ – and that’s the lesson that the advertising sector really seems to struggle to learn. They are pushing brands, products and services at people without considering that the ‘stalking’ approach they are pursuing is intrusive and, in an increasing number of instances, actually putting people off specific products and services. Until there is a move away from ‘stalking’ to truly ‘permissive advertising’ (‘opt-in’ rather than ‘opt-out’), businesses run the risk of being ‘ex-communicated’ rather than embraced by potential and actual customers. It certainly makes me become an influencer – in that I now choose not to deal with businesses which are ‘stalking’ me!

Inspirational people outside the spotlight

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We see and read so much about Mark Zuckerberg, Bill Gates, Richard Branson, Jeff Bezos, the Kardashians, and other hugely successful business people and about how they became ‘rich and famous’. There is no question that they deserve credit for what they have achieved. But there are many other people around us who contribute to both the world and our own personal success that make a real difference in a smaller but important way. Here are a few examples of people who inspired me.

Liaquat Shah

The CEO of the Caribbean Industrial Research Institute in Trinidad and Tobago. I include him because he has worked in both the commercial and public sectors and built a bridge that has helped many existing and upcoming entrepreneurs realise their aspirations, particularly young people. He empowers them to explore new ideas and directions and, when they make mistakes, helps them get back on track. One of the most inspirational people I have met and worked with.

Rachel Renie and David Thomas

The founders of Market Movers in Trinidad and Tobago. They have done what everyone said was impossible – established a successful online and experiential business focusing on fresh healthy produce. They have overcome many challenges on their entrepreneurial journey and moved from strength to strength over the past ten years. And they have inspired others to follow their dreams.

Lorna Green

A serial entrepreneur based in Jamaica. She founded and successfully developed a number of innovative companies, including Digital Transtec and Reel Rock GSW Animation. Her passion for people and personal development has extended way beyond her business activities and she has been a champion of women’s business development for many years. A very inspirational person.

Shaun Gregory

An entrepreneur who moved from being an employee into building a business based upon a unique marine sector technology he developed that no-one in the world has ever thought of. It is not just the large potential value adding this technology offers that makes Shaun special but also because he understands what his personal strengths and weakness are. He has built a loyal core of key people around him to cover off those weaknesses and is now in a position of real strength as he moves towards commercialisation. His dedication and determination to succeed are inspirational.

Peter Meyer

I have known Peter for many years. We have never done a project together but have always talked extensively about projects each of us are involved in. The reason I find him inspirational is his approach to business development. Some may find it ‘finickity’ but when he pushes the ‘go’ button on any venture he pursues, it is likely to be a real success – as his business history shows. A person who is wise and has a lot of knowledge about ‘how to do things’ - very inspiring.

Why mention these people?

We live in an age where celebrity culture dominates. We see the same names in the same spotlights appearing ‘ad nauseum’. In real life there are many inspirational people who contribute to both our personal and business success, and not all of them are ‘gurus’. They are good ‘solid’ people who have learned a great deal from practical experience, and this is something that some Boards of Directors have found has been lacking in recent times – e.g. Fletchers in New Zealand. They are not only inspirational but also refreshing!

Customers and Clients are always #1

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This is something that is often forgotten by businesses as they strive to deliver the highest possible returns for their shareholders. Forgetting how important customers and clients are can impact negatively on the outcomes for shareholders. And it is somewhat surprising that some boards of directors and senior executives continue to fail to understand that.

For example…

A recent report from Australian Commission set up to examine the practices of that country’s financial institutions illustrates how many of those in charge forgot who they are really dependent upon for their success. Exploiting customers and clients purely to maximise short term financial gains has been exposed and a number of these large institutions are now scrambling to regain some degree of credibility with these vital stakeholders by divesting business areas that created a number of conflicts of interest and resulted in the negative outcomes reported.

Learning from small businesses

Small businesses, in general, are more innovative and more attentive to their customer/client needs. Whilst there are a few rogues and unscrupulous operators, they are soon exposed. There is a lot that large businesses can learn from small businesses because, without customers/clients, they would soon go out of business. So-called ‘too big to fail’ businesses, especially in the traditional financial, telecommunications and utilities sectors, often seem to think that their customers will always stick with them, even if they are not accorded the level of consideration and respect that they should be.

