Many State-Owned Enterprises are making losses. This problem has been persisting for years and is a major drain of Government revenue. The President has rightly given priority to eradicating this financial cancer. His solution is to appoint a group of good people to the boards of these enterprises. The special committee to select people has done a good job. Almost all the new appointees have good work experience and good educational qualifications.
The President appears to believe in the collective mode and that a committee of good people is the answer. For poverty eradication and livelihood development, he has appointed a task force. Will these new teams too believe that they should work closely together as a committee and find the profitable way forward?
Is the problem over?
Can we now say that at last teams of good people have been appointed and our problems are over? State-Owned Enterprises will turn losses into profits. There will be impressive improvement in the performance of other State institutions .The Task Force to Alleviate Poverty will accomplish their mission.
I wonder whether teams are the answer to find the key that will create success. Probably not .My mind went back to what I believe Prof. Northcote Parkinson credited with many cryptic sayings had to say about committees. He said: “A committee is a group of people who individually by themselves could do nothing but as group will decide that nothing can be done.”
There is another well-known trite saying: “A camel is a horse designed by a committee.” This old saying captures the problem very nicely.
Problem with committees
Intelligent people will have their views on the best way forward and often believe in them passionately. It will be difficult for a committee of smart people to arrive at a consensus on the best way forward. This will lead to compromise solutions to accommodate all the views of the heavy hitters in the committee. This leads to the syndrome of a camel being a horse designed by a committee. Will this problem afflict many of the new boards? The high probability is that this will happen.
The way forward
What we all believe is best is usually based on our own experience. I had a long innings in a global multinational that is a top 100 company in the UK. They operated successful businesses in over 50 countries that had different, languages, culture and socio economic profiles. The multinationals had one management model and it worked everywhere. So I believe the multinational model is the answer to kick life into our State sector organisations.
The key feature of this business model is that it is totally focused on individual responsibility and accountability. Committees or boards are not charged with delivering results. It is always individuals who are charged with the responsibility of delivering results.
The business model of multinationals
The company has a board of directors and the majority are independent non-executive directors. The chairman is a non-executive director. The key person in the organisation is the chief executive and he will be an executive director on the board. He is required to provide an annual plan that includes a business plan, a human resources plan, and a capital expenditure plan. He is also required in broad terms to provide a five-year overview plan. This plan is then discussed and agreed with the board.
The chief executive will delegate parts of the plan to his direct reports and they will delegate parts to their direct reports. Some individual person and never a committee is responsible for every part of the plan.
The key direct reports of the chief executive will be on the board. If anyone’s direct reports do not perform, they could with the concurrence of his boss remove the person. If a direct report of the chief executive who is also an executive director needs to be removed, the non-executive directors on the board must agree to the proposal. If the chief executive is to be removed, the chairman has to propose it to the board and if the non-executive directors concur he will be removed.
If a chief executive fails to deliver the agreed plan for two years running, he will in all probability get fired.
Whilst it is individuals who run the business, the board plays an important role to ensure that there is good governance.
The key function of the board is to create an environment that is supportive of the management. A board will meet once in two months. It will carefully review performance and make helpful observations. The annual plan is dynamic and must continuously react and respond to the external competitive environment. Changes can be made and agreed at the board meetings.
The Board will establish an audit committee and a remuneration committee to decide on the remuneration of the chief executive and other executive directors and to set the remuneration guidelines for the company. The board will review at each meeting some key aspect like, the human resources in the business, use of information technology, financing arrangements, the competition, and a review of risks to the business.
Will the President’s model work?
It will work if those appointed to the boards recognise three things. That they cannot as a committee run the business, that a part-time chairman cannot be the chief executive running the business and a full-time chairman who does not have the knowledge and experience of that industry cannot be a competent chief executive.
When they recognise these three things and wonder what next they will migrate to the multinational business model and appoint an experienced competent chief executive and good direct reports and let them manage the business. The board should enthusiastically take on the role of being supportive of the management.
There is not much history of boards as a team running successful businesses or the economy. It is only the communists that believed in the concept of collective leadership everywhere. At the apex the communists used the committee called a politbureau to run the country and it worked, as the head was a dictator and the politburo was only carrying out his instructions.
As for the poverty alleviation task force, each task should be handed over to an individual and he should be held responsible for successfully accomplishing the task. The full task force could meet periodically to share experience.
The issue is what is better: teams or individual responsibility? As the President is a military man, I would have thought he would always believe in individual responsibility as the best way forward.