One advantage of having a very long memory for strategic management (and mismanagement) is that you can check the allegedly heroic present against the foolish past. But long memories are scarce in this field.
Royal Dutch-Shell can thus more easily promote its current top-level reshuffle as a sweeping, radical modernisation, bringing the blessings of ‘clarity and simplicity…efficiency…accountability’; and, of course, conferring much credit on its authors.
The reality, however, is that the architects of reform had been deeply implicated in perpetuating a system that was unclear and complicated, inefficient and inadequately accountable. Radical reformation only followed in the wake of the oil reserves scandal - the deliberate misreporting that cost the chairman, Sir Philip Watts, his job. It is, of course, right and proper that the chief executive should pay the price of such monumental error. But that isn’t what happened - for Watts was not the chief executive.
Nobody was, believe it or not. The unusual split of the group’s ownership between the Dutch company (representing 60% of the equity) and the British was reflected by two boards, two equities, and two chairmen. True, the operating interests were combined under the banner of Shell Petroleum. Its managing directors (usually seven in number) acted as a kind of collective CEO under the leadership of a ‘senior managing director’: but that ramshackle set-up was hardly fit for the 21st century.
INFLEXION POINT
How could so extraordinary a fix have come about? How could a vast multinational corporation, staffed with brilliant people and stuffed with billions in cash, have so basically mismanaged its affairs? The answers aren’t specific to Shell or to large public organisations.
Small family companies commit exactly the same mistakes and for much the same reasons - or rather lack of reasons. They pass what may be called the ‘management inflexion point’ - the moment when the practices and precepts that have served well enough in the past no longer apply.
The consequent decline may take decades rather than days. Never mind being unfit for the 21st century. Actually, Shell’s structure wasn’t even fit for the early Sixties, which is when the appointment of a single CEO was first proposed. The proposers were McKinsey consultants, who launched their astounding rise to British fame and fortune on the back of their work for Shell. The rejection of their (literally) central recommendation wasn’t based on any factual argument or alternative and superior theory. McKinsey’s standard solution was (and no doubt still is) that corporate effectiveness rests on having ‘streamlined decision-making with clear lines of authority and an empowered chief executive’.
The Shell directors who put their names to the above sentence have as much to explain as the predecessors who saddled the group with four decades of clumsy decision making and fuzzy lines of authority - although nearly every other major business, inside and outside oil, had the clearly superior structure now being adopted. The truth is that Shell was inordinately proud of its differences, including the time-honoured ‘committee of managing directors’. Now to be abolished, this bevy of barons was once an object of great internal pride.
UNDERSTANDABLE PRIDE
Now, pride in your company, its history and its uniqueness is wholly understandable and even valuable for its contribution to morale. But a moment’s logical thought makes it clear that the pride is emotional and is attached, not to strengths that can be rationally analysed, but to accidents of history and misreadings of the present. Most groups of people like to believe that they and their organisation are ‘the best’. But it’s plain that everybody can’t be the best.
In other words, self-delusion is rampant. That explains the typical reaction when anybody - like McKinsey at Shell - suggests changes that a company, above all its leaders, finds deeply unpalatable. The response is basically ‘why should we change when what we’re doing now works so well?’. To crack this barrier, people need to be persuaded of three crucial points:
• that ‘what we’re doing now’ doesn’t work so well, and may even be working badly
• that unless the top managers do embrace change, they will be courting failure
• that others, including critical insiders and external observers, know better than you do
All three of these ideas are far less welcome than the alternative belief that yours is the best of all possible companies. The first of the trio demands self-criticism; the second raises the fear of failure; the third involves a degree of self-abasement. At least, that’s how it looks to managers who do not understand the essence of good management. That hinges on intelligent self-criticism, plus readiness to accept the reality of weaknesses and threats, with equal acceptance of the wise contributions of others - inside or outside the company.
Once again, emotion is confronted by logic: but once again emotion generally wins, unless it is brought down to earth by a really humiliating disaster like Shell’s - or the recently announced first loss in J. Sainsbury’s long history. Emotion is so powerful that it can even swamp the personal self-interest of people who are in a position to intervene in the company’s affairs: notably family shareholders. The Sainsburys have nearly two-fifths of the supermarket company’s shares. How did they ever allow the mismanagement of the business to reach this pass?
Sir John Sainsbury, the all-powerful boss who took the chain to the top of the supermarket tree, is still alive; and many other family members exist, all of them sharing the sorry injury inflicted on their fortunes by the sitting managements. Families may even not react as soon as the unmistakable evidence of systemic failure appears. As at Sainsbury and Shell, awakening can take years, even decades. And really valuable intervention averts failure by intervening to nip mistaken policies in the bud.