Lesson 1

A couple we know set up a small business at a village on the coast in the north of New Zealand. They converted a shipping container into a ‘Beach Box’ café and primarily focused on offering great coffee and high-quality gelatos and sorbets. It is in an area where there are quite a few alternatives and so they have had to work quite hard to differentiate themselves. The one thing many of their customers commented on was a need for them to be environmentally conscious. So, after just a year of operation, they have moved from offering so-called ‘biodegradable’ plastic spoons to go with their wax cardboard gelato takeout tubs to now offer beautifully made wooden scoops. Shortly, all their bottled water will only be in glass bottles. They have listened to their customers and acted – and are attracting a growing and loyal customer base

Lesson 2

This is an example of people feeling they have been deceived. Many people were angered when ‘The Book Depository’ was bought by Amazon in 2011. Even today, many have been unaware of Amazon’s ownership. An increasing number of Book Depository customers don’t like Amazon’s dominance of the online book retailing space, the way they have treated their staff, and other aspects of Amazon’s business practices. It is encouraging them to search for alternative independent suppliers who better meet their personal values and standards – often the ‘disruptors’.

The crux of the matter

If customers and clients feel they are being treated poorly, especially by large dominant businesses and institutions, this results in a reduced level of trust. And a reduced level of trust drives at least some of those customers/clients to look elsewhere for alternative avenues to do business. Boards of directors and senior executives that condone practices leading to a loss of trust are doing their shareholders a great disservice – by opening up opportunity areas in the market for the ‘disruptors’. Not good governance because the stakeholder view has been far too narrow.

Thinking about the big picture

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A number of recent reports illustrate how businesses ignoring the big picture can lead to undesirable outcomes. Here are a few examples.

Micro-plastics

The idea of using plastic microbeads in cosmetic and personal care products was conceived some years ago. It appears that those involved with developing and using microbeads to formulate and market such products some years back only focused on part of the product cycle. Clearly, no one seriously considered what would happen to the microbeads once they entered waste water streams and the environment. Now, such products are banned in many parts of the world because of the negative impact they have had – even entering into parts of the food chain that humans depend upon. Concerns have also been expressed about their presence on sandy beaches where turtles lay their eggs – and a distortion the male/female ratio long-term.

PCBs

This group of chemicals was developed many years ago and was used in a wide range of products because of its persistence. But that has now become a real issue. That persistence is now a threat to marine animals, such as orcas. PCBs have been accumulating in the food chain that orcas depend on. There are concerns that half the world’s orca populations are now under threat of extinction because of PCB build up. And orcas are just one species under threat. An estimated 14 million tonnes of equipment and material containing PCBs still has to be eliminated – 83% of all PCB containing products ever made.

Packaging

Leading edge businesses are doing their best to eliminate waste and become more sustainable. Auckland-based operators of a number of specialist cafes made a move to use only eco-friendly products with proven recyclability. However, they were nonplussed when the manufacturer delivered their compostable cups in a non-biodegradable plastic outer. The same goes for Earthwise plant-based laundry powder – in a cardboard outer but with two plastic bags inside. Toilet paper is another example – a paper product but packaged in plastic outers.

Grass grub beetles

In New Zealand, it is estimated that grass grubs are responsible for about a third of an estimated $2 billion annual cost to the farming sector - in terms of reduced pasture growth and associated production. Scientists are focusing on ways to reduce the damage. But, in a big picture perspective, something is being missed. The grass grub is indigenous to New Zealand and was here long before the farming industry evolved. It was part of a natural balance that existed for thousands of years. It was only when settlers cleared vast swathes of forest and planted large areas in grass and clover that the problem emerged. The real issue here is whether it is the grass grub that is at fault or the farming industry for developing a highly vulnerable almost monoculture approach?

The challenge for business

The greatest challenge to business is to think in big picture terms. But, as one network associate commented, it is really challenging to encourage such thinking ‘after the (initial) lust period of (exploring) exciting and new territory’ - something that often arises at strategic planning and foresighting sessions. People tend to slip back into their comfort zones post such sessions – including boards and directors – and end up doing things that are neither logical nor, as in the examples above, good for business, customers, and the world we live in long-term. Not enough companies do the big picture well.  

The challenge of going global

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During a recent trip to Germany I caught up with a good friend of mine who is a serial entrepreneur. Some things he has been involved with have been a great success. Others not so much. That’s the way the entrepreneurial journey goes. Now he is on a new adventure that appears to be very exciting, but he faces a dilemma.

What’s the adventure?

