STEPHEN P. Kaufman, a one-time chief executive officer (CEO) of Arrow Electronics in the United States, writing in the Harvard Business Review of the October 2008 issue, lamented about his performance review thus: it was all about making the numbers.
Such “short-termititis” (our name for a particular strain of the CEO virus) happens in our C-suites, too. What can three or four financial metrics tell about the long-term health of the company? The short answer is: none.
All the metrics do is give the board a feel good factor of the CEO. The board must not just stop at the financial numbers. It must do more.
Especially, in the case of government-linked companies (GLCs) as the tax-payers’ money is involved.
Import-and-implement-wholesale is a disease of old here. Little consideration is given to the purpose of the firm. And many GLCs have been at it for a long time.
Maximising shareholder value, career expected potential, key performance indicators and some such things have made it to our shores this way.
All hawked by consultants too glad to tell time by your watch for tidy millions.
Then, a decade or so later, the GLCs learn that the very same ideas are dumped by the very companies in the US that experimented with them.
Our GLCs forget that ideas make us behave in certain ways. And the behaviours are not complimentary at all.
Take the case of maximising shareholder value. It was first advanced in 1970 by the Nobel prize winning economist Milton Friedman.
To him, companies were all about making profits. If we have to blame anyone for our CEOs turning into stock price watchers overnight, then Friedman, GLC boards and the consultants who brought his idea here must be singled out. In an article titled “The Error at the Heart of Corporate Leadership” in the May–June 2017 issue of the Harvard Business Review, professors Joseph L. Bower and Lynn S. Paine say that the idea of maximising shareholder value is “flawed in its assumptions, confused as a matter of law, and damaging in practice”. Bower even has a two-word dismissal: pernicious nonsense.
Key performance indicators (KPIs) may go the same way if our GLCs do not watch where they are going with them. What they measure is what they will get.
Like shareholder value, KPIs may take the GLCs to places where they shouldn’t be. Our GLC boards must first answer the question: what is their raison d’être? Only then do any metrics make sense.
Done this way, the metrics will even blunt the raging debate that our GLC CEOs are being paid too much.
Income inequality between the top 20 per cent and the bottom 20 per cent is adding to the rant.
Properly formulated and used, KPIs may enable our GLC boards to even put an end to the perceived problem of CEOs being selected from a limited talent pool.
Pernicious nonsense can be stopped. But first, there must be an effective board. Next, no self-serving CEOs.