CLASSIC NON-EXEC CODE
These family owners, however, abide by the classic code of all non-executives. You appoint a chief executive of whose abilities you have been convinced, and you thereafter leave him or her alone to get on with the task. The code, however, goes further than this basically sensible rule. The code holds the CEO innocent until proved very guilty, and shies away from early intervention - for that would plunge the family or other non-executive directors into the unwelcome waters of management upheaval.
It took even the eminently sane Warren Buffett two years of increasing disaster to initiate action against the blundering CEO of Coca-Cola, Doug Ivester. At IBM, there on the board sat Thomas Watson, Jr., the hero who had converted the business into by far the largest and best force in computing: and who sat there during the ten years, ending in 1993, during which John Akers as chief executive, despite (or partly because of) one reorganisation after another, led the company down a slippery slope. We will probably never know what efforts, if any, Watson made to avert that slide: but Akers for long seemed to be sacrosanct, no matter how convincing the evidence of failed leadership.
Part of the problem is that appointing a CEO is an act of very substantial faith, requiring true believers who thereafter cling irrationally to their beliefs. Right now I have no idea whether appointee Jeroen van der Veer is the right man to lead Shell into a new era. But I would be surprised if the non-executives who voted for his appointment know much more. And I will be downright astonished if van der Veer (or anybody else, for that matter) can handle the massive burdens placed on his shoulders in these intriguing words:
‘The chief executive will be empowered to drive strategy implementation, operational delivery and cultural change. To reinforce the focus on delivering the Group’s strategy and priorities, management will accelerate the existing programmes of standardising systems and processes and establishing global businesses and global operating models’.
WHO DRIVES STRATEGY?
Key aspects of this job description raise more questions than they answer. Van der Veer is to drive strategy implementation, but just who devises the strategy? The second sentence implies that a strategy and priorities already exist. Were these threshed out by the previous twin boards of directors? Is strategy now in the hands of the newly unified board? If so, does anybody believe that a huge committee of fifteen people, ten of them non-executive, can ever shape a business strategy, or do more than merely rubber-stamp somebody else’s proposals?
The true strategic power must surely lie in the hands of the executive committee headed by van der Veer and consisting of four top managers: the chief financial officer and three barons (or rather two barons and a baroness) who divide the operating interests between them. This condensed version of the now abolished ‘committee of managing directors’ has similar faults.
Its three baronial members will be largely preoccupied with the many operational concerns of impossibly wide areas of global responsibility. That fact of life must affect van der Veer himself, who isn’t likely to have much time left over for the amorphous business of ‘driving cultural change’.
That’s been a hobby of top Shell executives for a long time - dating right back to the early Sixties mentioned earlier. This culture lust is by no means confined to Shell. But whenever chief executives mention cultural change, reach for your gun. Nobody knows what it means; nobody knows how to achieve it; and nobody knows how to measure its results. What you really want is to change people’s behaviour, not culture. Then you might not find one of the world’s oldest and often most successful multinationals falling so far behind - only getting round to setting up ‘global businesses’ and establishing ‘global operating models’ in late 2004.
As for standardisation of systems and processes, I was involved several years ago in a massive programme to provide a worldwide IT platform for the group. My role was to help train trainers, lecturing to those
Who would go forth to embed the new systems in the minds and practices of Shell people. Whether or not this would-be office revolution was concluded as planned, it must have left large gaps behind. Otherwise, why is standardisation so prominently featured on the late-2004 reform menu?
ETERNAL GIVEAWAY
That’s the eternal giveaway - when new policies are declared and implementation decreed, only for the same bad practices to survive after many years and immense numbers of man hours. Peter M. Senge of MIT never wrote truer words than these: ‘however hard you push, the system pushes back harder’. During John Akers’ long and losing struggle to reform IBM, he once got ‘goddam mad’ and declared that ‘Everyone is too comfortable when the business is in crisis’. That’s when the management inflexion point is passed - when the intensity of the crisis is hidden from people by the comfortable corporate ways and the familiar system.
How can people be made more uncomfortable? There is no substitute for rigorous efforts to unearth the truth telling what those who work for and do business with your company truly feel and think about its goods, services, people and performance. That truth, though, only starts to add value when converted into action plans which aim at correcting the negatives revealed (they will be abundant) while exploiting and enhancing the (invariably fewer) positives.
Action plans, as the words say, demand action. So each plan must be clearly allocated to responsible people with whom a tight, tough timetable is agreed and whose progress is efficiently monitored. The chief monitor is the CEO. But the beginning of wisdom is to abandon the blind faith that he or she can do it all.