It’s a disruptive online business model that provides a matching service between capacity suppliers and users in the national and international logistics sector. It focuses on a specific area that has long been dominated by leasing companies, large transport firms and global shipping companies. Like many traditional business models, there have been areas of inefficiency which my entrepreneurial friend recognised and he has developed a unique solution to solve.

How has it been accepted on the market?

The initial response in the German market has been positive and encouraged our entrepreneur to build upon the initial success achieved. A number of key players have signed up and are using the online matching service and achieving significant benefits in terms of both efficiency and cost. But the challenge of how to leverage this further into the international market, where it really has the potential to make a substantial impact, has arisen.

Why is that?

It does require either local or global partners to expand its impact beyond Germany and Europe. The role of those partners is relatively small – primarily to direct logistics operators to the portal and its matching service so that they can share in the benefits. The challenge is deciding which partner relationships are going to deliver the best outcomes for the entrepreneur and his backers – as well as those clients and customers that use the service. Ultimately it needs to be win-win.

Choosing the right pathway

Our entrepreneur has several options, namely:

  • To try and fund global expansion through venture funding so that he and his backers gain the maximum long-term benefits – but funding alone doesn’t resolve a need for local representation so easily.

  • To develop a formal business relationship with selected business partners in different key countries/regions. It requires considerable effort to identify such partners, particularly those who are likely to deliver win-win outcomes, and do due diligence.

  • To develop a formal business relationship/ arrangement with major global logistics operations, such as shipping companies, that already have a strong global presence and local representation.

The dilemma

  • The first option is not so easy as it is unlikely to quickly cement the local presences required for success.

  • The second option requires a considerable amount of effort to identify, do due diligence, secure agreements and then manage a number of different relationships over time.

  • The third option offers a potentially rapid entry point for global business development. However, the large corporations operating in the space our entrepreneur is disrupting have a vested interest in protecting the less efficient status quo because it generates millions of dollars of revenue, much of which could be lost if our entrepreneur’s portal were to gain global traction. If he enters into a deal with one or more of them, there is a risk they will ‘buy it out and shut it down’ – something he is keen to avoid.

Sometimes it’s tough trying to make the right call, especially when hoping to go global. It’s not only a challenge for our entrepreneur but also many Boards of Directors of companies of all sizes.

A battle of opposing forces

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As we have noted many times, humans are using up resources at a far greater rate than they are being replaced. This includes forests, fossil fuels, minerals, fish stocks, and fresh water. If we don’t move towards more sustainable and balanced use of our resources, commercially and personally, then the legacy for future generations looks rather bleak.

Hambach Forest

This forest in West Germany is one of the few remaining areas of original indigenous forest. It has been growing relatively undisturbed for hundreds (some say thousands) of years. It is located on the periphery of a large open cast lignite mining operation run by the giant energy corporation, RWE. The lignite reserves extend under this ancient forest and RWE want to cut it down so they can extend their open cast mining operation to extract more of this low-quality coal reserve. The proposed destruction of the forest has angered many people as Germany is supposed to be moving towards a clean energy future that reduces and eventually eliminates the use of fossil fuels and nuclear power. A battle is underway between corporate power and concerned citizens.

Karangahake Gorge

This is a conservation area in the North Island in New Zealand. Much of New Zealand’s landscape has been stripped of natural forest cover for farming, forestry, urban development and industrial operations. Land that is supposedly protected against such exploitation is being explored for potential gold reserves, with government approval. This has angered many local people who see conservation land as being a vital legacy issue for future generations. Another battle is underway between corporate power and concerned citizens.

Am Brocken

This significant mountain in the Harz region of Germany is in what is today a large managed nature reserve. What is stunning, when one travels up the mountain on a unique narrow-gauge steam train journey, are the huge areas of dead trees. According to local sources, the reason they died was because of the high levels of atmospheric pollution that prevailed several decades ago. The pollution weakened the trees and caused them to become highly susceptible to an insect pest known as the Borkenkäfer (known as the bark beetle in English). In simple terms, when numbers are high they ringbark the trees by damaging the vital phloem cell layer between the outer bark and inner wood core of the trunks. This is another example of a disaster caused by industrial concerns not accounting for all the consequences of their activities and releasing damaging pollutants into the atmosphere that resulted in acid rain and fog that caused serious damage to the trees.

What does this mean for Boards and Directors?

