Management consulting
12.4 Corporate culture and management style
Finally we turn to the “soft” and “intangible” side of organizations. The concept of culture was explained in Chapter 5. We emphasized that, when entering a new organization, the consultant has to find out as much as possible about its specific culture. This is done in order to develop a full understanding of the values and motives underlying managerial and employee behaviour, and so assess the organization’s potential for making improvements. Organizational culture may be found to be one of the causes, or even the main cause, of the difficulties experienced (e.g. due to the conservatism of senior management and the impossibility of submitting new ideas). In such a case, culture may even become the central theme on which the assignment would focus.7
Consulting in corporate culture became extremely popular at the beginning of the 1980s, in particular in the United States. Some consultants have not escaped the danger of regarding and prescribing cultural change as a panacea: “Corporate culture is the magic phrase that management consultants are breathing into the ears of American executives”, wrote The New York Times in 1983.8 Nevertheless, in warning against the corporate culture fad we must not throw out the baby with the bathwater. Interest in corporate culture and in the impact of culture on long-term organizational performance is basically a positive phenomenon, needed for a balanced approach to organizational problems. If organizational culture is ignored, a sophisticated planning or management information system is unlikely to lead to any improvements in performance.
A change in corporate culture will rarely be an explicitly stated task in a consulting assignment. Yet in some situations corporate culture requires the consultant’s special attention, for example:
●when a company is in difficulties. A strong traditional and intransigent culture may prevent the company from assessing its condition realistically and proceeding with changes that have become inevitable.
●when a company has grown very rapidly. There may be various problems. The original culture of a small family company may have become a straitjacket. There may be many new managers and workers, coming from different cultures. Growth by acquisitions may lead to serious cultural clashes.
●when major technological and structural change is planned. Revolutionary changes in products, technologies, markets, and so on have strong cultural implications.
●when there seems to be a conflict between the company’s culture and values that prevail in the environment, for example, if the public increasingly expects a company to behave in ways that are contrary to its culture.
●when the company’s operations are internationalized and it has to adapt to foreign cultures.
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Corporate culture: what to recommend
The consultant will try to ascertain the aspects of the corporate culture that stimulate and inhibit further growth and performance improvement. He or she will point to values and norms that need to be discarded or changed, and to those that should be preserved and even reinforced.
If the consultant has had previous experience with corporate culture issues, he or she may be able to be more specific in suggesting what to do (e.g. in defining corporate mission and objectives; explicitly affirming the value system; enhancing consultation and participation; modifying symbols used to obtain cultural cohesion; changing established role models; reorienting the rewards system; or providing training and information needed to support new cultural values and norms). The consultant who finds that the client organization’s culture is hardly noticeable may be able to suggest how to create a stronger culture, congruent with the goals, resources and external environment of the organization.
Leadership and management style
Leadership and management style are closely related to corporate culture, and certain aspects of style can become part of the organization’s culture. Managers tend to behave in accordance with the organizational culture, in ways in which the owners, other managers and employees expect them to behave. At the same time, the style of an individual manager is co-determined by his or her personality, which may be in harmony or in conflict with existing corporate culture. If there is a conflict, it is usually resolved in one of two ways: either the style of a strong personality at the top will affect corporate culture, and be accepted as a feature of a new culture, or the existing strong culture will not accommodate the person’s style and he or she will have to alter it, or leave the organization.
Here again the consultant may face a wide range of rather delicate situations in which, even if he or she has no explicit mandate to make proposals in respect of leadership and management style, it may be necessary to find a tactful way of making the client aware of the problems, and help to resolve them by coming up with a feasible solution.
The following situations and problems are quite common in organizations:
●People would like to support the manager, but they do not really know what he or she wants and they do not understand his or her priorities; there is a problem of formulating ideas and goals clearly, and of communicating them to people.
●The manager uses an authoritarian style rather than consulting people, discussing problems and priorities with them, and explaining decisions.
●People are puzzled by the way in which the manager allocates his or her time: he or she speaks about priorities, but spends time in dealing with trivial issues.
