What have we learned after five years of crisis?
Jordi Canals, director general IESE, reviews some lessons on leadership and corporate governance
Five years after the economic crisis that shook the world Economics in 2008, it is a good time to ask ourselves what we have learned about corporate reputation, where it has changed and, above all, what actions have been taken to repair the damage caused.
"We cannot underestimate the impact that economic decisions have had in the course of the financial crisis," assured the director IESE Dean Jordi Canalsat the beginning of a session held at the at the school's New York headquarters. "And we must not lose perspective: global economic policies are never perfect, or even stable. But we can draw a lesson from them: the world's governments - mainly those of the United States and Europe - have learned to partially mitigate the effects of the crisis through the application of certain fiscal policies".
The world Economics affects a global community, Professor Canals reflected. Its effectiveness - or lack thereof - depends on the sum of the actions of diverse countries, each being a community in itself, with its own network of companies. Losing sight of the fact that a business belongs to a community can have devastating consequences, such as "the death of corporate reputation".
In the last five years, society has perceived a shift away from values that has seriously eroded its trust in companies. As examples of these betrayals of values, Canals mentioned cases of bribery, such as the GSK scandal in China, and of highly questionable compensation agreements between CEOs and their boards of directors, as in the recent sale of Finnish icon Nokia to Microsoft, in which Nokia's CEO, a former Microsoft executive, foisted the huge commission on himself for attention. Too often, corporate transactions have fallen short of ethical and moral expectations.
"Pay is increasingly going to become a matter of public scrutiny," the professor said. At a time when revenues are down and companies are struggling, it is reputation - and the customer base loyal to business because of its good reputation - that can save them. The decline in corporate reputation is one of the most devastating consequences of the financial crisis we have experienced..
"A business is a network of relationships," reminded Jordi Canals. But in recent years, many companies have been too narrow-minded and have betrayed their original vision and values. IESE's director general proposed a return to the four pillars of good governance to achieve the success of the business: the development of a long-term vision deadlinethe review of the matters related to the evaluations and retributions; the management of shareholders and stakeholdersand finally, the mission statement.
"These aspects are important not only to protect the reputation of business and its management team, but also to make business sustainable in the long term deadline. We must devise leadership models and processes that enable companies to be successful in the long term but, more importantly, to become respected institutions."said Canals.
According to Professor Canals, the core topic to sustain the success of a business emanates from four primary mechanisms: the committee management, the CEO, the investors and the stakeholders.
To illustrate the impact of boards of directors on the evolution of a business, Jordi Canals looked back to the times when the CEO was the dominant figure, relegating boards of directors to a secondary role. "The future will be slightly different," he announced. "Now stakeholders prefer a committee that has a long-term vision deadline, and that looks after the interests of its shareholders."
IESE's director general believes that a new class will soon emerge from committee, which will prioritize the "culture" of business and the implementation of strategy, but without interfering in day-to-day operations. The passive role that boards used to have in the management of the business should, according to Canals, be reoriented and focused on administrative issues, long-term strategy deadline, and monitoring of company operations. It is a tricky balancing act that requires operating between useful support and excessive interference with caution and insight. "Today, being on a management committee is more complicated than ever," he said.
Nevertheless, the CEO continues to play a fundamental role, since he is the one who defines the overall management plan for the business. Faced with the dilemma that many CEOs may have of having to choose between the short or the long deadline, Canals argues that the long deadline will lead to success, since it allows taking into account the core values of the business, the influences that society exerts on it and, perhaps most importantly, the development staff of the people who form, manage and support the business.
The four main responsibilities of an efficient CEO would be to ensure the mission statement and values of the business, its strategic implementation, the development of its staff -especially that of future candidates for management positions in the organization- and, finally, the impact and reputation of the business, explained Canals. The CEO must be aware of his impact staff on business, but also of the impact of business on society.
Finally, the last major component of the business team is the investors and shareholders. Like the CEO and committee management, they now find themselves with a change on the horizon: short-sighted views on growth are fading in favor of a new trend for the long term deadline, Canals said. And rather than focusing on quarterly earnings, some CEOs, such as Unilever's Paul Polman or Hewlett-Packard's Meg Whitman, encourage investors and shareholders to work on the long deadline term, to invest on an annual rather than a quarterly basis.
According to IESE's general director , quick returns are sacrificed in this approach in pursuit of the scope of its effects: investors who bet on the long deadline offer commitment to the institution, loyalty to the values of the business, and unconditional support for its vision.
At summary, before turning the page that has written this financial catastrophe, we should think about what went wrong in 2008, and try by all means not to follow the steps that led us there, warned Canals. Companies must take responsibility for their actions, be transparent in their hiring and compensation and, above all, value their reputation and people's goodwill.
"It's a question of tradeoffs, of how the different mechanisms even out," he explained. In many ways, to be part of a business is to commit to creating a work of art.
"It's not just about implementing a series of strategies and setting up a system. It is about creating something that lasts, something that enjoys a reputation, something that can be respected, if not admired, by the rest of society," concluded Jordi Canals.