Archive for November, 2009

Being Successful is Risky Business – Ask Tiger Woods or an Independent Director

“One of the greatest risks a company can face is its own success.” Ira M. Millstein

Just finished watching @MarkGoulston speak on CNN about Tiger Woods.  He shared about how our excitement needs align with the interest in watching Tiger in his spectacular achievements and embarrassment.  It is mostly about our excitement needs.

If this were happening to a business we’d call it reputation risk.

Being successful is an aspirational goal for people & businesses.  Different meaning and various ways to keep score but very similar motivations – excitement from increases in financial returns and social status.

When someone messes up we want to forgive.  We determine our ability to trust someone when the business or person  owns up and takes full responsibility.    Maybe like Tiger, being successful and powerful is a mixed blessing.  Do you see your  CEO and management team presenting ideas for strategy that provide a thrill (returns) around doing risky things to get an adrenaline rush.

As an independent director you can shape the power of excitement in your CEO and the management team.  You can do this by weighting how this excitement is turned up or down by the incentives you create for them.

If 2009 had you backing out of your driveway and hitting a fire hydrant you can take the counsel Mark gave to Tiger:

We’re all human and not perfect but we need some explanation about what happened.  We want to see and hear an explanation on what happened to our beloved hero.  Our payback starts with you admitting misjudgment and telling us about the insight you’ve learned – we want to get back to admiring, respecting and most importantly trusting you again.

As you prepare for your board service in 2010 this might be relevant in gaining shareholder trust in your leadership.  Take Tiger’s advice to your next executive session and see what you can apply to regaining trust.

For more on Dr. Mark Goulston you can follow him @MarkGoulston or visit his website at: http://markgoulston.com/

A favorite quote from Ira M. Millstein:

Letter to the editor, “Boards Often Failed in Their Duty,” The Wall Street Journal, Feb. 25, 2009.

“The responsibility to set and monitor compensation [for senior executives] is in the boardroom. Boards have avoided that responsibility and remained tone deaf to the public’s concern. Structuring transparent, understandable, fair compensation, even in the millions-of-dollars range, is one thing; failure to consider the risk of perverse escalating outcomes and perks is another. Institutional shareholders have the voice and capacity to put spine in the boardroom by communicating on compensation to compensation committees, filing proxy resolutions, and voting against directors believed to be improvident.”

— Ira M. Millstein, the Eugene F. Williams Jr. Visiting Professor in Competitive Enterprise and Strategy and senior associate dean for corporate governance at the School of Management.

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