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●Innovation is encouraged in theory, but the manager gives it no overt support in planning and distributing work, shows no personal interest in innovative projects, and does not reward innovators for their achievements.
●The manager deals with different situations in the same way; this rigidity means that the style used may be adequate in one situation but totally inadequate in another.
●Because a top-level manager exhibits a strong style (which can have either positive or negative characteristics), and favours people who use a similar style, managers throughout the organization try to copy the style even if it does not fit their own personality.
The consultant can achieve a great deal by making a manager aware, through personal counselling, of the strong and weak sides of his or her style. Awareness of one’s style is a first step towards improvement. Even if a manager does not wish or is not able to change style radically, it is useful to be aware of weaknesses, to mitigate them, and to compensate for them.
12.5 Corporate governance
General management and strategy consultants have always been interested in corporate governance since many questions for which they are brought into the company have to be examined and decided on at this highest level of strategic decision-making and control. However, until recently, corporate governance per se, i.e. its concept, scope, structure, methods, selection and competence of Board members, responsibility, quality of decisions, inefficiencies, gaps, relationships to senior management, relationships to shareholders and other stakeholders, questions of conflict of interest, and similar issues tended to receive little attention. Often these issues were regarded as a confidential province of the owners, in which external consultants should not be involved, and where the only concerns were whether the Board was established and its meetings held in conformity with law and corporate governance standards (if any).
Over the past decade, views on the role of corporate governance have changed considerably thanks to growing pressure from dissatisfied shareholder circles and the public. Corporate governance is no longer regarded as an exclusive province of the largest investors and top managers. Governments have been forced to intervene to tighten up legislation and controls; shareholder assemblies have become more active and critical; companies themselves have been looking for more effective and transparent styles of corporate governance. This has created challenging consulting opportunities at general and strategic management level.
Current issues
In earlier times the governance process was simple and automatic because the providers of the organization’s risk capital – its equity – were directly involved
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in its management. Present-day problems in governance arise because the diversification of share ownership over thousands of individuals has produced a separation between ownership and control and has, in the process, transferred power into the hands of the organization’s professional managers. The theoretical safeguard – that the common shareholders possess the ultimate power through the use of their voting rights – no longer works, because the individual shareholdings are too small and widespread to permit effective voting except in very exceptional circumstances.
The shareholders are, of course, represented by the organization’s Board of Directors. In theory the Board is appointed by the shareholders, who can remove and replace its members at any time. In practice the Boards have increasingly tended to become self-perpetuating bodies. Even worse, particularly where the Chair of the Board is also chief executive officer (CEO), the Board will consist primarily of working executives who report directly to this individual and of perhaps one or two non-executive directors whose Board membership depends on the Chair’s invitation. In such a situation the Board has little incentive to consider the needs or wishes of the shareholders.
It may well be asked what useful function a consultant can perform in such circumstances. The answer is that a consultant who has access to the Board has an opportunity to persuade the members of the error inherent in such a policy – not only because it is morally wrong, but because it is ultimately likely to be self-defeating. A Board that ignores the interests of its shareholders is likely to encounter opposition from a number of different directions. In some countries, particularly in Scandinavia, shareholder associations have already developed considerable power and influence. This was demonstrated a few years ago, when there was a proposal to merge the car-manufacturing activities of the Volvo Group with the Renault Company of France. The proposal had the strong support of Volvo’s chief executive, but failed, partly because of opposition within Volvo’s own management, but even more because of its rejection by the Swedish Shareholders’ Association. Such action is not yet common in the English-speaking countries, but the formation of the ProShare organization in the United Kingdom is perhaps an indication of future developments.
