Author: Tom Koor

Tom Koor

Society does not trust its leaders and institutions. V6

Society does not trust its leaders and institutions. V6

 What is the purpose of this article?

  • To enable boards of directors, C-Suite, and shareholders to begin a discussion regarding: the value of society’s trust in them, and whether action must be taken to increase trust.

You can download a PDF of this article from: Society does not trust its leaders and institutions V6

What are the critical learnings in this article?

Globally,

  • The majority of people believe government and business leaders purposefully try to mislead people.
  • 40% of the American public believes problems with their social institutions cannot be fixed and to just “let them burn”.
  • Governments are seen as far less competent, and ethical, than business.
  • 74% believe that elected officials don’t care what people like them think.

In Canada,

  • Only 5% of Canadians believe the next generation will be better off.
  • 65% of Canadians believe economic growth means increased income for the rich.

I wonder how society can survive when the population doesn’t trust leaders and institutions and believes leaders are only looking after themselves.

Most Canadian believe that economic growth is harmful to them.1

Politicians talks about economic growth.  What do Canadians think that means to them as individuals?

  • Only 1/3 of Canadians believe economic growth is a good thing.
  • 72% of Canadians believe that economic growth means a higher cost of living to them.
  • Only 22% of Canadians believe that economic growth will lead to a more equal Canada.
  • 65% of Canadians believe that economic growth means increased income for the rich
  • Only 1/3 of Canadians believe that economic growth means higher wages for the low and middle class.
  • Only 5% of Canadians believe that the next generation will be better off.

 Employees do not trust their leadership and are not connected with their company. 2

  • Only 23% of U.S. employees strongly agree that they trust the leadership of their organization
  • 51% of currently employed workers around the world say they are watching for or actively seeking a new job,
  • Only two in 10 employees feel connected to their organization’s culture.
  • Only four in 10 employees report unethical behaviour at work if they have firsthand knowledge of it.

American’s trust in government and the traditional mass media continues to drop.

October 14, 2024 Gallup Survey findings:3

  • 36% have no trust in traditional mass media (Newspapers, TV, radio) 33% have not much trust Only 8% have a great deal of trust.
  • 19% have no trust in the Senate and House of Representatives. 46% have not much trust only 4% have a great deal of tryst.
  • 26% have no trust in the federal government to handle domestic problems 36% have not much trust. Only 8% have a great deal of trust.
  • 21% have no trust in the Supreme Court. 30% have not much trust.  Only 12% have a great deal of trust.

There is a massive difference in how Democrats and Republicans trust the government and mass media, as shown in the footnoted report.

My observation: this helps explain why so many Americans think the country is going in the wrong direction.

 How many people trust CEO, business leaders, and the government?

The 2024 Edelman Global Trust Barometer4 has disturbing global statistics:

  • 49% of people in developed countries trust NGOs, business, government, and media. (It’s 63% in developing countries)
  • 79% of the general population in China trust business, government, and media.
  • Governments are seen as far less competent, and ethical, than business.
  • 63% of people trust business. 51% trust government. 49% in Canada. 40% in the US.
  • 63% of people believe that government leaders are purposely trying to mislead people by saying things they know are false or gross exaggerations. 64% feel that way about journalists and reporters, 61% about business leaders.
  • 74% of people trust scientists to tell the truth about new inventions and technologies. 51% trust CEOs and 45% trust government leaders.
  • 88% of people worry about job loss, 76% worry about climate change, 73% worry about nuclear war.
  • 59% believe that government lack competence to regulate emerging innovations.
  • 62% expect CEOs to manage changes occurring in society, not just those occurring in their business.

The 2024 Edelman Canadian Trust Barometer5 show Canada is similar to the rest of the world.

  • 53% of people in Canada trust NGOs, business, government, and media.
  • 57% trust business, 51% trust the media, and 49% trust government.
  • 39% of Indigenous trust business, 41% trust media, and 28% trust government.
  • 82% are worried about job loss, 71% about climate change, and 70% about nuclear war.
  • 77% trust scientists to do what is right, 74% trust teachers, 43% trust government leaders, and 39% trust CEOs.
  • 60% of people believe that government leaders are purposely trying to mislead people by saying things they know are false or gross exaggerations. 59% about business leaders. 55% feel that way about journalists and reporters,
  • 59% believe that government regulators lack adequate understanding of emerging technologies to regulate them effective.
  • 41% believe scientists do no know how to communicate with people like me.
  • 74% tryst scientist to tell the truth about new innovations and technologies. 40% trust CEOs and government leaders.
  • 59% expect CEOs to manage changes occurring in society, not just those occurring in their business.

How many Americans believe that their political institutions should be burned to the ground?

6 surveys done in 2018 by Professors Michael Bang Petersen, Mathias Osmundsen, and Kevin Arceneaux6 revealed:

  • 24% of the American public agreed “society should be burned to the ground”
  • 40% of the American public agreed “we cannot fix the problems in our social institutions we need to tear them down and start over” and “when it comes to our political and social institutions, I cannot help thinking ‘just let them all burn’”.
  • Key findings include: people are so discontent that they do not care about truth; people deliberately share false and hostile rumours on social media with the goal ”to mobilize the audience in pursuit of chaos.”

What are some key findings from Harvard’s Fall 2023 survey of U.S. youth, 18-29 years of age7

  • What % trust neither Joe Biden nor Donald Trump to handle the following issues: Israel-Hamas War: 44%; Climate change: 39%; Gun violence: 39%; Crime and public safety: 37%; protecting democracy: 32%.
  • Youth believe that the American economy is in worse shape that the personal situation. Very Bad (American 22%, personal 9%), Fairly Bad (American 48%, personal 24%, Very Good (American 3%, personal 13%)

 What are some key findings from the Pew Research Center’s Global Public Opinion survey regarding democracy, published February 28, 20248

  • 59% are dissatisfied with how their democracy is working.47% of Canadians are dissatisfied. 66% in the US are dissatisfied.
  • 74% believe that elected officials don’t care what people like them think. 64% believe this in Canada. 83% in the US.
  • 42% say no political party in their country represents their views. 35% of Canadian’s believe none of the political parties represent them. In the US its 49%.
  • 77% believe a representative democracy (people elect those who will pass laws) is a good way to govern.
  • 70% believe direct democracy (people directly vote on laws) is a good way to govern. 70% in Canada believe it’s somewhat good or good. In the U.S. it’s 66%
  • 58% believe having experts govern is good. 49% in Canada believe it’s somewhat good or good. In the U.S. it’s 48%.
  • 31% of people in Canada believe representative democracy is a very good way to govern. This is a drop from 43% in 2017. 14% believe it’s bad or somewhat bad. In the US it’s 23% believing bad or somewhat bad
  • 52% have an unfavourable view of their national leader.58% have unfavourable view of opposition leader. 55% have unfavourable view of political parties.

My personal observation

  • If people believe their interests are not being looked after by institutions and society, then the sense of frustration can lead to tearing them down. I wonder if politicians, CEOs, and boards of directors understand the long-term implications of their deliberate or accidental actions to destroy the public’s trust in them.

What are your next steps?

  • Conduct an anonymous survey of your board of directors, CEO, and C-Suite to learn their perception of how important trust in them is, in order to achieve the company’s long-term value creation.
  • Survey your board of directors, CEO, C-Suite, employees and other members of your company’s ecosystem, top learn the degree of trust in the board of directors, CEO, and C-Suite.
  • Analyze the results to determine if: trust is needed, and if improvements in trust are needed.

What further reading should you do?

  • Read each of the articles in the footnotes below, to understand further details regarding the lack of trust and the perceived issues with capitalism and democracy.

