Business School Associate Professor Stephen Willson looks at the origins of traditional organisational behaviours.
In a publically traded company there is always an executive eye on stock market performance. The established stock market assessment vehicle is shareholder value that centrally assesses the expected future profit expectations modified by risk profile.
The upshot is that companies obsess on making the numbers at year-end and on interim occasions to fulfil these expectations. The teeth of the argument arise from numerous previous instances where failure to meet stock market expectations has resulted in massive reductions in share values resulting in removal of Board members.
Such prospects ripple through the layers of the organisation and determine behaviours that are often detrimental in the longer term. Meeting cash and closing stock targets frequently upset customers who may then migrate to the competition.
Anna Slocombe in an episode of The Middle podcast series contrasts these behaviours from a publically traded company with those at Mars the privately held confectionary company.
Now consider flipping this on its head in the light of investor relations. Here the focus for institutional investors is to assess and therefore encourage behaviours that will lead to the desired outcomes. And then consider that the desired outcomes are different for each investor depending on the intended role of a stock in their overall portfolio.
For some, balancing their portfolio needs investment in more stocks that will generate consistent dividends, for others the concern is retention of asset value and yet others for ‘flyers’ that have higher risk but the prospects of high growth and eventual disposal for profit generation.
Different sets of corporate behaviour are required to generate these contrasting outcomes that attract a particular type of investor. The behaviours that generate these desired results should be the focus and not the other way round.
One way to control behaviours is through rigorous processes and controls that would be compatible with sustaining mature high risk situations. However for Nokia in the disruptive fast-moving high-tech cellphone industry when compliance with process became the most important thing failure was the inevitable outcome.
Alternatively behaviours can be influenced by organisational culture – the way we do things round here. In another podcast episode, Sarah Murphy, from the mental health charity Rethink, shows how ensuring appropriate behaviours requires constant senior management vigilance. This particularly applies in the absence of multiple financial measures and where many employees choose to work in what they consider a meaningful field rather than one driven by the profit motive.
So once again one size doesn’t fit all but when the situation changes these issues come to the fore. An upcoming episode with Carl Arntzen of Worcester Bosch boilers explores such challenges where the nature of their business is facing transformational change.