The most effective restraint on Board freedom, however, comes from the institutional shareholders. The individual private shareholder, owning only a few shares, may have little or no influence at Board level, but the institutional shareholder – a pension fund, investment trust or insurance company owning millions of shares – is an altogether different player. In the past such large institutional shareholders tended not to interfere in the management of the companies in which they invested. The shares owned by such institutions were, in fact, often referred to as being “in safe hands”, in that if the institutions voted they invariably did so in favour of the existing management. In recent years, however, these institutions have become less compliant. Some, if they disagree with management policies, simply “vote with their feet” by selling their shareholding in the company and reinvesting elsewhere. An increasing number, however, are taking a more active role, by making their views known to
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management. If management fails to listen, the institutions are increasingly willing to use their massive voting power to remove and replace the existing Board. In taking action to protect their own interests, the institutional investors are largely protecting the interests of the small shareholders as well.
New requirements on Boards also reflect the current trends towards enhanced social roles and responsibilities of business. Boards are increasingly expected to take the lead and be proactive in making socially responsible strategic decisions and seeking to increase shareholder value in ways that are socially acceptable, responsible and sustainable (see Chapter 23). For the time being, most of these requirements have been formulated mainly as broad guidelines or principles, but it can be expected that they will be gradually converted into specific standards for Boards.
Improving and applying the standards
There are considerable differences in the quality of corporate governance in different countries. The issue is not so much whether national legislation prescribes a one-tier or two-tier Board or allows both, but the quality of national corporate governance culture, which is part of the local business culture and tradition. It is now widely recognized that, despite the problems of governance existing in many corporations, on the whole corporate governance is a more developed field and its practice has attained higher standards in Englishspeaking business cultures. In other countries and regions the situation varies. Serious deficiencies of corporate governance are found, not only in the transforming economies, where there is little tradition and experience of corporate governance, but even in countries where a market economy has traditionally functioned smoothly and without any major political upheaval.
For example, in 2001 in Switzerland, flaws in the working of the Swissair Board were identified as major causes of damaging acquisition decisions and serious financial losses. The president of the country’s national assembly was publicly criticized for being a chairman or member of 48 Boards, from all of which he subsequently resigned. In many countries, questions such as Board member competence, integrity, independence, responsibility, conflict of interest, and more efficient and transparent Board operation have yet to be given proper weight and consideration.
It is encouraging that an important and visible movement for enhancing corporate governance standards has started. A great amount of guidance and support, including training for Board members, is available from the Organisation for Economic Co-operation and Development (OECD), some national institutes of directors and other authoritative sources.9 Many companies will appreciate the help of experienced consultants who have a thorough understanding of governance as well as of the financial, social and institutional environments. International and wider social perspectives are more and more necessary in structuring Boards and improving their work. Consultants should seize this opportunity.
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1H. J. Leavitt: Corporate pathfinders (Chicago, IL, Irwin, 1986).
2See M. Porter: Competitive strategy (New York, The Free Press, 1980), and idem: Competitive advantage (New York, The Free Press, 1985).
3K. Ohmae: The mind of the strategist (New York, McGraw-Hill, 1982).
4A. L. Frohman: “Putting technology into strategic planning”, in California Management Review (Berkeley, CA), Vol. XXVII, No. 2, Winter 1985, p. 48.
5M. Hammer and J. Champy: Re-engineering the corporation (New York, Harper Business, 1993), pp. 40 and 29.
6N. Venkateraman and J. C. Henderson: “Real strategies for virtual organizing”, in Sloan Management Review, Fall 1998, pp. 33–48.
7For a more detailed discussion of corporate culture, see T. E. Deal and A. A. Kennedy:
Corporate cultures: The rites and rituals of corporate life (Reading, MA, Addison-Wesley, 1982);
E.H. Schein: Organizational culture and leadership (San Francisco, CA, Jossey-Bass, 1985); or
F.Trompenaars and C. Hampden-Turner: Riding the waves of culture: Understanding cultural diversity in business, second edition (London, Nicholas Brealey, 1997).
8S. Salmans: “New vogue: Corporate culture”, in New York Times, 7 Jan. 1983.
9See e.g. OECD: Principles of corporate governance and related documents of the OECD Task Force on Corporate Governance, Standards for the Board and other publications of the Institute of Directors in the United Kingdom; Bob Tricker: Pocket director (London, The Economist, 1998); studies and papers available from the Centre for Corporate Effectiveness of the Henley Management College.
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