Footnotes

1 “Canadians think ‘economic growth’ is a bad thing. What’s going on?” Globe and Mail, Sep 05, 2024, Tony Keller article, Tony quotes from the Boston Consulting Group’s Canadian Consumer Sentiment Survey, done in May and June 2024.

https://www.theglobeandmail.com/business/commentary/article-canadians-think-economic-growth-is-a-bad-thing-whats-going-on/#:~:text=Sixty%20per%20cent%20expect%20higher,just%2013%20per%20cent%20disagree.&text=Overall%2C%20the%20survey%20finds%20that,cost%20of%20living%20for%20them.

2 “6 worrying workplace numbers – and what you can do about it”, Gallup Survey November 01, 2023

https://www.gallup.com/workplace/513491/worrying-workplace-numbers.aspx

3 ”Findings from the 2024 American Values survey”, Survey done in August 2024

PRRI is a nonprofit, nonpartisan organization dedicated to conducting independent research and driving conversations at the intersection of religion, culture, and politics.

https://www.prri.org/research/challenges-to-democracy-the-2024-election-in-focus-findings-from-the-2024-american-values-survey/

4 2024 Edelman Trust Barometer – global report

https://www.edelman.com/trust/2024/trust-barometer

5 2024 Edelman Trust Barometer – Canada

https://www.edelman.ca/trust-barometer

6 Professors Michael Bang Petersen, Mathias Osmundsen, and Kevin Arceneaux “A ‘Need for Chaos’ and the Sharing of Hostile Political Rumors in Advanced Democracies”.  In 2019 won the award for best paper in the Political Psychology division of the American Political Science Association.  The %’s referred to area on page 32.

7  https://iop.harvard.edu/youth-poll/46th-edition-fall-2023

8 https://www.pewresearch.org/global/2024/02/28/representative-democracy-remains-a-popular-ideal-but-people-around-the-world-are-critical-of-how-its-working/

Tom Koor

Are company values valuable?

What is the purpose of this article?

The purpose of this article is to enable boards of directors, the C-Suite, and major shareholders to discuss the purpose of company values.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: Are company values valuable

What are the critical learnings in this article?

  • I’ve seen countless company value statements
  • I’ve never been clear on the value of the value statements.

What are some examples of company values?

The following examples came from a quick search of the web

Accountability: make it happen

Diversity: Learn from difference

Empathy: Put others first

Fun:1

Integrity: We hold ourselves to the highest standards to build trust

Integrity: act with honor

Integrity: Do what’s right

Passion: Be your best

Respect: value every voice

Responsibility: Make tomorrow better

What are some questions for discussion?

  • Does everyone from temporary/gig workers to the board directors understand the values?
  • What do these values actually mean in terms of what each person in the company does: their behaviours, actions, and decisions.
  • Are values used to hire, assess, and terminate employees at any level. g. do you not hire someone because they don’t 100% of the time put others first? Does the board of directors governance committee not put a director forward for election because the candidate is not funny enough?
  • Do employees join or leave the company because of the documented values?
  • How are the values use? E.g. at Are the value reviewed at the beginning of each board of directors meeting? Is every board decision and action reviewed for compliance with values?
  • What is the relationship between values and a code of conduct or a code of ethics?
  • What is the relationship between values and morals?
  • What problem and need do documented company values help solve?
  • What is the purpose of having documented company values?
  • How do you measure the use and benefit of documented company values?

What are your definitions of what values, morals, and ethics are?

The following are the definitions I use:

Values: Values are the rules by which people make decisions about what they should or should not do. Values have different importance’s, which is helpful when needed to trade off or balance one value versus other values. Values are what someone thinks and feels internally.

Morals: Morals are decisions, actions, and behaviours which other people feel are right or wrong, good or bad.  Morals are actions and behaviours arising from one or more values.  Not all values are related to morals.  You are judged by others as to whether or not your actions and behaviours are moral or immoral.

Ethics: Ethical decisions, actions, and behaviours are based on following a documented set of standards or principles.   Many companies and professions have a Code of Ethics.

Note that the values people use to make decisions and guide their actions may be very different from the documented company values.

 What are your next steps?

  • Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
  • Individually survey and interview the board directors and C-Suite regarding the questions in the section above.
  • Analyze the feedback to determine issues or conclusions.
  • Review with the board of directors and agree upon an action plan. One possible action is “do nothing”.

Footnotes

1 At least 12 companies, such as Best Buy, have Fun as one of the company values.

 What further reading should you do?

What are the values of the U.S. Army?

https://koorandassociates.org/values-morals-and-ethics/values-u-s-army/

Tom Koor

What is the corporate governance ecosystem? V2

What is the corporate governance ecosystem? V2

 What is the purpose of this article?

The purpose of this article is to enable a discussion and action planning among owners/shareholders, boards of directors, CEOs, C-Suite, and advisory boards regarding the company’s governance ecosystem

This article does not provide tax, legal or financial advice.  You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What is the corporate governance ecosystem V2

What are the critical learnings in this article?

  • The corporate governance ecosystem is the same as your company’s ecosystem.
  • Your company’s ecosystem can enable your company’s success or destroy your company.
  • Like natural ecosystems, the firms involved in business ecosystems compete for survival with adaption and often extinction.

What is corporate governance?

“Corporate governance involves a set of relationships between a company’s management, board, shareholders and other ecosystem members.  Corporate governance also provides the structure and systems through which the company is directed and its objectives are set, and the means of attaining those objectives and monitoring performance are determined”.1

What is the corporate governance ecosystem?

The corporate governance ecosystem is the same as your company’s ecosystem

What is your company’s ecosystem?2

A corporation’s ecosystem is the network of people and organizations, (including the board, management, shareholders, employees, regulators, suppliers, partners, competitors, the media, rating agencies, communities, NGOs (Non-Governmental Organizations), other third parties, organizations that create and commercialize new technology and society) directly and indirectly involved in the operation of the business through both competition and cooperation.

The idea is that each entity in the ecosystem will affect and is affected by the others, creating a constantly evolving set and nature of relationships in which each entity must be flexible and adaptable in order to survive, as in a biological ecosystem.

The actions and behaviours of the ecosystem vary, depending upon what attribute of the corporation is considered. For example, the ecosystem has different behaviours when regarding the second-to-second corporate delivery of products or services versus when the corporation is dealing the event of personal information of hundreds of millions of users being hacked.

Like natural ecosystems, the firms involved in business ecosystems compete for survival with adaptation and often extinction.

In today’s rapidly changing business world, a company creates its own ecosystem or comes up with a way to join an existing ecosystem by providing an advantage that is currently lacking in that ecosystem.

Why do you need to understand your company’s corporate governance ecosystem?

  • Your company’s ecosystem can enable your company’s success or destroy your company.
  • You cannot manage what you don’t understand.
  • McKinsey has written “..each company must earn the ‘social license’ to be in business..”3
  • Understanding of the governance ecosystem can be a competitive advantage, or disadvantage. A global McKinsey survey showed that less than 20% of executives had frequent success in influencing government policy and the outcome of regulatory decisions.4
  • Influencing your ecosystem starts with listening to the ecosystem members. Then you begin a variety of communications approaches with key members of your ecosystem.
  • Governance requires management of the conflicts of interest among your company’s ecosystem members.5
  • Your company’s scenario planning must include scenarios regarding what your future ecosystem will look like, who the key members will be, and how ecosystem members might interact with each other and your company

What are your next steps?

Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.

Questions for your board and CEO/management to consider. Ask the following questions and document the agreed upon answers, as well as points of disagreement.  Remember, the Supreme Court does not always have a unanimous point of view.