In each case, those responsible for running industries that have a significant negative environmental impact are not considering the full range of stakeholders to whom they are ultimately accountable. Increasingly, the future of businesses is not only in the hands of shareholders who are demanding high rates of return at any almost any cost. That future is also being shaped by increasingly powerful groups of stakeholders who also want their aspirations and concerns to be taken into account. It will be interesting to see how such stakeholder battles progress in the coming years. One senses that the balance between corporate shareholder and other stakeholder demands is beginning to shift.

True corporate social responsibility

We often hear global corporations claiming they are doing great things to improve the environment and lives of consumers. However, many such corporations have pursued strategies and commercial activities that have created environmental issues in the first place. We also have some large global corporations which are determined to continue doing what they have always done, regardless of the environmental cost and growing consumer concerns. Here are a few topical examples.

Abdicating responsibility

In New Zealand, ‘Sunday’ recently featured the growing national plastic waste crisis. According to the Minister for the Environment, Eugenie Sage, it is not only due to manufacturers of plastic packaging, or the companies using it, but also because many consumers simply don’t care. For example, we often have coffee at a local beachside café. Some of the people we sit with, or around us, always ask for their coffee to be served in throwaway take-out coffee cups – even though the café has plenty of traditional china cups. 300 million throwaway coffee cups are used annually in New Zealand. Those who make them have generally not been concerned with their disposal or environmental impact. Not very socially responsible.

Someone else’s problem

The Minister was concerned about companies that package their products in throwaway containers e.g. the cosmetics and beauty sector, and who take no responsibility for what happens to the waste streams created by their products. The onus for disposal is passed on to consumers and communities who end up having to deal with a company created problem.

Token gestures

Starbucks recently announced they will stop using plastic straws by 2020. Really, 2020!  And just straws!!! If they were really serious they could change to alternatives ‘tomorrow’ and be rid of them before the end of 2018. Wax paper straws have been around ‘forever’. It seems to be a case of ‘greenwashing’ and a half-hearted move. Big fast food chains are struggling to adapt to changing regulatory environments that aim to reduce the use of throwaway plastic items e.g. in the EU. The pressure has been on to do something for years. It’s nothing new. Way back in 1992 when I lived in Thun, Switzerland, the local authorities told McDonalds that they could only open an outlet in the city if they did not use throwaway packaging. They resisted the requirement then - and still continue to resist change today.

Energy transition

‘Big oil’ continue telling us we have no future without fossil fuels. A recent report from Guyana proudly stated that the country had ‘more barrels of oil per capita than any other country in the world’. The question is whether that will prove to be an asset or liability going forward. Not too far away, Costa Rica produces close to 100% of its electricity needs from renewable sources on a consistent basis. In the first half of 2018, Spain generated nearly 46% of its energy from renewable sources. Numerous other countries are making real progress in the transition to ‘new energy’.  

True corporate social responsibility

Is not about pretence. Its about providing leadership at the Board and senior executive level to proactively address growing consumer concerns and enhance rather than damage societies. It’s about listening rather than talking and not about paying major PR groups to promulgate ‘fake news’. True corporate social responsibility is about win-win outcomes for everyone, not win-lose outcomes. But the latter all too often still result because of a lack of true corporate social responsibility, as these few examples illustrate.

Who is serving who? Opening the door to ‘disruptors’!

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It seems that poor business culture continues on unabated, in spite of all the bad publicity that is generated. The GFC was caused by major banking and finance institutions being so inwardly focused that seemed to care only for what they achieved at the expense of so many others. And yet, here we are 10 years after that crisis and it seems little has changed.

For example

The practices of major Australian banks and financial institutions have come under close scrutiny in Australia where a recent damning report unearthed numerous examples of unethical practices. Customers were being charged fees for services they weren’t receiving and senior executives were aware of this happening but did little to change such practices. In April this year, the CEO of AMP was forced to resign because of that institution’s illegal (and unethical) practices. But few other resignations have resulted after release of the report, even though similar unethical behaviour was found in almost all the major Australian banking groups.

Insurance sector practices also unethical

In New Zealand, the practices used by a number of large insurance companies have been the focus of scrutiny by the Financial Markets Authority and government. Big names, including AMP (again), Fidelity Life, AIA, and Sovereign, have been promoting practices that were in their interests rather than the customers they were supposed to be serving. Not only were they offering financial advisors large incentives to put business their way but were also adding unfair clauses to their policies that made it less likely they would have to pay out on client claims. In two years (to March 1917), the nine big insurance companies in New Zealand paid $34 million to advisers in soft commissions (trips overseas, lavish events) on top of cash commissions - sometimes as high as 200% of the first year’s premium. As a result, customers were not being advised about the best and most appropriate deals – merely the deals that best rewarded the financial advisor.

