Monday, February 17, 2014

Elaborating on Trust

The issue of trust in the matter of board searches is crucial. No CEO is going to bring anyone on board unless there is compelling information about that person’s track record, endorsements from other reputable people, or some personal “comfort level” or chemistry.  At the same time, Bernie Madoff created a smoke and mirror world of perceived trust that crumbled very quickly once confronted by compelling facts.

What specifically are the trust pre-requisites? What do they mean by “trust?” Or are boards using this nebulous concept to hide other, less meaningful, judgments?

Must all prospects be known to the CEO or the board as personal friends? Should prospects only function in the same professional or social circles? Such criteria clearly would sacrifice the concept of independence.

How widely did the board or the CEO reach for endorsements or recommendations? If they only asked their close, personal friends (which often happens to keep the search process private), again, the search is overly narrow.

What is the board or CEO expecting the prospect to be “trust-worthy” about? Do they want assurances that he/she is not the type to blab confidences about executive compensation discussions? Or are they really looking for a candidate who will follow, in lock-step manner, every wish of the CEO and his/her chair or lead director?

Is the board expecting to be able to “trust” that a prospect will not hold divergent political views or different economic priorities? Doesn’t that sacrifice the benefits of independent intellectual perspectives?

Does the board want to be able to “trust” that the candidate will bring forth a broad perspective of expertise, ask quality questions, and collaboratively search for the best solutions for the benefit of the firm, its shareholders and stakeholders?  The only way to get at that level of “trust” is to observe how an individual has performed throughout his/her career. Each board and CEO ultimately must broaden their definition of trust by explaining exactly what they expect the “trustee” to say or do? 

By placing the trust bar as high as we do, typically without elaboration or explanation, we are essentially telling prospects, “Shoot for this goal.  But, you’ll never know why we believe you missed it.”

On Board Searches

The search for qualified board candidates and the search by talented prospects for a company board seat seem to be challenges as daunting as finding the perfect mate or implementing a flawless major technology operating system.  If we were to diagram the process on a whiteboard, there might be a box in the center of the work flow that reads, “A miracle occurs here.”

Perhaps the problem is that we do not look closely enough at how each side attains the desired outcome in their respective searches.  If this were a case of introducing a major, new technology into the marketplace and the process of customer research and acceptance, we might be able to bring a few more analytic tools to the problem to understand what works and what doesn’t.

Every technology can be said to have a flow from start to final delivery of the result. It does this step, first; then it does that or the other step, next; or it makes somewhat more complex maneuvers over there.  The end result is “success.” The delivery of a technology product to the marketplace could be comparable to the search for the right candidate for the right board seat.

Concurrently, there is a customer trying to evaluate a prospective board role, based on his/her discretionary parameters (competence in an industry; years of specific experience; financial expertise; preferences for a public or private firm; interest in a large or medium or small firm; domestic or international interest; network of influencers or endorsers; compensation expectations; and tolerance for risk to name a few considerations). How effectively prospects conduct their search for a “successful result” can be analyzed using similar process analytics.

Too often, surveys that aspire to uncover the search processes stop at the easy questions on either side of this supply-demand marketplace.  They ask “Was it easy or hard to find board candidates?”  Answers to that level of inquiry provide zero information from which to analyze failures in the search process. If we truly wish to make improvements to bridge this supply-demand gap, we need to stop pointing out the obvious and instead start to disaggregate, measure, and evaluate the specific steps taken (or not taken) by boards or nominating committees to assemble new and competent talent for board roles.

The questions should follow the continuum of actual steps from the beginning of the process. 