  • Who are the key members of the governance ecosystem? Which members assess the performance of the company?  Which members believe they should have some sort of involvement in the objective settings and planning to meet the objectives?
  • Who is managing the relationship with each key ecosystem member? Board?  CEO, C-Suite?  Employees?  Contractors? What is the nature of the relationship? (observing, communicating, meetings, working together or working against)
  • Which members, if any, have you decided not to have relationships with?
  • What is your process for setting objectives for the board and management? How do the relationships impact setting the company’s objectives? What are the various interests of the ecosystem members?  How does the board and management deal with the many conflicts of interests and expectations?
  • What is your process for determining how the board and management meet their objectives?
  • How do you assess the performance of the board and management, in creating long term value and in meeting their respective objectives?
  • How are the members of the ecosystem involved in the setting of objectives, plan preparation, and performance assessment?
  • How do you communicate the objectives, plans, and performance to the members of the ecosystem?
  • What are the different perspectives among ecosystem members as to how to monitor and assess the company’s performance? How is the board’s, and CEO’s performance measured by different components of the ecosystem?
  • Based on the answers to the above questions, what is the action plan, if any, for the board and for management?

Footnotes

1 Based on “G20/OECD Principles of Corporate Governance”, 2023  Page 6. I changed “stakeholders” to “other ecosystem members”, https://www.oecd.org/en/publications/2023/09/g20-oecd-principles-of-corporate-governance-2023_60836fcb.html

2 Adapted from Investopedia 2023

3 Jim Brennan, Greg Kelly, and Anne Martinez “Tough choices for consumer goods companies” McKinsey Dec 2013, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/tough-choices-for-consumer-goods-companies

4 John Browne and Robin Nuttall, “Beyond corporate social responsibility: Integrated external management”, McKinsey Quarterly, March 2013, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/beyond-corporate-social-responsibility-integrated-external-engagement

5 Professor Didier Cossin and Abraham Hongze Lu, “The four tiers of conflict of interest”, IMD, Global Board Center, https://www.imd.org/research-knowledge/articles/the-four-tiers-of-conflict-of-interest-faced-by-board-directors/

What further reading should you do?

What is corporate governance?

https://koorandassociates.org/corporate-governance/what-is-corporate-governance/

Your company will fail.

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

 What does society thinks of institutions and corporations “56% companies that only think of themselves will fail”, “60% CEOs are driven more by greed than by a desire to make a positive difference in the world”,2018  Edelman Trust Barometer Global Report, https://cms.edelman.com/sites/default/files/2018-01/2018%20Edelman%20Trust%20Barometer%20Global%20Report.pdf

Jeffrey Sonnenfeld, Melanie Kusin, and Elise Walton “What CEOs really think of their boards”, Harvard Business Review 2013 April, https://hbr.org/2013/04/what-ceos-really-think-of-their-boards

Professor Didier Cossin and Estrelle Metayer “Does your board really add value to strategy?”, IMD Global Board Center, https://www.imd.org/research-knowledge/articles/board-strategy/

Tom Koor

What is corporate governance? V4

What is corporate governance? V4

 What is the purpose of this article?

The purpose of this document is to enable founders, CEOs, management, investors, shareholders, boards of directors, advisory boards to create a shared understand of their company’s corporate governance.

This article does not provide tax, legal or financial advice. You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What is corporate governance V4

 What are the critical learnings in this article?

  • Corporate governance is broader and deeper than just the board of directors.
  • Discussion around governance is often very silo based and depends upon the specific background of the governance advisors. After company management, its board, and its shareholders have heard from several different advisors, there is often a confusing and disjoint picture of governance with limited shared understanding.
  • You need a shared understanding of the definition of corporate governance, the purpose of corporate governance, and the purpose of the corporation to avoid confusing and conflicting decisions and behaviours.

What is corporate governance?

“Corporate governance involves a set of relationships between a company’s management, board, shareholders and other ecosystem members.  Corporate governance also provides the structure and systems through which the company is directed and its objectives are set, and the means of attaining those objectives and monitoring performance are determined”.1  (See the Further Reading section for a link to the article “What is the Corporate Governance Ecosystem?)

Based on the above definition, there are five aspects to corporate governance:

  • The focus is on relationships among different types of people.
  • Directing the company. Appendix 1 provide a sample definition of directing.
  • Setting objectives. People set objectives.  The board directors, company management, shareholders, stakeholders and third parties all have different interests and personal objectives.  The conflicts of interest need to be understood and managed to agree upon objectives for the board and for management.
  • Determining how to meet objectives. People have to develop plans which reflect what they will do to achieve the objectives.  Both the board and management have objectives and plans.
  • Monitoring performance. The performance of people (the board and management) is monitored. Everyone needs to understand the personal consequences of not achieving objectives.

Also implied in the above definitions:

  • Who can make decisions and how are those decisions made?
  • What are the consequences for decision makers who make poor decisions?
  • Who has the authority to act on behalf of the corporation and in what specific situations?
  • Who is accountable for behaviour and outcomes?
  • How are those people who are accountable for execution involved in decision making?

 What are the challenges of understanding corporate governance?

Discussion around governance is often very silo based and depends upon the specific background of the governance advisors e.g.

  • Lawyers often start with the Business Corporations Act. Sometimes the legal framework is a social purpose corporation, such as a B Corp., a partnership or a joint venture.
  • Regulators often start with financial risk management guidelines.
  • Accountants often start with quality of financial statements.
  • Consultants have a variety of different points of view.
  • IT (Information Technology) governance advisors have an IT-centric perspective.
  • Private corporations may have unanimous shareholder agreements, which limit the decision making and accountability of the board of directors by reserving certain decisions for the shareholders.
  • Any corporation could have a voting trust comprised of some or all of the shareholders.
  • Financing agreements may have terms and conditions which constrain the company’s decision making and may even provide the financers with decision making authority in certain situations.
  • Values, morals, ethics, company purpose and culture are a critical, but often overlooked, part of corporate governance.

Often there is a legal perspective of acting in the best interests of the corporation or the shareholders or other members of the company’s ecosystem.  What does this actually mean? Two example questions, for which I don’t have the answers:

  • If climate change is real, should the company reduce or eliminate its impact on global warming, even if that reduces company profits, shareholder dividends, and compensation for the board of directors and C-Suite?
  • Should the company lobby governments to reduce or eliminate environmental laws and standards in order to increase company profits?

After company management, its board, and its shareholders have heard from several different advisors, there is often a confusing and disjoint picture of governance with limited shared understanding.

Sometime there is confusion between a fiduciary(i.e. decision-making board )vs an advisory board. 

  • The decision-making board has the authority to make decisions and is accountable for the results of those decisions.
  • The advisory board has no authority to make decision and is not accountable for the actions of the board of directors, C-Suite and others in the company.

 What is the purpose of the corporation?

What is the purpose of your corporation?  Is it solely to make money for shareholders and the C-Suite? Does the purpose of your corporation help attract and retain the right kinds of employees?

Why have societies and governments put in place the legal and regulatory framework for corporations?  Is it to enable the creation of financial wealth for shareholders and the C-Suite?  Is it so a “business can thrive and sustain growth while enhancing the wealth of its stakeholders and the well-being of societies in which it operates?”2

The U.S. perspective on the relationship between the corporation and society has changed radically since 1981

 In 1981: “Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.” “Business and society have a symbiotic relationship: The long-term viability of the corporation depends upon its responsibility to the society of which it is a part.  The well-being of society also depends upon profitable and responsible business enterprises.”3

In 2016: “Core guiding principles: The board approves corporate strategies that are intended to build sustainable long-term value.”5 There is no mention of responsibility to society.

Larry Fink, in his 2018 letter to CEOs, said “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate…..Without a sense of purpose, no company, either public or private, can achieve its full potential…..And ultimately, that company will provide subpar returns to the investors”4

 The purpose remains fixed while operating practices, cultural norms, strategies, tactics, processes, structures, and methods continually change in response to changing realities. 5

 What is the purpose of corporate governance?

The purpose of corporate governance is to enable the achievement of the purpose of the corporation, consistent with the corporations’ values, morals, and ethics.

Corporate governance manages the broad set of conflicts of interests which arise. The OECD governance definition starts with relationships: within corporate leadership, as well as stakeholders and third parties.  Any relationship has the potential for conflict of interest, because company ecosystem members may have different or conflicting interests.  For example, how should both profits and costs be allocated among the ecosystem members, including: CEO, C-Suite, shareholders, employees, and society. This conflict become acute in cases of poor profits or losses.

