David Jacobson's External Insights

IT Governance

In this article , I explain what IT Governance means and give examples of the questions organisations should be asking themselves before they make IT decisions.

Shareholder Communication

In this article I discuss the removal by CLERP 9 of previous restrictions on sending notices and annual reports electronically to shareholders as well as new rules permitting electronic authentication of proxies.

After I completed it, the Business Council together with the Australian Institute of Company Directors and Chartered Secretaries Australia, released a Discussion Paper outlining a number of new approaches Australia's listed companies might adopt to strengthen or improve their communication and interaction with shareholders.

The Paper, Fresh Approaches to Communication between Companies and their Shareholders, contains a section on the use of Electronic Media (pages 47-50) which makes the following observations:

an April 2004 study showed only 5.9% of shareholders elected to receive annual reports electronically when offered a choice

most shareholders were over 55 and this group has the lowest internet usage

the company's website should have a facility to allow shareholders to question companies and that all questions and answers should be posted on the website for a period of six months.

New Corporate Governance Report

Horwath has released a report by the University of Newcastle based on research derived from the 2003 Annual Report disclosures of Australia’s top 250 Australian companies based on market capitalisation.

The findings included :
1. The vast majority of companies have made an effort to improve their corporate governance in the last twelve months. This is reflected in the decrease in non-audit fees paid to external auditors, an increase in the number of remuneration committees, and improved disclosures relating to code of conduct, risk management, and share trading policies.

2. As was the case in the 2002 and 2003 Horwath Reports, the corporate governance gap between the top companies and the lesser ranked companies remains huge. The apparent indifference to corporate governance reforms for some (usually smaller) companies remains a concern.

Central to the research was the need for companies to have appropriate levels of independence on the Board of Directors, their associated committees and from their external auditor.

The report found that 62% of the top 250 companies do not have Boards that had a majority of independent members.

The report found a correlation between good corporate governance and shareholder value.

Who makes the tough decisions?

Via Fast Company, comes this link to an article in Darwin on Tough Decisions.

The key quote:

"In a nationwide survey over a base of 2,000 senior executives and managers, NFI Research found that 62 percent of executives and managers deal with making the tough decision at work right away, and 58 percent after getting opinions from others.

However, a third of those same businesspeople say their superiors defer the tough calls and a third wait until absolutely necessary. Almost 40 percent of managers say their superiors defer the tough decisions, while a fourth of them say their bosses either avoid the tough decision or focus on those that are easier. "

In my view, the important thing is to make a decision, even if the decision is to not do anything. Provided if it has been a conscious decision based on facts then mistakes are not unlawful.

Making Mistakes

In this review of Juice: The Creative Fuel that Drives World-Class Inventors, the inventor of the Apple computer Steve Wozniak is discussed.

His story is recounted as evidence that "every failure is a learning experience" and what it meant for his creativity.

Can a director be excused from future liability?

No.

According to the New South Wales Court of Appeal in Edwards v Attorney General [2004] NSWCA 272 , the Court could only grant protection for past acts.

In that case, four directors of Medical Research and Compensation Foundation and two subsidiary companies of James Hardie Industries Ltd with extensive asbestos-related liabilities were concerned that they might not have adequate funds to meet all of those liabilities in the future and might therefore be liable for insolvent trading if they continued to pay those claims in full as they materialised.

UPDATE: The Australian story on James Hardie submission to Royal Commission.

They sought an order under section 1318 of the Corporations Act 2001 relieving them from present and future liability for any negligence, default, breach of trust or breach of duty in their capacity as directors in continuing to pay asbestos claims in full.

The NSW Court of Appeal held that section 1318 should be given a wide interpretation and permitted the Court to protect directors from claims made by third parties, as well as claims made against them by or on behalf of the corporation.

It ordered that each of the 4 directors be relieved in whole from liability for any negligence, default, breach of trust or breach of duty in his capacity as a director of the Foundation and the subsidiaries arising out of the payment on or after 24 June 2004 up to 6 August 2004 by those companies of their debts, as and when they fall due, including debts arising in respect of claims made for asbestos-related liabilities.

However, under section 1318 the Court could only grant protection for past acts. The court granted liberty to the plaintiffs to apply on or before 6 December 2004 for similar protective orders in respect of any payments made between the date of the judgment and 6 December 2004 and like liberty to apply to a judge to vary the latter date.

Strategy Mapping

This article from Harvard Business School discusses Board planning using a strategy map.

Using the example of First Commonwealth Financial it discusses how the Board developed its own strategy map based on Balanced Scorecard principles. The article includes a copy of First Commonwealth Financial's document.

The map "portrays, on a single page, a company's strategy. It includes the financial outcomes expected; performance with targeted customers and the organization's differentiating value proposition; the critical internal processes that will create and deliver the value proposition; and whether the organization has the right people and systems in place and the right culture for its strategy to be successful."

Product Development

Earlier in the year, I conducted a workshop on product development for financial institutions. Only 2 of the organisations had a method for ensuring that new products had been considered from all angles (marketing, IT, compliance, HR, finance etc) before they made a decision to proceed with it.

This blog seems to focus on product development. The most recent post, here, argues that outsourcing is inconsistent with innovation.

No value in copying

This chart from McKinsey shows how copying competitors is not a strategy in itself. It can lead to falling margins and market share.

Whilst it is good to benchmark against best practice, businesses need to reach their own decisions about which products and services they offer to their own market and adopt their own pricing and marketing strategy.

Analysing Data

One of the hardest things to do when presented with masses of data is to draw the correct conclusions, rather than a predetermined conclusion based on selective facts.

When this is done in a team, the KJ Method is very helpful in reaching a consensus decision.

This is different from an Affinity Diagram which allows a team to generate ideas or issues and then group them in order to understand a problem and devise a solution.

Essentially the ideas are brainstormed and then recorded on sticky notes which are subsequently moved around on a board and grouped.