Royal Dutch-Shell can thus more easily promote its current top-level reshuffle as a sweeping, radical modernisation, bringing the blessings of ‘clarity and simplicity…efficiency…accountability’; and, of course, conferring much credit on its authors.
The reality, however, is that the architects of reform had been deeply implicated in perpetuating a system that was unclear and complicated, inefficient and inadequately accountable. Radical reformation only followed in the wake of the oil reserves scandal - the deliberate misreporting that cost the chairman, Sir Philip Watts, his job. It is, of course, right and proper that the chief executive should pay the price of such monumental error. But that isn’t what happened - for Watts was not the chief executive.
Nobody was, believe it or not. The unusual split of the group’s ownership between the Dutch company (representing 60% of the equity) and the British was reflected by two boards, two equities, and two chairmen. True, the operating interests were combined under the banner of Shell Petroleum. Its managing directors (usually seven in number) acted as a kind of collective CEO under the leadership of a ‘senior managing director’: but that ramshackle set-up was hardly fit for the 21st century.
INFLEXION POINT
How could so extraordinary a fix have come about? How could a vast multinational corporation, staffed with brilliant people and stuffed with billions in cash, have so basically mismanaged its affairs? The answers aren’t specific to Shell or to large public organisations.
Small family companies commit exactly the same mistakes and for much the same reasons - or rather lack of reasons. They pass what may be called the ‘management inflexion point’ - the moment when the practices and precepts that have served well enough in the past no longer apply.
The consequent decline may take decades rather than days. Never mind being unfit for the 21st century. Actually, Shell’s structure wasn’t even fit for the early Sixties, which is when the appointment of a single CEO was first proposed. The proposers were McKinsey consultants, who launched their astounding rise to British fame and fortune on the back of their work for Shell. The rejection of their (literally) central recommendation wasn’t based on any factual argument or alternative and superior theory. McKinsey’s standard solution was (and no doubt still is) that corporate effectiveness rests on having ‘streamlined decision-making with clear lines of authority and an empowered chief executive’.
The Shell directors who put their names to the above sentence have as much to explain as the predecessors who saddled the group with four decades of clumsy decision making and fuzzy lines of authority - although nearly every other major business, inside and outside oil, had the clearly superior structure now being adopted. The truth is that Shell was inordinately proud of its differences, including the time-honoured ‘committee of managing directors’. Now to be abolished, this bevy of barons was once an object of great internal pride.
UNDERSTANDABLE PRIDE
Now, pride in your company, its history and its uniqueness is wholly understandable and even valuable for its contribution to morale. But a moment’s logical thought makes it clear that the pride is emotional and is attached, not to strengths that can be rationally analysed, but to accidents of history and misreadings of the present. Most groups of people like to believe that they and their organisation are ‘the best’. But it’s plain that everybody can’t be the best.
In other words, self-delusion is rampant. That explains the typical reaction when anybody - like McKinsey at Shell - suggests changes that a company, above all its leaders, finds deeply unpalatable. The response is basically ‘why should we change when what we’re doing now works so well?’. To crack this barrier, people need to be persuaded of three crucial points:
• that ‘what we’re doing now’ doesn’t work so well, and may even be working badly
• that unless the top managers do embrace change, they will be courting failure
• that others, including critical insiders and external observers, know better than you do
All three of these ideas are far less welcome than the alternative belief that yours is the best of all possible companies. The first of the trio demands self-criticism; the second raises the fear of failure; the third involves a degree of self-abasement. At least, that’s how it looks to managers who do not understand the essence of good management. That hinges on intelligent self-criticism, plus readiness to accept the reality of weaknesses and threats, with equal acceptance of the wise contributions of others - inside or outside the company.
Once again, emotion is confronted by logic: but once again emotion generally wins, unless it is brought down to earth by a really humiliating disaster like Shell’s - or the recently announced first loss in J. Sainsbury’s long history. Emotion is so powerful that it can even swamp the personal self-interest of people who are in a position to intervene in the company’s affairs: notably family shareholders. The Sainsburys have nearly two-fifths of the supermarket company’s shares. How did they ever allow the mismanagement of the business to reach this pass?
Sir John Sainsbury, the all-powerful boss who took the chain to the top of the supermarket tree, is still alive; and many other family members exist, all of them sharing the sorry injury inflicted on their fortunes by the sitting managements. Families may even not react as soon as the unmistakable evidence of systemic failure appears. As at Sainsbury and Shell, awakening can take years, even decades. And really valuable intervention averts failure by intervening to nip mistaken policies in the bud.