Perhaps the greatest conflict of interest is deciding the degree to which the corporation extracts value from society versus creating value for society. An example is the decision on whether to whether to replace local community employees with lower-cost offshore staff which may benefit the off-shore communities or retain the employees in order to sustain local communities.

What are some of the different contexts for a board of directors?

  • A two-tier board (a management board and a supervisory board) in Germany, and some other European countries
  • A certified B Corporation in the United States
  • Crown corporations in Canada
  • Corporations with a Golden Share
  • Multi-class shares
  • Shareholders voting trust
  • Unanimous shareholders agreement in a private company. Etc.

What are your next steps?

Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.

#1 Survey the board of directors, C-Suite, advisory board(s), and key other members of your company’s ecosystem to determine what they perceive to be:

  • The purpose of your corporation.
  • Your company’s corporate governance.
  • The purpose of your company’s corporate governance.
  • Your board of directors’ decision-making model.

#3 Analyze the surveys to identify the implication on value creation.

#4 Agree upon: the purpose of your corporation, your definition of corporate governance, the purpose of corporate governance, and the board’s decision-making model.

#5 Review and revise corporate governance documents, processes, and technology to align with #4

#6 Review other governance within your company, to align with #4 and #5 above,

 Footnotes:

1 Based on “G20/OECD Principles of Corporate Governance”, 2023  Page 6. I changed “stakeholders” to “other ecosystem members”, https://www.oecd.org/en/publications/2023/09/g20-oecd-principles-of-corporate-governance-2023_60836fcb.html

2 Dr. Didier Cossin, Boon Hwee Ong, Sophie Coughla, “Stewardship fostering responsible long-term wealth creation”, IMD, Global Board Center 2015, https://www.imd.org/globalassets/board-center/docs/stewardship_2015.pdf

3 Ralph Gomory and Richard Sylla, “The American Corporation”, April 2013, page 6, The Wall Street Journal http://online.wsj.com/public/resources/documents/50b74ca9c91e6TheAmericanCorporation11292012.doc.pdf

4  https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter

5 Page 17 The five most important questions you will ever ask about your organization (2008)   by Peter F. Drucker,  Jim Collins et al, I adapted.

Further reading

What is the corporate governance ecosystem?

https://koorandassociates.org/corporate-governance/what-is-the-corporate-governance-ecosystem/What is the purpose of your company?

https://koorandassociates.org/corporate-governance/what-is-the-purpose-of-your-company/

How can the board of directors create value?

https://koorandassociates.org/corporate-governance/how-can-the-board-of-directors-create-value/

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

 

APPENDIX 1 Sample definition of directing the company

In the context of corporate governance, “directed” refers to the guidance, oversight, and strategic leadership provided to a company by its board of directors and senior management. Specifically:

  1. Strategic direction: The board of directors sets the overall strategic direction and goals for the company, guiding its long-term vision and objectives.
  2. Decision-making: “Directed” implies that key decisions about the company’s operations, investments, and policies are made or approved by the board and executive leadership.
  3. Oversight: The board provides oversight of management’s actions and performance to ensure they align with the company’s goals and stakeholder interests.
  4. Policy setting: The board establishes and approves corporate policies, procedures, and guidelines that govern how the company operates.
  5. Resource allocation: Direction includes decisions on how to allocate the company’s resources to achieve its objectives effectively.
  6. Risk management: The board directs the company’s approach to identifying, assessing, and managing various risks.
  7. Ethical standards: Direction involves setting and maintaining ethical standards and corporate culture.
  8. Ecosystem relations: The board guides how the company interacts with and balances the interests of various ecosystem members, including shareholders, employees, customers, and the community.

In essence, “directed” in corporate governance means that the company is guided and managed in a structured, purposeful manner by its leadership, rather than operating without clear guidance or oversight. This direction aims to ensure the company operates efficiently, ethically, and in alignment with its stated objectives.

Tom Koor

Can leaders (U.S. Presidents, Board Directors, CEOs) have an “Off Day”?

Can leaders (U.S. Presidents, Board Directors, CEOs) have an “Off Day”?

#1 In the June 27, 2024 debate between President Biden and Donald Trump, President Biden showed signs of mental issues and cognitive decline.  What if during those 90 minutes, there’d been a crisis, and President Biden had to make the decision on whether or not to launch nuclear missiles? U.S. Presidents sometime need to make momentous decisions with limited preparation time. Given the impact of these decisions, should U.S. Presidents be allowed any “off days” when they have degraded mental capabilities?

#2 Are company board directors allowed to have “off days”?  Should a board director be allowed to make decisions (e.g. CEO appointment, CEO termination, accepting/rejecting M&A offer, etc.) when their mental capabilities are degraded? If not, what processes does your board have in place to prevent this?

#3 Are company CEOs allowed to have “off days”? Should your CEO be allowed to: make recommendations (e.g. presenting strategy to the board of directors), decisions, and communications (e.g. live global virtual town hall) when their mental capabilities are degraded?  If not, what processes does your board have in place to prevent this?

Tom Koor

Does your board compensation reflect board value? V2

Does your board compensation reflect board value? V2

 What is the purpose of this article?

Enable investors, the board directors, and management to discuss the board’s impact on value creation and related compensation.

This article is focused on for-profit company boards, not: charities, government entities, or not-for-profit organizations.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You cand download a PDF of this article from: Does your board compensation reflect board value V2

What are the critical learnings in this article?

  • The board of directors’ impact on value creation is unclear.
  • The relationship between director compensation and value creation is unclear.

Let’s assume your company has the principle that value creation is reflected in compensation. 

  • CEO compensation can range up to $100 of millions per year.
  • At the June 13, 2024 Tesla Annual General Meeting, shareholders were voting on Elon Musk’s $56 billion compensation package (yes – $56 billion).
  • Many C-Suite and senior executives make millions of dollars a year.

What does board compensation look like in one of Canada’s largest public companies?

This is a typical situation. I won’t mention the company name, which could distract the conversation.

  • The CEO compensation is more than $10 million per year.
  • The CEO compensation is about three times the total compensation of the board.
  • The average director compensation in this company is what a successful MBA graduate would make in their third year in a tier 1 strategy firm.

What is the relationship between board compensation and value creation?

Do the differences between board compensation and management compensation reflect:

  • The board having little impact on value creation?
  • The board has decided to allocate the bulk of its value creation impact to others in the company’s ecosystem e.g. executives?
  • The boards of large companies view their contribution as charitable or giving back to society?
  • Or something else?

The ability of talent to create value in a specific company is impacted by several factors, including:

  • The company’s brand or reputation.
  • Intellectual property.
  • Technology
  • Processes
  • Business Partners
  • Capital

Let’s not forget luck.

Why should you focus on value creation?

  • I’ve seen countless companies that that talk about strategic objectives, strategic initiatives, strategic etc. I’ve seen these achieved, while value creation is poor, and in some cases the company fails and goes out of business.
  • This is one of the reasons I talk about value creation plans and not strategies. A discussion about “successfully achieving a strategy” is very different from a discussion about “successfully achieving value creation”

What are your next steps?

Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.

Discuss and agree upon:

  • Does the board of directors have ultimate authority? If not, who does?
  • Does the board of directors have ultimate accountability for your company’s performance and value creation? If not, who does?
  • If your company has controlling shareholders (e.g. private equity, voting trust, unanimous shareholders agreement) do they have ultimate authority and accountability for company performance and value creation? If not, who does?
  • What does accountability mean? If the people with accountability have poor personal performance, what are the implications for those people?
  • What are the principles used to determine the value creation of each person in the company, including board directors?
  • What are the principles used to determine how much of each person’s value creation should be in their personal compensation vs allocated to others?
  • What is your company’s overall value creation plan, metrics/KPIs (Key Performance Indicators), process for setting value creation targets, and process for tracking results.
  • What % of your company’s pre-tax profits are allocated to: the board of directors, each director role, and each role in the C-Suite?
  • Based upon the above, discuss the compensation of the board relative to their value creation. And do a benchmark comparison with other companies.
  • Based on the above, discuss the potential for value creation in director roles, and the implications for the director capabilities.