And then there was Youi

Several years ago, this insurance group was fined $320,000 in New Zealand for failing to ensure its sales team was acting ethically. They were charging people who simply inquired after asking for their credit card details before any contract was agreed or signed off and then deducting premium payments which were not authorised.

It’s not only a financial sector problem

Telcos are also often guilty of looking after themselves ahead of their customers. New Zealand Telecom was always notorious for its poor customer service. A few years back it was divided into Chorus (network provision) and Spark (services). Little appears to have changed. We had a fault on our line recently and it took Chorus 10 days to repair it (still charging us for every day through our provider whilst not providing service). Now Spark is being taken to court for using misleading promotional practices as well as overcharging customers for services provided. Some will never be reimbursed as they taken their business to other providers and can’t be traced.

To what end?

It seems to be very short-sighted of the Boards of Directors and senior executives of such entities to continue allowing such poor anti-customer practices to continue. You would think that lessons would have been learnt from the GFC. It seems not. What they are doing is enhancing the prospects of non-traditional ‘disruptors’ to erode their customer base as significant numbers will move to those businesses that really care more about their wants, needs and expectations.

Businesses built on short-term thinking

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One of the biggest reason corporates fail is a lack of high level vision and understanding on what an associate, Dr Nick Marsh, called ‘Tsunamis of Change’. These ‘Tsunamis’ start off small but can grow to a size that cause huge changes. Here are a few tsunamis on our radar screen.

Unsustainable forestry

The current practices of the New Zealand forestry sector are being questioned. A significant part of the country’s plantation forest (mostly Pinus radiata) grows on land that is steep and often unstable. Once mature (after 25 – 30 years), the forests are clear felled and only the trunks extracted and used for processing and export. The rest (‘slash) is simply left where it falls. This has caused a major problem for landowners because heavy rain has washed huge volumes of slash downstream and blocked waterways causing flooding and damage to farms, properties and infrastructure. The associated costs have been enormous. Serious questions are now being raised about who is responsible and who should pay to repair the damage caused.

Unsustainable fossil fuels

Chris Martenson questions claims that the US ‘will never be dependent on imported oil again’. It is an example of short-term thinking not backed by reality. He says the US imports 3 million barrels a day currently and, to be totally independent, local production would have to rise by that amount. Proponents believe the 3 million can come from shale oil and gas, now that global oil prices are above US$ 70 a barrel. But people forget that global oil and gas reserves are seriously finite - a legacy of the age of dinosaurs. Martenson notes that shale reserves are a short-term solution as they deplete rapidly. They will likely ‘peak out’ within seven years in the US.

Finite building resources

Whilst living in Trinidad and Tobago recently, sand and rock extraction for construction and infrastructure projects became a big issue. Illegal extraction, coupled with limited reserves, quality issues and environmental damage were high on the national agenda. In New Zealand, sand extraction offshore from popular beaches, such as Pakiri, has led to conflicts between those extracting the sand, local bodies, traditional Maori interests, as well as environmentalists and recreational users. Concerns about the removal of large volumes of sand on the future of this popular beach have been front page news. Martenson points out supplies of sand and aggregate for building and construction is now becoming a major global issue – because sources are finite and the impacts on a broader range of stakeholders are leading to conflicts.

The challenge for Boards

I lived in Switzerland for several years. Forest cover is a critical part of environmental management. Forest owners only harvested 5 mature trees per hectare each year. The trees took about 100 years to fully mature and, with 500 trees/hectare and a constant replanting programme, this ensured constant sustainable forest cover and eliminated the ‘slash’ problem. I also visited Burkhardt’s sawmill in the south west of Germany, a family business in operation for over 150 years. It has remained in business because of long-term sustainable practices. It’s this type of long-term thinking boards need to focus on if the businesses they oversee are to thrive in future – not practices or approaches that are likely to damage their raison d’être, some of which are becoming serious short-term issues! ‘Tsunamis of Change’ destroy some things forever, leave a few things standing, and lead to the evolution of completely new business landscapes.