CLASSIC NON-EXEC CODE
These family owners, however, abide by the classic code of all non-executives. You appoint a chief executive of whose abilities you have been convinced, and you thereafter leave him or her alone to get on with the task. The code, however, goes further than this basically sensible rule. The code holds the CEO innocent until proved very guilty, and shies away from early intervention - for that would plunge the family or other non-executive directors into the unwelcome waters of management upheaval.
It took even the eminently sane Warren Buffett two years of increasing disaster to initiate action against the blundering CEO of Coca-Cola, Doug Ivester. At IBM, there on the board sat Thomas Watson, Jr., the hero who had converted the business into by far the largest and best force in computing: and who sat there during the ten years, ending in 1993, during which John Akers as chief executive, despite (or partly because of) one reorganisation after another, led the company down a slippery slope. We will probably never know what efforts, if any, Watson made to avert that slide: but Akers for long seemed to be sacrosanct, no matter how convincing the evidence of failed leadership.
Part of the problem is that appointing a CEO is an act of very substantial faith, requiring true believers who thereafter cling irrationally to their beliefs. Right now I have no idea whether appointee Jeroen van der Veer is the right man to lead Shell into a new era. But I would be surprised if the non-executives who voted for his appointment know much more. And I will be downright astonished if van der Veer (or anybody else, for that matter) can handle the massive burdens placed on his shoulders in these intriguing words:
‘The chief executive will be empowered to drive strategy implementation, operational delivery and cultural change. To reinforce the focus on delivering the Group’s strategy and priorities, management will accelerate the existing programmes of standardising systems and processes and establishing global businesses and global operating models’.
WHO DRIVES STRATEGY?
Key aspects of this job description raise more questions than they answer. Van der Veer is to drive strategy implementation, but just who devises the strategy? The second sentence implies that a strategy and priorities already exist. Were these threshed out by the previous twin boards of directors? Is strategy now in the hands of the newly unified board? If so, does anybody believe that a huge committee of fifteen people, ten of them non-executive, can ever shape a business strategy, or do more than merely rubber-stamp somebody else’s proposals?
The true strategic power must surely lie in the hands of the executive committee headed by van der Veer and consisting of four top managers: the chief financial officer and three barons (or rather two barons and a baroness) who divide the operating interests between them. This condensed version of the now abolished ‘committee of managing directors’ has similar faults.
Its three baronial members will be largely preoccupied with the many operational concerns of impossibly wide areas of global responsibility. That fact of life must affect van der Veer himself, who isn’t likely to have much time left over for the amorphous business of ‘driving cultural change’.
That’s been a hobby of top Shell executives for a long time - dating right back to the early Sixties mentioned earlier. This culture lust is by no means confined to Shell. But whenever chief executives mention cultural change, reach for your gun. Nobody knows what it means; nobody knows how to achieve it; and nobody knows how to measure its results. What you really want is to change people’s behaviour, not culture. Then you might not find one of the world’s oldest and often most successful multinationals falling so far behind - only getting round to setting up ‘global businesses’ and establishing ‘global operating models’ in late 2004.
As for standardisation of systems and processes, I was involved several years ago in a massive programme to provide a worldwide IT platform for the group. My role was to help train trainers, lecturing to those
Who would go forth to embed the new systems in the minds and practices of Shell people. Whether or not this would-be office revolution was concluded as planned, it must have left large gaps behind. Otherwise, why is standardisation so prominently featured on the late-2004 reform menu?
ETERNAL GIVEAWAY
That’s the eternal giveaway - when new policies are declared and implementation decreed, only for the same bad practices to survive after many years and immense numbers of man hours. Peter M. Senge of MIT never wrote truer words than these: ‘however hard you push, the system pushes back harder’. During John Akers’ long and losing struggle to reform IBM, he once got ‘goddam mad’ and declared that ‘Everyone is too comfortable when the business is in crisis’. That’s when the management inflexion point is passed - when the intensity of the crisis is hidden from people by the comfortable corporate ways and the familiar system.
How can people be made more uncomfortable? There is no substitute for rigorous efforts to unearth the truth telling what those who work for and do business with your company truly feel and think about its goods, services, people and performance. That truth, though, only starts to add value when converted into action plans which aim at correcting the negatives revealed (they will be abundant) while exploiting and enhancing the (invariably fewer) positives.
Action plans, as the words say, demand action. So each plan must be clearly allocated to responsible people with whom a tight, tough timetable is agreed and whose progress is efficiently monitored. The chief monitor is the CEO. But the beginning of wisdom is to abandon the blind faith that he or she can do it all.
Comments