 What further reading should you do?

Professor Dieder Cossin and Estrelle Metayer “Does your board really add value to strategy?”, IMD Global Board Center

First sentence in the article is “Boards are ultimately responsible for the long-term success of their organisations.”

https://www.imd.org/research-knowledge/articles/board-strategy/

Jeff Bezos 2020 letter to shareholders – his final one.  He quantities value creation in financial terms for some members of Amazon’s ecosystem.

https://www.aboutamazon.com/news/company-news/2020-letter-to-shareholders

“Traditional corporate governance dooms your company to failure”, Koor and Associates

https://koorandassociates.org/corporate-governance/5786-2/

“Is your company planning to fail?”, Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Tom Koor

Elite talent – What is it? V2

Elite Talent – what is it? V2

 What is the purpose of this article?

Enable the investor, founders, board of directors and C-Suite to discuss the role of elite talent in their company’s success.

You can download a PDF of this article from: Elite talent – what is it V2

What are the critical learnings in this article?

  • A small percentage of people can generate much of the value within any team or role. This is elite talent.
  • A small percentage of roles can generate much of the value within your company. This is high potential elite talent.
  • Elite talent is rare. High potential elite talent is even rarer.

What is the value and need for elite talent?

In today’s competitive business environment, there is unlimited capital for companies that have the potential to create major value,  The talent to create major value is rare.

One study of talent across many types of organizations showed that: 1

  • The top 1% of people account for 10% of the organizational output.
  • The top 5% account for 25% of organizational output.
  • The top 20% account for 80% of organizational output.

Adding one elite performer to a team, can increase overall team performance by 5-15%. 2

Google found that people performance follows a power law distribution, and not a bell curve. Top 1% of workers generate 10 times average output .3

 

McKinsey’s research on private equity portfolio company CEOs showed that: 4

  • Top quartile CEOs deliver shareholder returns that are 9% higher than industry peers, every year that they’re CEO.
  • In some industries, top quartile CEOs deliver 16% higher yearly shareholder returns.

One company with thousand of employees, found that 37 roles delivered 80% of the company’s EBITDA 5

How does “Moneyball: the art of winning an unfair game” by Michael Lewis, illustrate elite talent.

  • Billy Beane became the Oakland A’s baseball team general manager in 1997.
  • There was over 100 years of baseball wisdom on how to select talent, especially from school. The front offices, managers, coaches, scouts, and players all shared a common point of view regarding the best practices for selecting talent.
  • Billy Bean did not follow 100 years of wisdom. He took a fact-based, mathematically analytical approach.
  • The Oakland A’s then reached in playoffs in 2000 to 2003. In 2002, the A’s player budget was $44 million U.S., the New York Yankees’ player budget was $144 million U.S.

My observations:

  • You don’t need everyone to be elite. One person can change the organization.
  • The basis for change was selecting the right talent in the first place. (E.g. out of high school) rather than trying to change existing talent.
  • Money alone does not ensure elite results.
  • Fact-based analysis is critical. Cambridge physicist Ian Graham developed the mathematical model which was used to select the manager and players for the Liverpool FC rugby team, resulting in them winning the 2018-2019 UEFA Champions League.
  • You succeed if you do something both different and better than others.
  • But then the other teams copied Billy Beane’s approach. In today’s hypercompetitive world, competition improves, thus elite talent needs to also improve. If elite talent doesn’t Improve, it will no longer be elite.

Why do you need high potential elite talent ?

The definition of a high potential person is someone who can become key driver of organizational performance i.e. “generate exorbitant output that can influence the success or failure of their organization.  This is different from individual career success. Many leaders that advance in their personal career don’t turn their teams or companies into competitively differentiated success. XX

High potential people can impact your company’s success both today and in the future.  High potential people can change to continue to be elite in new roles or changing existing roles.  Yesterday’s requirement for elite capabilities may be different from today’s requirement or tomorrow’s requirements. Someone who was elite yesterday might not ne elite today or in the future.

What are the characteristics of high potential elite talent?

  • Cognitive skills
    1. Long-term memory
    2. Working memory: hang onto information while using it
    3. Logic and reasoning
    4. Visual processing
    5. Processing speed
    6. Attention
      1. Sustained – for long periods of time
      2. Selective – without distraction
  • Divided – doing two things at once
  • Ability to quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge.
  • Fluid intelligence he ability to solve problems without past experience. This is critical for innovation, which is coming up with new and better solutions.
    1. The future is impossible to predict but actions and decisions are focused on this unpredictable future.
    2. The future will also be different from the past. i.e. there won’t be historical experience to draw upon.
    3. Able to provide direction when there is no map.
  • Character
    1. VME (Values, Morals, and Ethics) Warren Buffett supposedly said “…looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
    2. Courage: It takes courage to make the right decision. The right decision is often not: the cheapest, easiest, lowest risk to the company, lowest risk to you, and what everyone else is doing.
    3. Perseverance, especially against all odds.
    4. Knowing when to stop persevering. One leader told me “If you’re digging yourself into a hole, stop digging.”
  • Relationship skills:
    1. The ability to create and sustain a network of personal relationships.
    2. Persuasion and negotiation, which is key to managing different points of view and interests.
    3. Creating and maintaining followers. A leader without committed followers is not a leader.
  • Communications activities include:
    1. Write, speaking, singing, drawing, and body language
    2. Speaking and singing also include tones, pitch, etc.
    3. Communications is two way:
  • Broadcasting
  • Listening, which includes analysis of input
    1. Communications can have a variety of outcomes, including:
  • Understanding other people
  • Changing the belief, emotions, and behaviours of others.
  • Learning such as facts, knowledge, ways of thinking.
  • Building trust and relationships.
  • Persuading people to take certain actions.
  • Gaining the emotional and intellectual support of people.
  • Creativity

A Google search of creativity reveals many very different definitions of creativity. Two definitions are:

  • “The ability to think about a task or a problem in a new or different way”
  • “Creativity involves two processes: thinking, then producing. If you have ideas but don’t act on them, you are imaginative but not creative”

 How do you select elite talent?

  • The best predictor of how someone will perform in a job is a work sample test (29%) 6 For example, when recruiting board directors, they should serve for one year as a board observer, to enable assessing them.
  • The two second best predictors are: are tests of general cognitive ability (26%); 7 and structured interviews (behavioural (tell me about a time) and situational (what would you do if) (26%). 8
  • Four interviews predict whether to hire someone with 86% confidence and each additional interviewer adds 1% confidence. 9 This assumes that you are clear on what value the role provides, the specific characteristics of people who can deliver that value, and do a combination of work sample and structured interviews.
  • The definitions of elite talent change over time. At the 2023 Collision conference is Toronto, one presentation shared a survey of over 200 Chief Technology officers. The top three things they were looking for in employees: ability to collaborate, ability to learn, ability to problem solve. Coding skills and knowledge of coding languages was not in the top 3. Several years ago, coding skills would have been the competitive differentiator.

 How do you select high potential elite talent?

  • You first select for elite talent, using the criteria described above.
  • Then you do additional assessment using the seven high potential characteristics described above.
  • You’ll have use enhanced behavioural questions and background checking.
  • Psychological testing is also required. This can be done by software, psychologists, or some combination

What are your next steps?