‘Youth-centricity’ - important for the future

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Back in the early 1980s I was computer illiterate. I remember my 13-year-old son asking for a Commodore 64 computer with its ‘huge’ 200 MB memory, which I bought for him, and watched in awe as he constructed a map of the world on our TV. He had never had any computer training. He was part of an emerging ‘wired’ generation. It encouraged me to begin my adventures with computers in 1986 – one that has completely changed my life and the way I do everything.

The issue of engagement

Since becoming computer literate, I have been involved in many things – business consulting and ownership, organisational change, and youth-oriented projects. As the years have progressed I now better understand the frustrations of many young people. Many initiatives designed to assist them achieve their aspirations are designed by everyone - except young people! There seems to be a mental block and, when it comes to design processes, they are almost always forgotten about. So, such programmes often fail to empower young people to achieve their aspirations.

For example

We have been involved in a project designed to help young people to enhance their self-esteem, personal resilience and career prospects. It was largely designed by people mostly in their forties and fifties. The team involved in the design and delivery framework and process assumed they were doing the right thing. But an analysis of the first run of the programme found that the young participants were dissatisfied with many aspects as it was not ‘youth-centric’. They complained that they had no involvement in the design process or its delivery and no feedback loop was in place.

Another example

This involves a project at a school which aims to enhance the future prospects for students by strengthening the ecosystem around them at school and in the community so that they become more resilient and have a better chance of achieving success in life. The stakeholder engagement process to date has been interesting in that, once again, no young people have been included. When I looked around a room of nearly 30 stakeholder representatives in a recent session, only one was under 30 years of age. The majority were in their 40s and 50s. Once again, the initiatives being considered did not include the students – and yet they were the primary reason for their design and pursuit.

How is this relevant to Boards?

As we have noted previously, the average age of company directors in many countries is close to 60 years of age. And yet many of the companies that they guide have to attract the interest of young people. Whilst some consider people get wiser as they get older, in reality they become distant to what is happening at the leading edge. That’s where young people ‘live’ and understand. Nothing has demonstrated that more vividly than the evolution of social networks and upstart disruptive businesses – such as Facebook. Brian Gaynor, a well-known business writer in New Zealand, recently reinforced a view we have expressed a number of times – Boards need to have more young people as part of their make-up. As one very wise CEO, Liaquat Ali Shah, said to me, ‘It is not only our role to mentor young people but also to ensure that young people reverse mentor us. That way we benefit from the combined wisdom of all generations’. And that is essential if we wish to build long-term business resilience. Youth are shaping the future, not aging Board members.

About sharpening pencils

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In 1896 the Dow Jones Industrial Average provided a measure of the top twelve industrial stocks in the USA. In 2018 only one of those twelve industrial stocks still remained in the DJIA, General Electric. However, it was removed from the DJIA in mid-June and is being replaced by Walgreens.

What does this reflect?

That America’s traditional industrial power houses have become much less important and relevant over the years. US business is now based far more on technology companies, low or non-asset owning companies (such as Uber, AirBnB, and Facebook), and consumer retail and service companies. The business models pursued by GE, even though the conglomerate has tried to reinvent itself a number of times, have become less and less relevant in a changing world and so the value of the company’s stock has fallen almost 60% in the past two years.

Why is this interesting?

Well, it’s interesting because the US President is trying to re-invigorate the industrial base of the American economy – even though it seems it will need considerable levels of protectionism to achieve, such as 25% tariffs on selected products from international sources. However, investors have much higher expectations of non-industrial and even retailing businesses if one looks at earnings per share and market capitalisation. For example, in 2017 Costco had a market value of $91 billion and earnings per share of $6.08. Amazon had a market value of $844 billion and earnings per share of $6.15. Clearly investors value Amazon nearly ten times higher than Costco. Interestingly, Amazon’s market value is 25 times greater than newcomer to the DJIA, Walgreens.

Why the difference?

In a way it can be perhaps explained simply by ‘boring’ and ‘exciting’. Old mature incumbent corporations tend to ‘add chrome wheels to a Model T Ford’ (boring) whereas newer emerging companies and corporations tend to deliver a radically new alternative – such as the Tesla e-cars (exciting). High risk, no guarantees – but wow, what a journey into a space that may well help improve our environment and planet, as well as yield future dividends.

And, resilience?