1.      Did the company identify specific and qualitative priority candidate needs?
a.       Assess existing talent, age, diversity, demographics, experience coverage, availability, and contributions of sitting directors?
b.      Assess existing board coverage of competencies required by the strategic plan?
c.       Assess the contributions of existing board members to the culture of collaboration?
d.      Identify gaps to be filled?
2.      Did the company establish performance expectations for prospective new talent?
a.       Establish a timeframe to complete a search?
b.      Define the search process components?
c.       Identify responsible board members to oversee the search process?
d.      Establish expectations for reporting back to the overall board?
3.      Did the board scope out the high probability field of candidate search pools and target the minimum/maximum number of candidates from each?
a.       Personal contacts and networks of the CEO and board members
b.      Professional associations in the firm’s domain
c.       C-suite expertise in-house or in complementary firms or major suppliers
d.      Talent recognized in major trade associations
e.       Academic leaders prominent in the field
f.       Director training databases of graduates, diversity databases
g.      Individuals with responsible oversight/regulatory positions
h.      Search firms
4.      Did the board develop a comprehensive list of prospects representing all targeted prospect pools?
a.       Expand the fields of inquiry outside of the firm’s primary “silo”
b.      Eliminate unproductive fields with explanations why
5.      Did the board or CEO evaluate the candidates’ performance in their “natural setting” (rather than solely by word of mouth or resume)?
a.       Did the board conduct and document background research?
b.      Did HR perform and document any background research?
c.       Did they draft recommendations from each of the priority search pools?
d.      Did they compare background research with stated needs to develop high value candidates?
6.      Did the board conduct an interview with priority prospects?
a.       Was an interview instrument prepared in advance?
b.      Was the interview structured? Content-driven (rather than informal and casual)?
c.       Assess prospects’ knowledge of the firm, business, industry, goals?
d.      Assess prospects’ willingness, interest, ability, and availability to serve?
7.      Did candidates decline the board offer?
a.       Were they priority candidates?
b.      Reasons?

If boards say that all of these processes are already taking place, then a major problem with existing searches is the vacuum in which they are conducted.  Clearly, there is the ever-present importance of privacy. A search may be delegated to an outside firm or to a diligent director.  There is little accountability or oversight of the nuts and bolts of the details of the search process. “It was comprehensive.” Or “We were thorough.” But, “We just couldn’t find the right talent.” More skepticism about such easy answers is required if we are to refresh and rejuvenate our boards to handle the very significant challenges of the future. 

While, it is doubtful that this depth of investigation will ever see the light of day, some assurances that each step has been addressed would at least be more meaningful than current SEC-required disclosure statements.

The prospect or candidate side of the marketplace needs closer examination as well.  Are prospects truly preparing themselves to be willing, able, and ready to serve at board levels of excellence? This will be the subject of another posting.

Sunday, February 16, 2014

Peter Marx - Los Angeles Tech Czar

Peter Marx was appointed February 4, 2014 by Mayor Eric Garcetti as “Chief Innovation Technology Officer” of the City of LA, according to Benjamin Kuo, editor of the digital newspaper, SoCalTech.com.  Marx will be responsible for “[heading] up the city's efforts to both adopt technology and improve the city's relationship with its growing technology companies”.

Marx previously was Vice President of Business Development at San Diego-based Qualcomm Labs, the “subsidiary of Qualcomm Incorporated that serves as an incubator focused on leading innovation in new wireless product development.” According to his LinkedIn page, Marx has spent the past eleven years at USC as an Adjunct Professor in the Peter Stark Producing Program (Graduate Level), which produces all forms of digital content -- film, video, games, apps, websites, and everything else that can be read, viewed, heard, and/or experienced in the digital age.  He knows the entertainment industry (Universal, Vivendi), the gaming industry (Universal Gaming, Electronic Arts), mobile technology (Gimbal) as well as entrepreneurship (Evolutionary).

His knowledge of the supply side of technology is outstanding, so we can count on his connections and alliances with Da Bidness. But, how well does Mr. Marx know about the demand side? Let’s start with those thirty-seven different City departments, ranging across all kinds of different services. Let’s talk about those fifteen council districts that reign like mini-despots over their territories and deter effective cross-municipal coordination.  Shall we add in the diverse unions and their aversion to technology that might threaten jobs? Marx probably will not be chartered with the LAUSD technology oversight – or at least he’d be smart to leave that slow fire simmer.  Consider the individual citizens who are in their neighborhood councils throughout all of the sub-cities and sub-territories that exist in the City, and you have your hands full.

Marx’s short term goal concerns the MyLA311 app envisioned as “a single portal” for the delivery of City of LA services. According to Marx: “[the 311 line is how] people call to get information about everything, from reporting potholes to checking their [Dept. of Water and Power] electricity bill.”

It IS a great idea.  There apparently is “a team” working on the MYLA311 app.  As a long-time resident of LA, I have used 311 often for the services described on their home page.