  • Create the definitions which are commonly understood within your company, including: talent, value, elite talent, high potential elite talent, etc. Your words and definitions may differ from what is in this article.
  • Determine which company roles would benefit from elite talent. Consider the time, effort, and skills necessary to assess, select, and develop elite talent.  The initial scope of your analysis ranges from the board of directors through to the most junior entry level employee. Contractors may also be within scope.  If there are investors which control or greatly influence your company, they are also within scope.
  • You can also focus on the roles which have the greatest current, or potential, impact on company value. These roles will require high potential elite talent. The you’ll need additional time, effort, skills, and software to assess, select and develop high potential elite talent. These roles won’t necessarily be the highest roles in the organization chart, but will be at many levels. Include the board of directors, CEO, and C-Suite in your analysis
  • You will need a process to allocate the extremely scarce high potential elite talent. Years ago, the board of directors and CEO were focused on allocating the very scarce capital – potential capital is now unlimited.  Thus, the board and CEO need to focus on talent allocation. You’ll also need a process to allocate high potential elite talent at the board of directors.

 Footnotes:

1Tomas Charmorro-Preeuzic, Seymour Adler, and Robert B. Kaiser, “What science says about identifying high-potential employees.” Oct 3, 2017

https://hbr.org/2017/10/what-science-says-about-identifying-high-potential-employees

2 Ibid

3 Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 182

4 Maria Capozzi, Sacha Ghai, John Kelleher, and Kurt Strovink, “CEO alpha:  a new approach to generating private equity outperformance”, McKinsey article March 2023

https://www.mckinsey.com/industries/private-capital/our-insights/ceo-alpha-a-new-approach-to-generating-private-equity-outperformance

5 Ibid

6 Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 91

7 Ibid., 91

8 Ibid., 91

9 Ibid., 103

Tom Koor

AI Talent – What is it? V2

AI talent – what is it? V2

 What is the purpose of this article?

This article enables business leaders to begin a discussion of what is AI and the value talent.

The audience for this article includes: the board of directors, C-Suite, and investors.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: AI Talent – What is it V2

What are the critical learnings in this article?

  • Generative AI is software which creates content, such as text, that has never existed before.
  • ChatGPT-4 doesn’t “understand” text in the human sense. It’s predicting text based on patterns it learned during training.
  • Directions and questions to ChatGPT-4 are transformed into floating-point numbers, then analyzed using a large database of floating-point numbers. The result of the analysis are floating-point numbers which are then turned into text.
  • Fundamentally, ChatGPT-4 can be viewed as an advanced form of a word predictor, but it’s a highly sophisticated one. ChatGPT-4 doesn’t “understand” text in the human sense. It’s predicting text based on patterns it learned during training.
  • Scientists are sill experimenting with, and trying to predict and explain, the advanced capabilities of Generative AI.

What was the approach used to create this article?

I asked ChatGPT-4 Plus Turbo questions in December 2023 and January, February, May 2024. I summarized the answers in this article.

The scope of this article is ChatGPT-‘s abilities with text questions and text answers. I recognize that in May2024, a variety of AIs are also able to create: voice, song, image, video, spreadsheets, PowerPoint presentations, word documents, etc.

What is AI?

AI is software which simulates human intelligence, with behaviours such as learning and problem solving

How many types of AI are there?

There are two types of AI:

  • Narrow or weak: These are designed and trained for a specific task such as a virtual assistant.
  • General or strong AI: These have the ability to perform any intellectual task a human can. As of Feb 08 2024, these are still theoretical and don’t exist

How many branches of AI are there?

There are 6 branches:

  • Machine learning: makes predictions or decisions based on data.
  • Deep learning: a subset of machine learning, based on multi-layer neural networks.
  • NLP (Natural Language Processing): Can have a dialogue in a natural human language.
  • Robotics: software than performs tasks autonomously.
  • Expert systems: Solve complex problems in a way that looks like a human decision maker.
  • Computer vision: Can interpret visual images.

Software solutions may incorporate some, or all, of the branches of AI.

When were commercial software tools available for the different branches of AI?

1950s beginning of using computer for tasks that mimic human cognitive functions.  E.g. Logic Theorist.

1980s expert systems designed to mimic the decision-making processes of human experts.

1990’s, 2000’s AI technologies embedded in more generalized software, without being identified as AI.

2010s Machine learning, deep learning and big data.

2020s Large Language Models.

Is Google search an example of AI?

Yes. Some of the AI technologies in Google search include:

  • Natural language processing;
  • Semantic understanding: understanding concepts, relationships between words ,and context
  • Ranking Algorithms: ranking search results based on the authority of a website, quality of content, and how well it matches the search query.
  • Machine learning algorithms: machine learning continuously improves search algorithms, based on user interactions and feedback.

What is generative AI?

Generative AI is a type of technology that is designed to create or generate new content such as text, images, music, and code that is often undisguisable from content created by humans. The AI has been trained on large amounts of existing content.

 What is ChatGPT-4?

ChatGPT is software developed by OpenAI. It’s designed to generate human-like text based on the input it receives. ChatGPT can answer questions, write essays, create stories, and perform a variety of language-based tasks

What does GPT stand for?

GPT stands for “Generative Pre-trained Transformer.”  “Generative” indicates its ability to generate text, “Pre-trained” means it has been trained on a large dataset before being fine-tuned for specific tasks, and “Transformer” refers to the type of neural network architecture it uses.

How much data was used to generate the ChatGPT-4 model?

  • 45 Terabytes of data was used to create the ChatGPT-3 model.
  • Third party estimates are that 100s of terabytes of data were used to create the ChatGPT-4 model.

How big is the ChatGPT-4 model?

  • Third party estimates are that the model has from 1.76 trillion parameters to 100 trillion parameters.
  • I used the Perplexity AI search engine to find this information. ChatGPT-4 did not provide me with helpful answers.

What is a parameter?

A parameter is a floating-point number.

That’s right.  100s of terabytes of data are processed to create a data base of up to 100 trillion floating-point numbers.

Is ChatGPT-4 A Large Language Model?

Yes

What is a Large Language Model?

A type of AI designed to understand, generate, and manipulate human language. The “large” refers to the large number of parameters they contain, which can range to the hundreds of billions.

What is a Small Language Model?

The basic functionality is similar to a Large Language Model. There are fewer parameters, ranging from tens of thousands to a few hundred million. The models have few capabilities to: understand complex language and context, and the create appropriate content.

What are the steps to create a Large Language Model?

  • Research and Planning (defining objectives and designing the architecture)
  • Data collection, cleaning and preprocessing (filtering harmful or irrelevant content)
  • Model development: choosing a machine learning framework and creating a prototype to validate the concept.
  • Training the model: pre-training on the initial data. Adjust the hyperparameters to optimize performance. Manage the computing resources to train the model.
  • Evaluation and refinement: metrics-based performance evaluation. Fining tuning with more specific data. Analyze errors to improve the model.
  • Implement additional features
  • Testing
  • Deployment
  • Continuous improvement: monitor performance and make improvements. Update with new data.

How many people are required to create a Large Language Model?

The team size could range from 20 people to hundreds.  The skills could include: research scientists and machine learning engineers, data scientists and data engineers, software developers, systems administrators, product managers, ethics and compliance officers, quality assurance and testing specialists, and technical writers and documentation specialists.

What the major steps Chatgp-4 goes through when asked to do something?

  • The text is transformed into floating-point numbers.
  • Then these numbers are processing by the floating-point numbers in the model.
  • The output is floating-point numbers.
  • The output is then transformed into text.

Fundamentally, is ChatGPT-4 a word predictor?

  • Yes, fundamentally, ChatGPT-4 can be viewed as an advanced form of a word predictor, but it’s a highly sophisticated one.
  • ChatGPT-4 doesn’t “understand” text in the human sense. It’s predicting text based on patterns it learned during training

How does ChatGPT-4 do mathematical, financial, and statistical analysis?

ChatGPT-4 has tools capable of performing mathematical, financial, and statistical analyses

 Do scientists understand why Large Language Models are able to do what they can? Do scientists have models which can predict the behaviour and capabilities of Large Language Models?

