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January 16, 2008 3:31 PM Age: 9 yrs

About Envy …and Accountability

Category: Acc Commentary & Opinion, CG Commentary & Opinion, Exec Comp Commentary, AC RSS, Eleanor Bloxham
Source:  Eleanor Bloxham

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If we view envy as an activity focused on comparisons with others that seeks to shore up one’s own view of oneself by either increasing one’s own standing or tearing down that of others,  it is worthy of consideration from several vantage points.

Succession Planning

One is in succession planning. 

Boards of Directors need to assess whether candidates are focused on making a difference and doing their best or merely creating a perception about their efficacy.

Years ago, when I worked for Prudential -- now Prudential Financial --  I remember Garnett Keith, then Vice-Chair, saying that what he looked for most in executives was emotional maturity.  In my experience, that is either the most or one of the most important characteristics to look for in executive hires. Problems in teamwork at the root usually stem from a lack of reality-based self confidence on the part of members which can devolve into attempts to manipulate circumstances to their advantage rather than work together to address issues head on.

More recently I was discussing leadership with Jack Chain, a corporate director and a retired four-star General of the United States Air Force and the former head of the Strategic Air Command (SAC). What he thought were the most important qualities to him in leaders were intelligence and risk taking: many people can be nice but you need intelligent leaders.   I also agree that these are the most or a couple of the most important characteristics to look for. 

When you look for leaders in a succession planning scenario, you want to ask several key questions:

·        Does this person have the intelligence to make the right decisions and the emotional maturity to gather needed intelligence from others before moving forward?

·        Is the person emotionally mature – are they able to cope with their own envy and manage to move forward despite the envy and spite of others – i.e., “career envy”? 

·        Do they have the emotional maturity and intelligence to take sensible risks and seize potential opportunities?

·        Can they pick leaders who exhibit these traits? Do they work to improve the abilities of others on these dimensions? Do they have the emotional maturity to reallocate others to non-leadership roles as necessary?

 

Profits and Results

Another area which boards have worked, in recent years, to address is the issue of “profit envy” and the tendency to want to “make” profits match those of competitors.  Today, audit committees take a much closer look at the numbers than they did in the past to ensure “accurate reporting.”  As the sophistication of audit committees grows, there is more that can be done.

Two important areas:

1.      Straightforward review of competitor results and a clear understanding of differences in accounting and real outcomes (i.e., intrinsic value-added) in order to create understanding of the real information and a measured perspective about what is possible.

2.      Careful review of the company’s and the competitor’s disclosures with a view to the implications of what is really occurring and other potential external impacts affecting the company’s performance.

These careful reviews will give boards:

·       a better real assessment of management’s performance;

·        a better informational context for strategic suggestions and oversight;

·        a better understanding of what can be accomplished so that the board itself does not place undue pressure or amplify the pressures to “keep up with the Joneses” or promote unhealthy “profit envy.”

Executive Compensation

Another way in which envy should come up as conversation in the boardroom is in the area of compensation.

While it is reasonable to expect less in terms of emotional maturity by those in the lower rungs of management, it is also reasonable to expect more from senior executives.

When you look at pay-for-performance, boards need themselves to have the emotional maturity to discuss the issue of “compensation envy” in their internal deliberations and with members of management.

What are the key topics to cover?

·        What are the executive’s views on pay? What do they want their pay to accomplish? What will be the potential outcomes from those desires?

·        Directors recognize the phenomenon of “compensation envy”. As such, are executives interested in certain pay and perks based on the desire for a favorable comparison to others?  If so, is it also based on differentials in contribution to performance?

·        Directors recognize that strong performance will result in high pay but over time there will be fluctuations. It is unrealistic to fail to recognize that all firms have cycles – good years and leaner years – and pay will be based on sustainable performance.

·        Philosophically, just because someone else gets a certain pay level doesn’t mean executives at our firm should.  Because other firms are unfair to shareholders and other contributors to the firm’s success does not mean we should exacerbate the situation.

·        Directors will insist on pay reviews that correlate levels of pay in other firms with performance in other firms on a basis that recognizes the true contribution of the executive.

·        Addressing “compensation envy” on the part of employees, directors will address the ability to explain the differentials in pay to the rank and file. If these differentials can’t be explained,  consider whether we have a solid basis for the differential in level of pay.
 

Envy as a topic of discussion in the boardroom?  Here are just three ways to make it part of the “human nature” conversation and to address the real life concerns that shape organizational dynamics and performance and impact true accountability.

# # #

Eleanor Bloxham is a strategic governance authority, author and advisor, and CEO of The Value Alliance (www.thevaluealliance.com) and Corporate Governance Alliance.

 

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