Strategy

By analyzing 50 cases of successful sustainable enterprise in developing countries, the authors developed a conceptual framework they call the Sustainable Local Enterprise Network model. Analysis of the 50 cases revealed that examples of successful sustainable enterprise in developing countries often involve informal networks that include businesses, not-for-profit organizations, local communities and other actors. These networks can lead to virtuous cycles of reinvestment in an area's financial, social, human and ecological capital. Successful SLENs, the authors found, require at least one business enterprise to ensure the network's financial sustainability and serve as its anchor; however, that anchor role may be played by a cooperative or a profitable social enterprise launched by a non-governmental organization. While multinational corporations were sometimes part of the SLENs studied, entrepreneurs, nonprofits and sustainable local businesses were more common. Using a number of examples from their research, the authors describe how SLENs operate. Examples include networks involving Honey Care Africa Ltd., a honey company based in Nairobi, Kenya, which aims to promote rural development through beekeeping, and Grameen Shakti, which sells solar energy systems for homes in Bangladesh. The authors conclude with recommendations for fostering the development of SLENs, such as setting up training programs in sustainable entrepreneurship in developing countries.

In a recent survey, 72% of board directors indicated that their performance ought to be evaluated. Yet only 21% of the boards of public companies actually conduct such assessments. Part of the problem is that organizations often don't know how best to implement a board self-evaluation procedure, so many simply avoid the practice. Others have implemented the process only to become frustrated because it took so much time and produced so few results. To investigate the different self-evaluation practices used, the authors studied eight boards that have engaged in the process for at least two annual cycles. They found two high-level variables in the protocol for self-evaluations: the structure of the data-collection methodology (low versus high) and the confidentiality of data (unimportant versus important). These dimensions define quadrants of four different approaches to self-evaluation: informal, legalistic, trusting and systematic. Each approach has important implications for a company's board rating, directors and officers insurance and various other issues.

In this article, the authors review various streams of research suggesting that although companies are increasingly under pressure to manage conflicting or difficult-to-reconcile stakeholder demands, managers are still largely behind the curve in recognizing, justifying and developing the capabilities to do so. In contrast to primary stakeholders such as customers, suppliers and shareholders, secondary stakeholders are often difficult to identify beforehand, or they may not be willing or able to engage, negotiate, compromise or clearly articulate their positions -- a phenomenon the authors refer to as stakeholder ambiguity. Citing examples involving companies such as Monsanto, Conoco-Philips, Texaco and the French oil company Perenco, the authors present research indicating that managers are often ill-prepared to deal with the idiosyncratic and context-specific nature of stakeholder ambiguity and typically revert to formulaic decision-making frameworks, such as discounted cash flow and cost-benefit analysis, which misrepresent the challenges. Some research indicates that stakeholder ambiguity may actually erode the competitive advantage of large multinationals. Although such companies possess significant competencies, technological capabilities and economies of scale, they may be at a disadvantage when trying to determine and align the interests of secondary stakeholders.

The importance of properly identifying the strategies, and anticipating the actions, of rivals.

Corporate executives typically have strategic explanations for their acquisitions: that buying the company in question makes sense geographically or that the products are synergistic. However, if you inquire two years later how the company has benefited, managers tend to focus on the "softer" factors with comments like, "They made us rethink our decision-making processes," or "They introduced us to a new approach to product development," or simply "They shook up our culture." To understand this apparent contradiction, the author analyzes the acquisitions and performance of a number of large, successful companies. Several of the companies included in the research suffered from rigidity. However, the author found that companies were able to use acquisitions to restore a sense of vitality to their businesses and unleash a subsequent surge in performance. The acquired companies often stimulated the acquiring companies to develop new perspectives and different ways of doing things at critical times. Acquisitions kept their organizations fresh and vital. Even if the enterprises did not pursue acquisitions for this reason, the process of buying businesses and deciding how to integrate them into their corporate structures enabled acquirers to renew themselves before their products and operating methods became outdated.

How can companies resolve the two issues of M&As: the acquiring company's struggle to value the target's resources and the need for the parties to agree on a price?

The authors contend that a number of factors, both external and internal, are increasingly necessitating a strategic approach to corporate communications. Yet, despite regulatory imperatives, organizational complexities and a growing need for companies to increase their credibility with their various constituencies, many companies still take a tactical, short-term approach to communication that is not only nonstrategic but may, in fact, be inconsistent with the corporate strategy or even impede it. The authors conducted more than 50 interviews with CEOs, CFOs and heads of corporate communications and investor relations at companies that represent the state of the art in corporate communications (Dell, FedEx and PepsiCo), companies that have faced and survived major crises (Cendant, Knight Trading and Textron), and some that are great corporate communicators but not usually recognized for their efforts (Cognex, Infosys, Jet Blue, the New York Times Co. and Playboy Enterprises). They also included a pharmaceutical company (GlaxoSmithKline), given the formidable communications issues in that industry. On the basis of that research, the authors offer best practice lessons and a framework to enable executives to think carefully about their organization’s objectives for each specific communication, determine which constituencies are critical to meeting that objective and understand what kinds of messages to deliver through which channel.

Board directors for U.S. corporations have been facing an increasing number of demands. At the same time, the pool of available candidates to fill such positions has been shrinking. Given these realities, companies looking to fill board openings should consider a new type of director: well-established professionals who devote all of their work, time and energies to corporate board activities. Professional board directors might come from a variety of backgrounds, but they will likely be drawn from one of three categories. The first group is senior managers in midcareer. These executives have considerable experience (20-plus years) but prefer using their knowledge and experience in a less operational and more consultative manner. The second group is executives 10 years senior to those in the first category. (Thus, they would typically have 30-plus years of experience.) Tired of senior-management stresses yet having sufficient financial resources, individuals in this group might view board positions as a prelude to retirement. The third category comprises former senior partners in national accounting firms with 30-plus years of experience in audit and internal control functions. Although their career experiences will not be as broad as that of many other senior executives, individuals in this category would be ideal to chair the corporate audit or compensation committees. The author contends that candidates from the three categories -- in addition to another group made up of retired senior managers -- could greatly alleviate the growing shortage of qualified board directors.

Recent corporate scandals have made many U.S. boards question the wisdom of combining the chairman and CEO positions. But a knee-jerk decision to adopt the British model of separating the two top jobs without understanding the model's complexities is hardly the answer. Corporate governance across the Atlantic has its own characteristic problems. For example, although a separate chairman makes the board more independent of the CEO, the arrangement can lead to confusion regarding the company leadership. And a poor relationship between the chairman and CEO can easily lead to conflicts and power struggles. U.S. boards need independent leadership, but achieving such leadership by splitting the two positions is not necessarily a clear improvement over the U.S. model. Instead, the authors argue, for most large U.S. companies, the addition of a competent lead director or presiding director will likely strike the right balance between effective governance and leadership.

Corporate boards in the United States have recently been on the hot seat. Stimulated by high-profile scandals, investor dissatisfaction with board performance and questions about the level of executive compensation, regulators have introduced significant reforms in the rules that govern boards. But will such reforms actually contribute to the effectiveness of boards? A real danger exists that the mandated changes not only will fail to enhance how companies are governed but also could possibly lead to a number of negative unintended consequences. To investigate such issues, the authors conducted a study that compared the board practices and effectiveness of Fortune 1000 companies in 1998 versus 2003. They looked specifically at three areas: board leadership, the conditions governing board membership, and the performance evaluations of boards, individual board members and CEOs. The results have helped to determine which practices in those three areas are actually related to overall board performance.