Is Your Company Too Big To Manage?

In February 2015, HSBC’s Chief Executive, Stuart Gulliver, and Chairman, Douglas Flint, were appearing before the UK’s parliament’s Treasury Select Committee  to answer questions about the Group’s alleged facilitation of tax dodging by clients of HSBC’s Swiss private bank.

On being asked by one committee member about his responsibilities as Chief Executive, Gulliver replied: ‘If as an individual, I am expected to know what 257,000 people – the number of HSBC employees at that time – are doing, clearly I can’t.’

More than two years later, writing in the Financial Times, columnist John Authers cited a book ‘Tectonic Shifts in Financial Markets’ by Henry Kaufman that stated there is ‘a clear correlation between institutional bigness and rule-breaking’.

These comments suggest that managers of major corporations are challenged to control effectively the business empires for which they are responsible. Despite modern technology and communications, they struggle to direct and monitor their staff. Some corporations are just too big to manage.

However, historical comparisons suggest otherwise. For four hundred years the Roman Empire with territories in Europe, Africa and Asia, flourished despite relying on communications constrained by the speed of marching troops, horses, and boats.

Much later, the East India Company, that was founded in 1600 and dissolved in 1874, was at its peak responsible for half of world trade, and governed India until the British government took over in 1858.

Roman leaders and East India Company managers were not necessarily superhuman when compared with today’s tycoons, at least, one so assumes. What is apparent is that their perceived disadvantages, poor communications, difficult travel and limited technology worked in their favour; or perhaps it would be more appropriate to state that they adapted more effectively to the circumstances in which they operated.

Delegation of power and authority from the centre was essential. Attempts by a ruler to defy these realities failed. In the 16th century, Philip II of Spain sought to micromanage his empire, which extended from Europe to the Americas. Famously, one official is reported to have lamented, ‘if death came from Spain I should live forever’.  Under Philip the empire entered a long period of decline.

Poor communications, although improved after the first successful communication by telegraph in 1844 , also denied the public instant access to incidents now available through social media. And when such did occur, for example, the Indian revolt of 1857-1858 – now acknowledged as the first war of Indian independence – developed societies were more inclined to sympathise with the rulers rather than the ruled. Social and moral perspectives were vastly different.

Modern managers are struggling to come to terms with the recent realities of social media. Such realities certainly wrong-footed an experienced executive, Oscar Munoz, of United Airlines. Managers also face the reality that their corporate reputations often depend on the behaviour of junior staff or outside agencies and contractors.

It was long a corporate cliché that customer relations began with the receptionists who answered the telephone. Now almost any staff member, or outside contractor, such as Blackwater in Iraq, can destroy public trust.

Modern managers also operate within complex legal and regulatory constraints, be they employment conditions, different legal regimes in countries to which they export or have subsidiaries, or requirements to guard against money laundering and the inadvertent financing of terrorists. Despite the desire of the US president to reduce regulations, it in unlikely the corporate operating environment will become noticeably more simple.

Given these demands and the access they have to huge quantities of data, it is unsurprising that many modern managers, rather like Philip II, tend to micromanage. This tendency creates its own problems.

First, there is a limit to the amount of data any manager can absorb and process, especially so when she or he is leading a giant international corporation. They are unable to make well-informed and adequately considered decisions across the vast range of issues that daily confront them. They need instead a tight focus on core strategic issues.

Secondly, it often puts quite junior staff at head office in charge of decisions in respect of territories the culture of which they do not understand, or businesses with which they are barely familiar, or places they may never have visited. Stories among expatriate executives of head office staff who have at best a tenuous grasp of international time differences are common.

International companies are not going to disappear. Nor are the pressures from customers, regulators, other outside influencers such as NGOs , and politicians.

A revised business model that takes account of regulation plus the impact of both social media and the smartphone camera is needed.

These are some obvious elements of such a model:

  1. Staff at all levels need to be aware of corporate values and the external impact of disregarding them. You do not, for example, drag an elderly doctor kicking and screaming from his seat on your plane. Inculcating these values places a huge burden on HR and training staff.
  2. Strict adherence to regulatory and legal requirements must be ensured through internal audit and compliance teams. Transgressions must be dealt with severely. It is necessary for the board and senior leaders to lead by example.
  3. CEOs and their boards must recognise that they cannot micromanage hundreds of thousands of staff. They have to learn – and have the courage – to delegate. That may be the most challenging hurdle of all.

However successful business leaders may be in managing risks to reputation and ethical performance, incidents will occur. How they respond in these circumstances is critical. What was particularly shocking about the United incident was that a seasoned CEO thought it possible to send conflicting messages internally and externally about what had happened. In the 21st century that is simply stupid.

If leaders and the led can adapt to digital realities and public expectations of their performance, that will be a noteworthy achievement, and CEOs like Stuart Gulliver will not be driven to exasperated outbursts in the course of political inquiries. If not, the future will be bumpy for businesses until the distant day that robots lead more efficiently than boards and, possibly, do it far more cheaply.

 

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