Currently I am working with a client who owns a business that’s in a very competitive space. He’s been in business for a bit over 20 years and is very successful. That’s because he is super-efficient, a great operator, has very good client relationships, and has a sharp pencil. But he knows that the market space he is in now is under constant pressure and that he has sharpened his pencil many times and now it’s just a fraction of its original length. So, instead of ‘adding chrome wheels to a Model T Ford’, his is negotiating a position with a Tesla-like innovative product that is likely to significantly strengthen his future position in the market place. What he is pursuing is unique and there are no direct competitors. There are risks for sure but, if all goes to plan, he will substantially enhance the resilience of his business and have a brand-new pencil!

The lesson for Boards?

Many large corporate groups they have had to sharpen their pencils too many times. Instead of Boards overseeing the addition of ‘chrome wheels to a Model T Ford’, they need to focus on ways they can reconceive their businesses and ensure they have their version of a Tesla-like equivalent as part of their go-forward strategy. It’s all a matter of improving business resilience and not becoming a ‘yesterday’s business’, such as has happened to GE.

Asking the big questions

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In 2013 I asked a group of talented MBA students to think about some big questions that may cause changes to the spaces in which their businesses and organisations operate in future. In 2015, we posted a blog titled ‘What Happens If….?’ Using the same questions. Three years later, it’s time to do an update!

The US is no longer boss                                                                                            

The US President and politicians have alienated many of their traditional allies and trading partners by vigorously pursuing ‘America First’. That seems to be driving a global shift in power. China, Russia and the EU are now trying to move into the global vacuum that ‘America First’ seems to be creating. China’s Silk Road initiative is one example of such a shift of economic and political power. The US priority focus on North Korea, rather than traditional alliances and partners, is puzzling many as the President seems to be moving the US into a more ‘introverted space’ internationally – similar to the space North Korea has been occupying for decades! This evolving power shift could change many things!

The world is short of food

Whilst critical food supply situations in parts of Africa and the Middle East continue to feature in the news, the impacts of land degradation, intensive farming and associated pollution issues, over-exploitation of finite resources (e.g. fish stocks and fresh water sources), climate change, pollution and urban encroachment reflect a growing threat to global food security. Plastic contamination in the global food chain is now headline news. The severe drought currently affecting parts of northern Europe and Scandinavia is uncommon and impacting in areas where food security is not normally a big issue. A growing global population combined with increasingly stressed food production/distribution fundamentals means we are living on a knife edge.

The petroleum era ends

It won’t happen overnight but it is happening. The amount of investment into renewable energy continues to rise. It makes sense. For example, an acquaintance has just installed a solar panel + battery storage system that takes his small business off the grid. The investment cost was $30,000. The annual savings are $3,600. As he said, an annual net return of 12% (no tax payable) on this investment is far better than most other investment options on offer these days.

Climate change really impacts

Recent research indicates the polar ice caps are melting much faster than previously predicted. Local bodies and insurance companies are considering moves that could threaten the value of coastal properties because (a) building permits won’t be issued for building in high risk areas and (b) insurance companies may stop insuring properties potentially threatened by rising sea levels.

The global financial system changes

There are a number of trends in train that are going to impact to some degree or another e.g. cryptocurrencies, non-bank transaction platforms, the cashless society, how governments manage tax regimes nationally in an international online world. For example, Amazon has blocked Australian customers from buying on their global portal since the government regulated that Australian GST must to be added to every purchase and paid to the state.

What does this mean for Boards?

Every Board should have a list of big questions like these that they research and review regularly. It’s a way of increasing awareness of local and international trends and developments that could well impact upon the way they do business or run their organisation in future. It’s a simple tool – but provides a great stimulus for thinking beyond day-to-day operational, compliance and governance constraints.

Ignoring the obvious?

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Almost three years ago we posted a blog titled ‘Plastic – not so fantastic’ online. At that time there were many signs that issues associated with plastic waste were already featuring regularly in the headlines. In both the Atlantic and Pacific oceans, large areas of sea were found to be highly contaminated with particulate plastic (over 750,000 pieces per square kilometre). Pictures of sea life, such as ‘Peanut’ the turtle, illustrated the impact plastic waste was having on marine animals. It was also around the time when major plastic producers, such as major oil companies, had invested in expanding global plastic production by 40% over the next ten years.

How have things evolved since that post?

