25th January 2012
Investors must now ask whether they place too much faith in boardroom leaders, whether they think directors are paid fairly or need a dose of the Vince Cable medicine – even if many think it little more than a sticking plaster.
Last week, – in a precursor to the RIM announcement – it was revolving technology boardrooms at Yahoo as this Mindful Money piece shows. Yahoo shares experienced a short two day rally but this has now run out of steam and moved into reverse.
Maybe RIM investors were more fed up with the firm's fall from grace – it has been swifter than that of Yahoo. There was the October network failure but, worse, has been the erosion of its market by smart phones using other technologies – RIM's own attempt to take on the likes of HTC and Samsung have not been covered in glory.
Yahoo, once the dominant search engine, has been in slow decline for years so stockholders have had plenty of time to adjust to investing for slow or no growth.
The question investors must ask is the effectiveness, or otherwise, of change at the very top of large organisations. Does changing the captain of the supertanker prevent the vessel heading for the rocks?
Last week, Kodak filed for Chapter 11 protection. Here, the whole of the executive floor seemed to have contracted a corporate blindness to the digital advances of the outside world.
It's not just technology. Take a look at Tesco, Britain's biggest retailer, where chief executive Sir Terry Leahy resigned last March. He had announced he was going in June 2010 when the share price stood at around 425p. He was replaced by Philip Clarke, a long time Tesco person.
It may have been the first earnings alert in two decades but it was on the cards. This Guardian warning dates back to June 2010. Leahy left on a high but in the supertanker world of mass retail, turning course is a slow process, first demanding that those in control acknowledge the need to consult the compass.
And the boardroom activities at BP following the Deepwater Horizon oil spill need no repeating – the share price talks for itself.
A new form of management
Those quitting the executive suite at both RIM and Yahoo were founders of their companies. While the late Steve Jobs who set up Apple succeeded in bringing it back from a moribund state, the recovery track record from those with the business since inception is far from impressive once problems emerge. The track record is probably worse when it comes to career managers who take their bonuses and run when the going gets tough. Even a partial list would fill pages.
So is there something wrong with the concept of management itself? Has the role of the executive suite changed sufficiently? How often do the bosses of supermarket chains make unannounced visits to their stores? What do managers understand of the fast moving and fast changing needs of today's world?
The London Business School publishes a management studies magazine called Labnotes. The latest issue features "Management Ideology: The last bastion of American hegemony". It provides a useful antidote to management suite invincibility – whether hit by Vince Cable's proposal or not – and a check list for investors.
Author Julian Birkinshaw – the LBS professor of strategy and entrepreneurship – contends that "management thinking remains American dominated". He says: "In the years following the Second World War, the United States…provided the best quality management education and it was the source of all the latest management thinking."
But while the US has lost industrial (and other forms of) domination over the past decade or two, mostly to the Far East, and to Middle Eastern and Russian investor firms. So if the US has lost these forms of domination, why does the rest of the world still respect its management ideology? And why do companies continue to produce managers who are near clones of their grandparents?
Investors need firstly to take note of what Birkinshaw calls "mainstream thinking".
Its key points are:
While many cultures – European and Asian – have other ways of looking at management, American ideology has won out.
Is American management thinking the best way?
The article sets out three antithetical options:
No one knows what the future holds. But investors have to ask whether it means more of the same on the management floor. So far, the e
vidence of shortening executive periods in office – whether they are paid for failure or not – is that that management itself needs at least a substantial makeover.
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