Should you have an Orangutan on your board?

Pat Chapman-Pincher posted this on

orangutan

Trying to understand what the future might hold is one of my passions.  I firmly believe while the future is hard to predict, at least thinking about possibilities will make it easier to deal with when they happen. And also because it is such a fascinating thing to do.  But it is very hard.

I was intrigued by a lecture by Tim Harford at the LSE – which also contained two nuggets that I think would transform many a company.

He talks through the dismal record of expert economists in predicting the future – basically their success rate is the same as an Orangutan with no knowledge of economics. Over time they will be 50% right and 50% wrong.

Towards the end of the lecture he does provide a ray of hope however as to how forecasting might be improved.  Research says that the two things that make a real difference to forecasting accuracy are an open mind (one that is willing to accept that you might have been wrong) and a real seeking after feedback and then the ability to act on the feedback.

whistle, blowing whistle

Very few individuals are prepared to do this – and even fewer companies.  I listened this morning to the report into whistle blowing in the NHS and to the spokespeople for the NHS and the government who were clearly in various stages of denial.

But boards who are responsible for the strategic direction of their companies cannot afford the luxury of denial.  It’s comforting, but it is ultimately fatal.

Very few boards ever look back and systematically review past strategic decisions and the business cases that underlie them.  As a non-exec and chair, I’ve found this one of the most difficult areas to challenge and yet be supportive on. When you read the chief exec’s report, it is so easy to be sucked in with the excuses given – the market changed, the currency moved against us, it was a different management team, etc etc.

As a board, there has to be collective responsibility before you can do a good review – and that is easier said than done.  It may not have been done on your watch but you need to understand at a very deep level why decisions were made to take a particular course of action.  Oddly enough, if the course of action was successful there seems to be less incentive to analyse what got you there – everyone is too happy basking in the glory.

So what can boards do?  Here I share the approach that I have developed over the years – which of course is ‘in an ideal world’. Each stage is easily scuppered by both egos and fear, but I’ve learnt that the more brutal and honest you can get your colleagues to be, the more successful you tend to be in the future

  • Set out a review timetable when you approve a business case.  Theoretically this is the easiest part, but it still needs careful thinking as to what the review points will be.  Examples are typically
      • Points where spend reaches a specified level
      • Points where revenue or customers or whatever your success measure is reaches the level you had forecast
  • Decide who and how you want to review it
      • It should not be the team that wrote the business case or did the deal.  Find some other people.  Every now and then bring in some outsiders because they will have a more objective view
      • It should not be the team executing on the business case – they have a vested interest in telling you everything is well
  • Listen very carefully to the report with the assumption that it is true.  It is all too easy to dismiss bad news. This is where a strong chair can play a key part in setting the tone for listening to the feedback
  • Discuss and decide what you are going to do and what the lessons are for the future.
  • Incidentally if your reaction is to search for the guilty then go and look in a mirror – the board approves strategy.

I believe this process helps us to be better forecasters of the future, building on successes and avoiding expensive failures.  The future is never easy to predict but with diligence there is a reasonable chance of getting a better track record than an orangutan – or even an economist!

Have you found it challenging to get colleagues to do reviews of the past – would love your tips and stories about the hardest bits and any tips to share.

 

1 comment

  1. Your comments about collective responsibility struck home, having just this week seen HSBC in front of the Treasury Select Committee, chaired by Andrew Tyrie MP. The MP challenged HSBC chairman Douglas Flint and ceo Stuart Gulliver about their apology – was it collective or individual responsibility http://bit.ly/1zPTU4P. He made an interesting point that when banks have success, the leaders are happy to accept their individual part in the success – through their bonuses. Yet when it comes to accepting responsibility for failures or wrongdoings, it becomes collective. Your analysis above reflects exactly the importance of individual responsibilities?

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