The September issue of Management Today includes an article on governance failings in UK boardrooms. And while the article is specific to the UK, based on recent events elsewhere in the world, there is no reason to think the issue is unique to the UK. Indeed at one point the author - Professor Andrew Kakabadse - states, "A global survey my colleagues and I conducted in December 2009 showed that risk managers, principally of financial services companies, had been trying for more than two years to warn their management and boards of the folly of continuing to invest in questionable financial instruments. Their voice was unheard. Sales were prioritised in the full knowledge that economic calamity was just around the corner."
What an indictment! However, that's not the worst of it. The report continues, "Among the 3,500 boards studied, many board directors privately admit that they knew of weaknesses in their management and their company. In some cases the insight into what was wrong and how to put it right was so penetrating that the upper echelon of the organisation could predict corporate collapse 50 months ahead. But nothing happened and paralysis prevailed."
Of course I cannot comment on any of the specifics, but I am sure anybody reading the article would be as horrified as I was. Unfortunately, it only reinforces an experience I had in the last recession, when I was required to produce a budget that showed 15% year on year growth, even though I demonstrated why it was impossible.
I have a number of theories as to why organisations get into such situations but this is not the time to go into those. Suffice to say, that it does more than anything to reinforce my argument for greater employee ownership. Of course this will not eliminate the possibility of such things, but it will surely make them less likely. Why? Simply because the employees have a greater stake in the long-term sustainability of the business.
In fact I would argue that employees have become the only "internal" (i.e. non-supplier) stakeholders to have any real concern about the long term future of the organisation. Even investors are arguably more concerned about chasing short-term gains than the sustainability of the business. Consequently, however you interpret Kakabade's statement that "the values of the Board are jointly lived by top management and the board", there needs to be greater acceptance of, and provision for, the values of the employees.
The best way to ensure this is to make them owners of the business with greater powers to influence the decisions made. Only then will it be possible to make executives more accountable for their shortcomings and reduce their blindness and paralysis in the face of impending problems. It would also simultaneously help solve the employee engagement problem.