Well, a lot has happened that is really a progression of what was already happening in 2015. For example:

  • Single use plastic bag bans have expanded to many more countries and in many more use areas.
  • Plastic fragments have been found in 90% of water sold in plastic bottles.
  • Many small particles of plastic have been found in Arctic ice – up to 12,000 pieces per litre!
  • China has banned the import of plastic waste from other countries because it has so much of its own plastic waste to deal with that it no longer wants to be the ‘dumping ground’ for other countries.
  • Because of the Chinese ban, the value of plastic waste streams has plummeted and finding buyers has become a real challenge. As a result, huge stockpiles of waste plastic are building up in a number of countries, e.g. New Zealand and the UK giving rise to major concerns about how the problem can be resolved.
  • Tiny fragments of plastic have been found in many sea creatures, from tiny cephalopods to large mammals. As these small plastic contaminated creatures are eaten by larger ones the plastic fragments build up to levels that enter the human food chain when seafood is consumed.

Now a big issue

It has now become a big issue in many parts of the world as calls to ‘do something’ are encouraging politicians to (re)act. In New Zealand the Minister for the Environment has said that maybe it is time to put the responsibility for addressing the problem back on to those who are causing it in the first place i.e. the plastic packaging manufacturers and the companies that are using such packaging to deliver the products they make to consumers.

Ignoring the obvious

Apart from big oil and its huge investment into increasing the production of plastics globally, it even comes down to some of what should be the smallest and smartest businesses. For example, in New Zealand there is a small company producing and marketing a premium milk product which retails for around 100% more than commodity milk produced by that country’s diary giant, Fonterra. The premium milk product includes an organic line. But what is quite bizarre is that this high value premium product is marketed in a plastic bottle. In today’s environment, with growing consumer concerns about plastic, this premium milk producer has not tuned in with changing consumer expectations in their market niche. Too many directors and executives of both small and large businesses have been ‘ignoring the obvious’ when it comes to plastic. The problem has been on the radar for many years. Now it’s close to reaching a dramatic tipping point! Some say that the plastic waste problem is a greater threat to the world than nuclear war. Now, that’s really putting things into perspective. Time for ‘deplasticing’!!

Back to basics for Boards of Directors?

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We have been hearing a lot about the suitability of traditional Boards of Directors to fulfil a meaningful and useful role in a rapidly changing world. Poor corporate performance, poor governance, questionable ethics, and even business collapses have been front page news in various parts of the world over recent months.

What is a key issue?

Increasing numbers of boards have become so focused on regulatory compliance that they have become dominated by lawyers and accountants and include few, if any, directors who have in-depth skills and sector experience. As one commentator wrote, ‘is the Director best equipped to deal with prescriptive regulatory compliance to also have an amazing entrepreneurial skillset?’ Clearly, as real-life examples such as Fletcher Building in New Zealand illustrate, that is not the case. Too many boards have become too focused on compliance and less so on governance.

Another issue

Another commentator says that ‘directors are too busy building empires…. Directors want to enhance their reputation, rather than protecting shareholders’ interests.’ The same director’s names often pop up on a number of different boards and a comment was made that many directors have too many directorships and also have a part-time attitude when it comes to their board duties and responsibilities.

A further issue

Directors only meet a certain number of times a year - either to attend Board or Board sub-committee meetings. Typically, this can range from as few as 6 or as many as 16 meetings a year. At such meetings they are heavily reliant on whatever information is shared with them by the CEO and, through him or her, the senior executive team. In quite a few recent cases, clearly that sharing of information has not been in the form that it should be – insightful, analytical instructive as well as informative rather than just a data heavy presentation.

Changing approach

The approach Netflix takes towards Board/CEO and senior executive relationships is quite unique internationally and is designed to overcome the issues referred to above. As a result, everyone is kept in the loop on a continuous basis - both face-to-face and online. It has worked well for this large corporate group and is reflected in the company’s performance. But it is just one model.

What else is important?

As we have noted in previous posts, relevance and purpose are both critical for ongoing corporate success and underpins a ‘need for younger directors with fewer board seats and more industry experience’. It is a frequent theme that is all too often ignored. We work with a number of smaller companies that are entrepreneurial, take risks, and focus strongly on effectively exploiting specific market opportunities. In our experience, the directors associated with such companies are people with industry experience, an entrepreneurial flair and an innate ability to understand risks and make informed decisions. It is rare to see a lawyer or accountant on such boards. They are usually only outsourced providers of legal and accounting services to the company.  That’s the big difference compared to corporate boards. As corporates grow larger and more complex, their boards tend to lack entrepreneurial drive and sector knowledge. And that may be a very good reason why so many Fortune 500 companies have gone out of existence in recent years!