Managing Leadership^®

Who’s in charge?

A computer gaming company’s management and board have been the subjects of scrutiny for years over a combination of financial and managerial missteps in which, it would appear, both sides of the corporate governance coin have been culpable. The interesting thing about the story is that a group of investors who together own a voting majority of the company’s stock are planning to clean house. They intend to replace not only top management, but the board of directors. Moreover, they will reduce the size of the board from 9 to 6 members all of whom will be these activist investors’ nominees. Smaller boards, in unmistakable and direct communication with owners, imposing owner policy on a disciplined management team: hopefully, this will turn out to be a useful example of constructively active corporate governance in a public company.

Women in management: where do they prosper?

A recent BBC News item covers familiar ground about women being under-represented in senior executive positions in businesses around the world. The interesting twist to this story is that the problem turns out to be more pronounced in western developed economies. On average, only 38% of businesses have a woman in top management. However, it is the Orient, rather than the presumably enlightened West, that is holding even this low number up. For example, in China and the Philippines the numbers are over 90% (97% in the Philippines); in Hong Kong and even in Malaysia they are over 80%. On the other hand, in Western and highly developed economies such as the Netherlands fewer than 30% of companies have a woman in senior management. Japan is the worst offender, with only 25%. The rest of the Western countries tend to cluster around the average, suggesting that while we in the West have much to teach about effective and intelligent business practices to the world, we may very well have much to learn, as well.

Business: the tax environment

In “The Rise and Fall of the Great Powers,” Paul Kennedy observed that trade flows around taxes. European economies continue to stubbornly resist this lesson. But one country that has applied it is enjoying the consequences. Iceland has reduced its corporate tax rate from 45% to 18% and is considering a further cut to 10%. Personal income tax rates have also been reduced by about 1/3 over the same period. The result has been not a decline in government revenues due to lower taxes, but a dramatic increase due to greater economic activity; indeed the government has seen more than a 10-fold increase over the period of these cuts. At the same time, the economy has been growing at a steady and robust 4% per year for over a decade.

Business: the educational environment

The European Union has been trying to find a way to surmount the political and cultural barriers that stand in the way of freeing up the financial and labor markets so that their economies can break out of the stagnating doldrums they continue to be mired in. But now they’re finding another stumbling block to growth: inadequate education. Europeans think of their economies as being advanced and knowledge based, firmly in the information age. But according to a recent report only 1/3 of the member countries have more than 25% of their labor force in skilled jobs requiring advanced training or education. In Italy – a member of the G8 – fewer than 10% of the workforce has a college-level education. Throughout the EU economic zone, the demand for skilled workers strongly outpaces the supply.

The primary business of an executive is to improve the bottom line of his or her firm. Stepping beyond the interests of shareholders into a bewildering forest of stakeholders can cause one to lose one’s way. Anything that a manager does should directly point to improving the bottom line, or should persuasively incline that way indirectly. These two areas – taxes and education – are generally legitimate arenas for managers to influence public policy through interaction with governments at all levels. Many businesses also wisely establish direct relations with local trade and general-purpose colleges in order to develop a skilled labor force from which they can fill their own ranks.

Owners and managers together should continue to hone their focus, and actively promote its disciplined expression, whether directly or indirectly, in ways such as these.