The Irregular Newsletter of Z/Yen Group Limited
From small acorns grow…
Z/Yen have been working with the Institute of Directors (IoD)and Cass Business School to launch a new Corporate Governance initiative which we hope will grow and flourish over time. The objective was to develop and test different ways of measuring and reporting on corporate governance in UK listed companies. From this we aim to encourage good governance amongst UK companies and also stimulate a public debate on the importance of corporate governance in rebuilding the reputation of the UK business community.
Our first challenge was to define corporate governance. As the project chairman, Ken Olisa OBE, said about governance “It is hard to define because governance is all about behaviours; and behaviours, whether individual or collective – are hard to reduce to a coherent framework”. We looked at a number of definitions, before choosing to use the UK Corporate Governance code as our definition.
We sought to measure corporate governance using different approaches. We surveyed UK business professionals, including members of the IoD, ACCA and CISI, asking them to rate the governance of companies they were familiar with.. We also selected more than 50 instrumental factors, third party independent data points which the team assessed as having a relationship with corporate governance (the nature and direction of that relationship causing much debate). Both these results are published in the report.
Finally we built a predictive model using support vector machine regression to predict how survey respondents would have rated companies they were not familiar with. This allowed us to build a third set of results, combining the views of the survey respondents with the instrumental factors.
Each approach gave different, yet reasonable results. The predictive model approach shows that some companies suffer from a reputational disadvantage, i.e., their public reputation lowers their score from what the instrumental factors alone might suggest. It is hard to measure the impact and appropriate scale of some instrumental factors – is it better to have two audit committee meetings or 22? We need more understanding of how different factors, and different behaviours can be assessed.
It seems clear that although all agree that developing a measure of governance would be valuable, there is no one simple approach we can use. The report contains three different sets of results, grouping companies into tiers according to their results in the different approaches. We are aware that more work needs to be done to build a shared understanding of how to measure governance. Z/Yen and the IoD are looking forward to creating a meaningful and useful measurement approach.
Xueyi Jiang, our data lead on this project, chose a tree to illustrate the count of key words from the survey responses on the front page of the report. It seems appropriate as an image for this complex project and the complex and growing organism that is corporate governance. We are looking forward to continuing the debate and inviting your thoughts over the next few weeks and months.
Tricks of the Trading – ExtZy for Kids - April 2015
Security Forward Workshop and Dinner – 23 April 2015
After our usual round-robin to identify ‘in tray’ issues and concerns, our second speaker was our own ‘Speaker in Residence’, Lt Colonel Crispin Black, MBE, MPHIL. Crispin is an independent expert on terrorism, intelligence and security, as well as a novelist. Crispin’s presentation was entitled ‘Business Ethics-vital underpinning of capitalism or naïve contradiction in terms’. Crispin suggested that fewer people are willing to defend capitalism than would have been the case a generation ago. He described capitalism as representing ‘an absence of rules and lightly regulated’ and the ‘freedom to make money’. He pointed out that the City Of London has been responsible for an explosion of wealth, requiring imagination and intellectual skill as well as an entrepreneurial spirit. He said that there is now a disdain for money making institutions which seems to be shared by many in this country and a move against respect for money making. He suggested that left wing philosophy and anti-capitalist opinions are no longer challenged as they would have been and that there are fewer people willing to defend the City and the financial institutions. He drew upon the likes of ‘Philip Marlow’ to illustrate what we once aspired to emulate, a hero with an old fashioned Christian morality who always had a moral compass to influence all his actions. Crispin said that the corporate culture of an institution is set by those at the top and we have seen how one bad apple at the top can change the morality of an institution, resulting in a disdain for capitalism as a whole. The City of London is a great wealth creator and the over reliance of rules should not replace personal values and standards. There was a lively discussion about the over reliance on rules and regulations and the unintended responses to them. This presentation was very well received and thought provoking as always.
Following the meeting, we dined in at The Aldermen’s dining Room at the Guildhall, which provided a fascinating venue for us, courtesy of Alderman Michael Mainelli. Our ‘dinner speaker’ was Brigadier Allan Mallinson, the distinguished military historian and novelist, who was encouraged to continue on from his presentation as the participants wanted to hear more from this very knowledgeable expert. After the dinner, copies of his latest book ‘Words of Command’ were presented to those who were there.
Our next meeting is planned for Thursday the 2nd July.
Security Forward Workshop and Dinner - 21 January 2015
Security Forward, Risk and Intelligence Forum’s October meeting was held at Z/Yen's offices in the City of London. To a full room, Martin Huddleston led with a talk on DSTL and APMG's Cyber Defence Capability Assessment Tool (CDCAT). Martin Huddleston is a specialist technical leader at DSTL, headquartered in Salisbury, England. His presentation led to a lively debate on the merits of various methodologies to cyber-risks.
Martin was followed by our ‘Speaker in Residence’, Lt Col Crispin Black, gave a presentation wittily entitled "The Hitchhiker’s Guide to Predicting the Future … Accurately". Crispin attempted to grapple with a paradox that has become part of British life: how is it that members of our government and business elites seem incapable of swerving out of the way of seemingly obvious disasters? The Western military defeat in Afghanistan at the hands of a few thousand men equipped with Kalashnikovs and flip-flops, and the debauching of the UK’s leading retailer, Tesco, were the two examples he chose to highlight.
He identified nine themes behind these and other disasters:
Facts: much more difficult to establish than you might think – even when no one involved is actively trying to obscure the truth. He cited the military historian, Colonel Archibald Gracie’s, experience as a survivor of Titanic – he needed months of detective work to pin down the exact details of survivors’ stories.
Language: even languages closely related to our own, produced by cultures similar to ours, can be a barrier to understanding. Increasingly, elites now speak a private form of of our own language, English, that is of little use in forecasting the future.
Self-hypnosis: a phenomenon identified by the Harvard historian, Barbara Tuchman, whereby a group of decision makers deny and distort reality to persuade themselves that a particular venture is going well rather than disastrously.
Face: often felt to be an Oriental or Asian vice but in fact alive and kicking in Western bureaucracies. Saving the face of political, military or business leaders has become a core activity of governance.
Audit: we seem to live in a fire and forget world where few like to have their decisions and their consequences examined forensically.
Deception: little awareness especially in government service that sometimes our opponents or enemies actively wish to seduce us into a course of action that will prove our undoing. What you see on the ground may not be reality but a giant ‘come hither’ sign.
Deformation Professionelle: many of our elites effectively live in mental ‘gated communities’ and cannot think beyond their own specialities.
The need for Diversity: used most often in Western public discourse in its racial or cultural sense. Rarely as a warning against closed thinking.
Macbeth Syndrome: The reluctance of decision makers to break off from an unfolding debacle – even when it has become obvious. As Macbeth famously put it to his charming consort: "I am in blood Stepp'd in so far that, should I wade no more, Returning were as tedious as go o'er."
After the presentations, the team moved to the Worshipful Company of Furniture Makers for the traditional cocktail before dinner. Crispin chose a blue martini named a "Yale" as something that Professor Mainelli would have been unable to predict, nor order in the hallowed crimson halls of the Harvard Club, but could have as an Honorary Liveryman of the Furniture Makers.
Our dinner speaker, UCL Professor Adrian Furnham, gave a wonderfully incisive, yet easy-on-the-ear, and memorable talk around his new book with Ian MacRae, "High Potential: How to Spot, Manage and Develop Talented People at Work". His psychological insights triggered a great discussion ranging from corruption to challenge in large organisations.
Our next meeting is planned for Thursday, 23 April 2015.