The 311 services have actually improved in the past couple of years. But, people being who they are, it is still necessary for the “active citizen” to be the one who calls Bulk Item Pickup to report that the “idiot citizen” dumped the mattress or the broken baby carriage on the side of the road (again). “One at a time” solutions like these are really not the full future envisioned by advanced technology.

It took us almost 20 year for the Urban Forest sub-division of the Bureau of Street Services (BSS) to decide to contract tree-trimming services to independent contractors and finally eliminate many driving hazards associated with fallen tree limbs, obscured street signal lights, and branches falling on electrical wires. For those two decades, “active citizens” tried to contact BSS (appropriately named) requesting tree trimming services to no avail.  In one memorable occasion in the winter of 2011, a collapsed tree (subject of several service calls to MyLA311) destroyed a hillside home and required a private tree-cutting service to clear the fully-blocked street. While tree-trimming trucks, today, might occasionally require drivers to slow down for Workers Trimming in Trees warnings, it is a welcome relief to see someone working.

Pothole repairs.  Don’t get me started.  Technology has been around to report potholes by smartphones for years.  Weekly, sanitation workers drive by LA’s destroyed surface streets – they know every pothole in the city.  They could send GPS mapped locations and even prioritize the problems based on their experience as drivers. Citizen drivers could do the same thing on an annual basis with a snapshot survey. But, the BSS doesn’t know what to do with the data, and there’s the rub. More accurately, the BSS doesn’t WANT to do anything with the data or with the problems of re-paving the City of LA’s Class E streets – the lowest ranking quality surface streets in the country. The BSS just wants to stay in the business of appealing for more budget dollars to staff their bloated department and pensions.  Our council districts support that status quo because they have been granted slush funds to allocate to squeaky wheel voters and donors who will ensure their re-election.

That’s the real kind of problem that Mr. Marx has to face.  How to give “active citizens” of the City of LA access to real decision-makers, to intelligent individuals who want to solve city problems and make this a better place to live and work?  How to identify opportunities to out-source work to more efficient, more effective entrepreneurial activities?  

The biggest challenge Mr. Marx faces is the exodus of major technology-producing and -utilizing companies from the City of Los Angeles, a problem that has been rampant since the 1990s. Los Angeles doesn’t even really have a home grown newspaper anymore – the LA Times is owned by the Chicago Tribune Company. Companies like Occidental are sending their executive offices to Houston, TX. That’s on top of a long history of losing companies like ARCO, UNOCAL, Computer Science Corporation, and Flour.

In August of last year, Mayor Garcetti declared a “state of emergency” because movie and TV production companies were fleeing Hollywood.  His solution? Appoint a Film Czar!

Spectrum Locations Consultants (SLC) recorded 254 California companies moved some or all of their work and jobs out of state in 2011. That is 26% more than in 2010 and five times as many as in 2009.

According to SLC President, Joe Vranich: the “top ten reasons companies are leaving California:

1) Poor rankings in surveys
2) More adversarial toward business
3) Uncontrollable public spending
4) Unfriendly business climate
5) Provable savings elsewhere
6) Most expensive business locations
7) Unfriendly legal environment for business
8) Worst regulatory burden
9) Severe tax treatment and
10) Unprecedented energy costs.

The animosity between the city and business is at a level that will be hard to overcome with mere technology consisting of 311 calls for local services.

Instead of “a team working on the MyLA311” app, Mr. Marx should pull together a real team of technology experts and experts familiar with the problems implementing change within the City of LA; experts representing some of the entrepreneurs searching for accessible, low cost office space, parking, and other infrastructure to allow them to grow and succeed; experts familiar with the bloated costs of trying to employ technically qualified talent in this state; experts who have jumped through the hoops of LA City’s ignominious business tax structure; and experts who have tried to enhance the quality of worker education programs in the city to bring them up to competitive levels in the global marketplace.

We would wish Mr. Marx success, but if he’s going to be just another mayor’s czar, like Austin Beutner, who promised to “Make Los Angeles a City that Works,” please don’t bother.  Beutner said, “We're dedicated to coming up with new and creative ways of making Los Angeles a strong, dynamic city, and we need your help and participation in our Idea Factory.” Los Angeles does not need any more slogans, branding, or marketing hype. 

We need just a few substantive changes actually to demonstrate what progress might possibly look lik. If the City of LA could successful “seed” just a few companies, as Qualcomm Labs has done for San Diego in the past few years, maybe we might have a shot at a technology-driven future.