The basic mechanism (e.g. predicting the next word in a sequence based on training data) are well understood.

As the models have gotten larger, they have capabilities that are difficult to predict or explain.

The following did not come from ChatGPT.  They are a few quotes from the article “Large language models can do jaw-dropping things. But nobody knows exactly why”  The article was published in the MIT Technology Review March 04, 2024.

  • “We don’t know what capabilities GPT-5 will have until we can train it and test it”
  • “Lots of people have opinions” but no consensus about what exactly is going on
  • “The biggest models are now so complex that researchers are studying them as if they were strange natural phenomena, carrying out experiments and trying to explain the results.”
  • “Most of the surprises concern the way models can learn to do things that they have not been shown how to do.” “This is one of the most fundamental ideas in machine learning – and its greatest puzzle”
  • “Large language models are a whole new mystery”

I still don’t understand, and cannot explain in simple terms, how ChatGPT-4 can write a birthday greeting in the style of William Shakespeare.

What are your next steps?

  • You must do your own fact-based research. The bulk of the above article was based on ChatGPT-4 responses.
  • Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
  • Identify the role. The role could be a team (such as the board of directors) or an individual.
  • Define the long-term value of the role in your company’s future scenarios. Outline the metrics for measuring the value of the role.
  • Determine the talent components required for the role. You can use the talent components in Appendix 1, or develop your own. If you already have documented talent components, review to ensure they are comprehensive.
  • This can be people, technology, or some combination
  • Define the criteria for assessing and recommending an option. These criteria include risk management. Determine how to manage risk when the outcomes of software solutions cannot be predicted or modeled.
  • Define the options for providing talent. These options could be: people, technology, or some combination.
  • Technology can range from very simple software, through different types of data/knowledge retrieval, through different types of analytical tools, through different types of AI. And there can be a combination of software.  Software can include tools and software packages. Generative AI and Large Language Models are not always the answer for every need.
  • Prepare an ongoing assessment and development process for the role. In the current, and future, hypercompetitive world, talent capabilities must continuously improve.  In the future, technology may play a greater, or lessor, part in a role.
  • Two additional factors to consider: Is a role part of the career development process for people? What will be the impact on career development if the role is automated? Is the value of the role included building and maintaining a relationship with people?  Will those people be able to have relationships with roles that are automated?

 Appendix 1 – The 10 core components of talent1

  • Self Awareness
  • Character
  • Relationship skills
  • Communications
  • Crystalized intelligence
  • Fluid intelligence
  • Cognitive skills
  • Ability to quickly learn and unlearn
  • Creativity
  • Physical capabilities

Footnotes

1 What are the core components of talent? Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Tom Koor

Networking is key to value creation. V3

Networking is key to value creation. V3

 What is the purpose of this article?

Enable business leaders to have a discussion about networking and its role in value creation.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: Networking is key to value creation V3

What are the critical learnings in this article?

  • All of your networks together can have a total of 150 people.
  • With each person in your network, you have a mutual relationship, with varying degrees of trust, support, willingness to help, emotional, and social connection.
  • Over time, people will enter and leave your networks and move between levels.

Research show that CEOs with diverse networks create higher firm value.1

How do diverse networks impact value creation?

  • CEOS obtain diverse knowledge, leading to innovation
  • Multi industry and multi country relationships lead to more business opportunities.
  • Connections with people having different cultural background, knowledge, and experience help with building a diverse workforce. Value creation requires drawing talent from many different places.
  • Provides CEO with early warning of new and changing: customer needs, competitors, workforce needs, technology, etc.,

Basically, the network provides the CEO with a broad understanding of the world around them and their company.

 What are some of the potential networking benefits to the CEO?

Networking can provide value to the CEO, the CEO’s organization, and to society.  This can be part of the CEO’s life-long learning and un-learning.

  • Exchanging ideas and getting fresh ideas.
  • Sharing and gaining new knowledge.
  • Sharing and gaining different perspectives.
  • Figuring out and getting answers to a question.
  • Being able to find other people who can help e.g. if the CEO wants to learn about taking a private company public and wants to find others who have done this.
  • Meeting their purpose in life and values by helping others when there is no personal or company benefit e.g. mentoring MBA students.

What are the benefits to people for being in the CEO’s network?

These benefits are aligned with the benefits to the CEO.

  • Exchanging ideas and getting fresh ideas.
  • Sharing and gaining new knowledge.
  • Sharing and gaining different perspectives.
  • Figuring out and getting answers to a question.
  • Being able to find other people who can help.

 What is your network?2

  • Your network is your set of relationships with people.
  • The characteristics of a network include: trust, support, willingness to help, emotional, and social connection.
  • You can have 150 people in your network, with whom you have some degree of mutual trust, support, willingness to help, emotional and social connection. 150 is a cognitive limit, determined by your psychology, your mental ability, and energy to create and maintain your network.  The 150 number is known as Dunbar’s number, determined by Robin Dunbar, a British anthropologist and evolutionary psychologist famous for his work on human social networks.
  • You may have more than 150 people in your network which means that your relationships are not as deep.

What are the different kinds of people in your network?

  • Your network may include: family, friends, neighbours, those you have hobbies with, your church, your charities, etc.
  • Your network may also include people from your business world: colleagues, employees, customers, suppliers, regulators, shareholders, etc.
  • In total, you can have 150 people with whom you can have some degree of mutual social relationship.

What are the different layers in Robin Dunbar’s overall network?

Note that the total number of relationships is 150.

  • 150 people in broader social network. Trust is more limited and based on social norms rather than personal relationships. Limited sharing of confidential information.  Support is more about advice and information sharing than emotional or financial help.  There is some willingness to hep, but based more on social norms rather than personal relationships. Limited emotional connection.
  • 50 of the 150 are friends. Trust is more limited and may be based on a specific context e.g. work. Confidentiality is still respected. General willingness to help, but requires specific request and depends upon the nature of the request. There is sill some degree of emotional connection.
  • Up to 15 of the 50 are good friends. Trust is high but not unconditional. Emotional support is still available, but to a leer degree than for 5 people. You’re still willing to help, but more often need to be asked. You still have emotional connections, often based on shared interests and experiences.
  • Up to 5 of the 15 people in your innermost circle. Trust them the most – perhaps unconditionally. You support the most, which may include financial and emotional. You are willing to help and often help without asking. You have a deep emotional and social connection, which may include love.

What do the layers look like in your business network?

  • 1,500 people (Professional recognition) There is no ongoing relationship. You may know their names, faces, and professional position but you have no ongoing relationship.
  • 150 (General Business Acquaitances) These relationships result in introductions, referrals, collaborations, and opportunities. Tend not to be deeply personal.
  • Up to 50 of the 150 (Extended professional network) Not a shared deep personal bond. Valuable for information exchange, etc.
  • Up to 15 of the 50 (Key professional contacts). A close relationship with a mutual respect and professional support. May include key customers, advisors, and colleagues.
  • Up to 5 of the 15 (Closet professional confidants). You have deep trust with them. They provide critical advice, emotional support, and are often involved in strategic decision making. They may include: advisors/mentors, business partners, or close colleagues

 How do you stay in touch with your business network?

  • 1,500 people (Professional recognition) You share your insights, learnings, and thought leadership content. You speak at events and publish.
  • 150 (General Business Acquaitances) You use general emails to share important news and updates to ensure you sate on people’s radar. You participate or host industry events to enable engaging with multiple people.
  • Up to 50 of the 150 (Extended professional network) Your monthly or quarterly newsletters provides your updates and thought capital. You share achievements and insights on LinkedIn and engage the 50 on LinkedIn.
  • Up to 15 of the 50 (Key professional contacts). You have regular video or coffee meetings, perhaps quarterly. You send personal emails.
  • Up to 5 of the 15 (Closet professional confidants). Your deep personal engagement and mutual support is enabled by regular one-on-one communication. You share personal experiences, insights, and potential opportunities.

