Why senior executives do incredibly stupid things Jean Pousson Board Evaluation Limited cipfa.org

Jon Corzine

I have no idea where the money is … MF Global cipfa.org

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Tough at the Top

…I do attend Board meetings but I have no idea about their content.I only provide medical advice. Dr.Hayadisha .Olympus

…I didn’t understand anything!

Mercedes Rojo-Izquierdo Ex Bankia Director (€ 374k pa 2011) cipfa.org

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How long have you got?

80% of S & P 500 CEO’s do not make it to retirement Average tenure of FTSE100 CEO?

6 years!

cipfa.org

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Executive Failures

       Overconfidence Mental Accounting Status Quo bias Anchoring Sunk Cost Effect Herding instinct False Consensus McKinsey Quartely(2003)no 3 5 cipfa.org

Executive Failures(ctd)

        Terminally self absorbed Celebrity CEO Keen to leave a legacy Right about most things Rely on what has worked in the past Listening has become waiting to speak You have become entwined with the company Avoid derailment cipfa.org

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Groupthink

       Illusion of invulnerability Absolute belief that the group is right Stereotyping of outsiders Illusion of unanimity Intolerance of dissenters Bodyguards to protect leaders Mentioned in the UK Corporate Governance Code!

7 cipfa.org

Board Malfunction

       Mix and composition Poor challenge. Ugly baby syndrome! Omerta!

Avoid incest Reliance on processes Blind faith on professionals eg Auditors.

No true independence No evaluation, no learning, no unlearning cipfa.org

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Strategic Failures

        Failure to adapt Strategy set by CEO(or consultants) Fatal attraction to spreadsheets Testosterones Mirage of acquisitions Obsession on short term results Risks not properly understood Too narrow definition of competitors and industry cipfa.org

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Current Influences

        Customers and markets Regulatory Environmental Convergence Connectedness Globalisation Commoditisation Economic downturn 10 cipfa.org

Strategy is Not Easy!

 Over 600,000 books on the subject (Amazon).

 Approximately 90 well used models.

( www.valuebasedmanagement.net

)  About 7000 new business books written every year.

cipfa.org

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How Strategy Happens

“

The nicest thing about not planning is that failure comes as a complete surprise and is not preceded by a period of worry and depression

” cipfa.org

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“Bureaucracy: A device for converting energy into solid waste.”

13 Anonymous cipfa.org

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What Really Works

 Clear and focused strategy  Flawless execution  Structure  Company culture Source HBR July 2003 - Nohria, Joyce & Robertson Study of 160 companies over a 10 year period 14

4 + 2

 Talent  Innovation  Leadership  Mergers and Partnerships 15 cipfa.org

Other Determinants of Success cipfa.org

 Luck  Overwhelming resources  Superb or stupid implementation  Enemy errors 16

You get what you tolerate!

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