It's Da System bro....or is it?

BRUCE SHEPPARD
Last updated 14:09 14/05/2014

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OPINION: From my time rubbing the top end of town up the wrong way, and more recently rubbing along beside them, it seems to me there there are two basic character types that dominate company leadership.

The first type is most prevalent in small organisations and is characterised by the catch cry "just do it" and the belief that "the end justifies the means".

The second type is most prevalent in large organisations and is characterised by the catch cry, "have we considered the second order consequences of .... blah, blah, blah". They are motivated by the belief that "two wrongs don't make a right."

The first group embraces risk sometimes blindly and, so long as their judgment is sound and they are not unlucky, they outperform their peers.

The second group spends their time identifying risk and assessing opportunities and generally does not fail spectacularly, but rarely succeeds spectacularly either.

The second group lives in the land of mediocrity.

Within this group sometimes you have a risk-taker who will use "da system" to protect themselves while pursing an end that is self-serving: "I filled in the forms and ticked the boxes so it was Ok to steal your money".

Another byproduct of "da systemic" approach is that when something does go wrong no one can be blamed - it was after all "da system".

In short, those not around the table could be forgiven for thinking that the governance processes exist to provide an escape hatch for the leaders for when things really go wrong.

Boards generally take themselves seriously and take the governance process seriously, at least at the top end of town.

At its best with good chairmanship, a diversity of experience is bought to bear which should give rise to a better decision and certainly better execution of a decision.

However with bad chairmanship, discussion is circular-repetitive and ends with no decision at all.

NZX buys the logic that diversity generates better decisions, yes, but it really depends on the people and, as always, the leadership.

So regardless of gender, race or religion, diversity is actually an exercise of form over substance.

Boards crave "known quantities" over fresh blood as diversity of thought often feeds collective doubt and feeds the "do nothing" thought process.

The pandering to gender diversity rather than experience diversity is a particularly shallow way to approach "diversity".

What outsiders call the "old boys club" is alive and well.

Just as you have in small companies " just-do-its" that have processes to check their decisions rather than to make them, you also have "just do it" types that are forced to live in "da system".

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The easiest way to bend the system is to ensure that the support team are all like-minded.

The "just do it" crowd is the crowd that can justify any step if the end is right. They are seriously dangerous duds.

If however they have sound morals and beliefs and are just "good", such leaders can bring about significant change, progress and riches for those on the journey.

Get it wrong however and you face total loss.

The guys who favour the process and seek to avoid wrong are at best a benign lot that live in mediocrity. You wont remember these guys and gals and you will struggle to identify their legacy.

With capital being institutionalised and the pool of independent capital declining, the race to mediocrity is on.

And this is why it has to be made as easy as possible for start-ups and private equity to raise funds independently of the organised private equity networks, as these networks are part of the mediocre food chain, and will just be so stifling to business expansion, not to mention boring.

Bruce Sheppard is the founder of the Shareholders Association and was, until recently, a Financial Markets Authority member.

- Stuff

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