Across all 1,500 people you maintain a consistent brand about who you are. You always look for ways to provide value e.g. knowledge, offering help, and connecting people with each other and with opportunities

 How do you grow your network of professional relationships?

  • Your network members proactively do introductions.
  • You ask your network members for introductions.
  • You meet people at events and have a follow-up meeting.
  • You do “cold call” requests for connecting.
  • You respond to “cold call” requests for connecting.

Read appendix A “The difference between a business introduction vs a referral”

 What are the greatest challenges to getting value from professional networking?

  • You don’t believe that networking is valuable.
  • You don’t believe you need to keep learning on both a broad spectrum as well as new deep domain knowledge.3
  • You are not comfortable talking about your issues and challenges.
  • You don’t know who to network with.
  • You don’t take notes during networking discussions and meetings.4

 The greatest challenge to networking is deliberately allocating time to networking.

Individuals are overwhelmed with electronic information.  2009 University of California, San Diego study estimated that the average American was receiving 100,000 words a day, about 34 gigabytes of data.5 A McKinsey Global Institute study in 2012 also estimated 100,000 words a day.6

People don’t have the time to:

  • respond to every email, text, LinkedIn msg, etc.,
  • read all the articles
  • respond and connect with every connection request
  • have regular coffee or Zoom calls with everyone they know.

You’re already swamped by the time needed for all your other networks.

In today’s hypercompetitive world, the work challenges and issues can become all consuming.

What are your next steps for your business network?

  • Define your own definitions and criteria for networking.
  • Go through your existing network of relationships, including business names, and assign them to a level e.g. 5,15,50,150,1500
  • Analyze the results. You may need to reallocate levels across your various networks.  Consider how your business network supports your value creation. You may discover weaknesses in your business network, reallocate levels, and seek to grow certain levels.
  • Create a structured process for creating and maintaining a network of business relationships. Your process will recognize that people will enter and leave your network and that the degree of closeness and engagement with individuals will change over time. This process will be supported by your CRM.

Footnotes:

1 Yiwei Fang, Bill Francis, and Iftekhar, “Research: CEOs with diverse networks create higher firm value”, Harvard Business Review, April 10, 2018

https://blog.hubspot.com/blog/tabid/6307/bid/5057/tips-from-chrisbrogan-on-how-to-beat-dunbar-s-number.aspx

2 Robin Dunbar, “Dunbar’s Number”, New Scientist

https://www.newscientist.com/definition/dunbars-number/#:~:text=The%20rule%20of%20150&text=This%20is%20what%20is%20known,basic%20military%20unit%2C%20the%20company.

3 Exhibit 3 on page 5 of this McKinsey article illustrate the need to continue to learn new deep domain knowledge into your late 70s and even early 80s.

https://www.mckinsey.com/business-functions/organization/our-insights/seven-essential-elements-of-a-lifelong-learning-mind-set

4 Notetaking is key to value creation

Note taking is key to value creation.

5 University of California, San Diego “UC San Diego Experts Calculate How Much Information Americans Consume” Dec 9, 2009

https://qi.ucsd.edu/news-article.php?id=1630

6 Daniel H. Pink, To sell is human, (New York: Riverhead Books, 2012), page 159

Further reading

Herminia Ibarra and Mark Lee Hunter,” How leaders create and use networks”, “Harvard Business Review, January 2007

If you’re going to ask someone to do an introduction

https://koorandassociates.org/creating-business-value/if-youre-going-to-ask-someone-to-do-an-introduction/

 

Appendix What is the difference between an introduction vs a referral?

What is a referral?

  • Purpose: A referral is made with the explicit intention of recommending a business, product, or service to fulfill a specific need or requirement. Referrals are based on trust and often come from previous positive experiences with the service or product being recommended.
  • Endorsement Level: Referrals carry a higher level of personal endorsement and trust. The referrer is essentially vouching for the quality, reliability, and suitability of the business or individual being referred. This involves a certain degree of risk to the referrer’s reputation if the recommendation does not meet expectations.
  • Expected Outcome: The expected outcome of a referral is more concrete than an introduction. There is an anticipation that the referred party will provide a product or service that meets the needs of the party receiving the referral, potentially leading to a business transaction or professional engagement.

 What is an introduction?

  • Purpose: The primary aim of a business introduction is to make two parties aware of each other’s existence and to highlight potential areas of common interest or benefit. It’s a way of expanding one’s professional network.
  • Endorsement Level: An introduction carries a lower level of personal endorsement. The person making the introduction may simply be acknowledging that the two parties might benefit from knowing each other, without making any specific claims about the value of their products, services, or professional capabilities.
  • Expected Outcome: The outcome of an introduction is generally the beginning of a dialogue or a relationship between the introduced parties. There is no explicit expectation of a transaction, partnership, or specific action as a direct result of the introduction.
Tom Koor

How can a startup benefit from an advisory board? V2

How can a startup benefit from an advisory board? V2

 What is the purpose of this article?

This article enables a discussion about the value of a startup advisory board.

The target audience for this article includes: Founders and advisors.

This article does not provide tax, legal, or financial advice.

You can download a PDF of this article from: How can a startup benefit from an advisory board V2

What are the critical learnings in this article?

  • Some advisors must have current and relevant knowledge and relationships regarding: : potential customers, marketplace, competitors, regulators, technology, talent, etc.
  • Some advisors must be able to help the founders think through what to and to make a decision.
  • Advisors are not consultants.

 What is the value of a startup advisory board?

The greatest value is helping founders think through two things:

  • Are they appropriate to launch a startup?
  • Should they continue with their idea or startup.

If a startup is heading towards very likely failure, then the advisors need to help the founders understand this and determine what to do.

Advisors can also enable success and reduce the risk of failure.

How can the advisors provide value?

The degree of advisor involvement and value varies:

  • Sharing current and relevant knowledge about: potential customers, marketplace, competitors, regulators, technology, talent, etc.
  • Doing introductions potential: customers, employees, partners, suppliers, investors, regulators etc.
  • Attend meetings between the founders and: customers, employees, partners, suppliers, investors, regulators etc.
  • Advise on one or more strategic projects.

Much of the value is delivered by attending meetings and responses to emails.

Advisors are not consultants.  E.g. They are not going to: collect data, do analysis, and prepare reports.

What are the challenges in selecting advisors?

  • Some advisory must be experts with current and relevant knowledge, skills, relationships.
  • Some advisors need to be able to help the founders think through and make their own decisions.

Founders need to avoid advisors:

  • With out-of-date and irrelevant knowledge, relationships, etc.
  • Who can only talk about or recommend what the advisor did in a situation which was different from or not relevant to the founders situation, problems, and issues,

In sports the best coaches are rarely the best athletes, the best athletes are rarely the best coaches, and athletes almost always have coaches.

What should be the advisor compensation?

  • Advisors are often compensated with equity. Given that most startups fail, this means the advisor compensation usually ends up as zero.
  • Please take a look the FAST (Founder Advisor Standard Template) from the Founder Institute. This provides a framework for both the advisor contract and compensation. The following is the link to the template:

https://fi.co/fast

What are your next steps?

Founders and advisors should review the FAST agreement template

 

As a founder:

  • Write down your expectations: the current and relevant knowledge and relationships the advisor should have, the value an advisor can provide, the services an advisor will provide and how you will assess value.
  • Value assessment will likely be a combination of subjective and metrics.
  • Interview potential advisors, initially discussing your expectations and the advisors’ expectations.
  • Finalize the FAST agreement. This will require review by legal professionals.

 

As an advisor:

  • Identify the type of startup you’d like to be involved in.
  • Write down your expectations: the current and relevant knowledge and relationships you have, the value you can provide, the services you can provide and how value will be assessed.
  • Value assessment will likely be a combination of subjective and metrics.
  • Interview potential startups, initially discussing your expectations and the founders’ expectations.
  • Finalize the FAST agreement. This will require review by legal professionals.