The King – or Queen – is dead, long live the King,” they proclaim when British monarch dies. The new ruler’s reign starts the moment the old one dies.
The ‘king’ in business has been the ‘shareholder’ who is owner of the business as legal entity and exercises ownership rights within plethora of rules, custom and legislation that has evolved over at least couple of centuries. But there is increasing doubt about the king’s fitness to rule in future.
So, how fit is the king? Is the king being usurped? And if so, by whom?
The king, I think, is surviving in current form thanks to complex array of legal and historic life support. The monarch is fit mostly for bygone age where capital was the scarcest resource and the dominant driver of most key business decisions.
This state of affairs is rapidly changing, particularly in developed countries where economies are often awash with capital ‘looking’ for home.
If capital is not the scarce resource it was, what now is scarce and what will be scarce in future? The swelling tide of evidence suggests people are what is scarce. Individuals who carry in their heads the organisation’s ‘intellectual property’, have the ability to convert that IP into results and who exercise choice about whom they work for or with. mantra for the future might be: “great people make the difference”.
Good relationships are an allied critical scarcity. Setting up and maintaining optimum relationships between all the business stakeholders ensures success resulting from the ‘right’ people working together in synergistic and focused way. Stakeholders in this context includes shareholders, directors, managers and employees as well as range of external stakeholders such as customers, partners, contractors, consultants, suppliers and people affected by the business. Recall, for moment, the impact environmentalists have had on oil companies.
Most business now is effectively one component of network that collectively delivers products and services. Perhaps that mantra should be “great people in the right network of relationships make the difference”.
Think now about measuring business performance. ‘Profit’ has been largely replaced by complex accounting fabrications such as EBITDA – earnings before interest, tax, depreciation and amortisation. Recall the sage who said “cash-flow is fact, profit is fiction”. Share price, with focus on quarterly results, is major driving force for many board and management decisions. But how to square such narrow and short-term thinking with long-term results? Jim Collins’ seminal book, From Good to Great, suggests ‘great’ companies concentrate on long-term factors, often over decades.
The king’s fitness to reign now seems somewhat artificial and diluted both in terms of providing capital and influence. The usurpers are range of stakeholders and the results of their relationships within complex network. Even funds nowadays are provided more by range of suppliers other than shareholders.
Boards and management now focus more on optimising relationships between key stakeholders to deliver better results and maximise shareholder value over the longer term.
Trying to assess future performance using only profit figures and last quarter’s share price is ludicrous, more akin to gambling than business. Methods such as Economic Value Added (EVA), triple bottom line accounting, balanced scorecards and the like are all worthy attempts to measure performance that enable smart decisions to be made for the future. The trick now is to ensure that the business has the best information possible to support decision-making by all stakeholders, ensuring this information is not subordinated to external reporting needs.
So, who is the new King, sorry Queen, of business? The title will go to few people who demonstrate the very rare ability to create and capitalise on the synergy inherent in an effective business network of people, resources and information. It does, however, require the wisdom of Solomon, vision shared by all the key stakeholders, and quiet, determined leadership. These people may be hard to identify because they are seldom self-publicists. Watch for consistent success over long periods, and ask people involved who is leading behind the scenes. Long live the kings.
Peter Senior CMC is management consultant and president of IMCNZ.
Email: [email protected]
Website: www.imcnz.org
