Ken Olisa talks to Governance and Compliance about technology changing business, how unicorns are pigs with lipstick, and his time at ENRC and IPSA.
You started your career in technology; how is technology changing the way business is done?
There were three stages in the development of technology in business. Stage one was doing things better and producing gains in efficiency. Controlling stock on a computer was much more efficient than doing it manually on inventory control cards.
So the first wave, of which I was a part in the seventies and eighties, did things better, but did nothing that had not been done before.
Then came innovation – doing better things. Businesses began to operate in ways that had not been possible before. A good example was ATMs. Supplying cash to customers 24/7 was only possible because of the power of computing.
In both these phases, the cost and complexity meant that technology was largely the preserve of the established organisations – the incumbents who controlled industrial sectors – and its application contributed to maintaining the status quo.
The current stage – and the one I guess will last forever – is where technology becomes an industrial disrupter, putting incumbents on the defensive. Start-ups and other disrupters apply technology with the intention of tearing down the existing order of things.
There is also a challenge, as regulation tends to lag behind circumstances. Because things at the front change so quickly, there is a built-in delay between an issue appearing and the regulatory response.
A good example is Uber, which took advantage of the regulators’ definition of a ‘taximeter’ and used technology – a cloud-based app rather than an in-vehicle device – to avoid the constraints of being a taxi. Similarly they are redefining ‘employee’ as leaders in the so-called gig economy.
When describing the tech start-up revolution and particularly the unicorn phenomenon, you said it was like ‘putting lipstick on a pig’. Why do you think these companies will not live up to the hype?
Because they cannot – creating something of sustainable substance from zero to a billion in a matter of months defies the laws of physics.
The unicorn love affair is a consequence of the investment world’s obsession with how much money they put to work rather than its impact.
Think of the headline statistics – how much money was lent, and how much of that was lost. How much was invested or raised. With only a handful of noble exceptions, the reported data entirely ignores how many jobs were created, how much tax was paid, and how much wealth was created. There is no focus at all on outputs or outcomes.
We have recently seen two spectacular examples of porcine lipstickification. One was the advertising unicorn Ve Interactive, which went into administration and nearly disappeared [Ve, at one point valued at $1 billion, went into administration in April, although it survived]. Another was payments company Powa Technologies [once valued at $2.7 billion, Powa went bankrupt in February 2016].
It is, of course, no more difficult to go instantaneously from a valuation of a billion to one of zero than it is to travel in the opposite direction – because in both cases the billion was illusionary. It existed only in the star-struck eyes of the owners, whether managers or investors.
As an experienced chair of both charities and businesses, what is the difference between chairing the two?
There should be no difference. A board has three responsibilities. First, to make sure a strategy is in place. Second, to ensure that strategy is executed to the best of the organisation’s ability, given its capacity and the environment.
The third responsibility is to make sure the organisation respects and conforms to all relevant regulations and laws. So the board’s three jobs are strategy, execution, and compliance.
You then configure the board to deliver these, depending on the circumstances. While never losing sight of its three jobs, a board of an organisation in crisis must become executive and get involved wherever necessary to avert the crisis, whereas if a company meets all its targets, the board can operate in a much more observational and supervisory way.
Boards therefore need to be flexible and move across the spectrum between these two positions – engaged or supervisory – and that is true at any organisation.
I do not think whether the purpose of the organisation is charitable, profitable or somewhere between the two affects these basic principles.
Unfortunately, some people who go into the charity sector are ill-equipped to perform the three board roles. They do not know what a strategy is and assume it is the business plan for the year, and that they cannot add anything of value to its execution. So the sector sometimes gets well-meaning people who unfortunately are ill-equipped to be directors.
However, I would not overstate the public and business sectors’ superiority. You only have to see how many issues there are in those sectors to see that competence is not a universal characteristic of boards outside the charity sector.
You were Chair of Thames Reach for 20 years, which you said was not too long. What are your thoughts on term limits for charity board members, and is there is a danger of trustees becoming institutionalised?
There is certainly a danger of becoming institutionalised, but if term limits were a priori a good thing to have, no family business could survive more than a generation. Some of the greatest institutions on the planet are family businesses surviving many generations.
I go back to the point I just made about the purpose of the board being to perform three tasks. The job of the board is to convince itself and its stakeholders that it is, in fact, discharging its three responsibilities properly.
That is the test. If there are people who suffer from groupthink and do stupid things and the organisation suffers they fail that test.
But whether they have been there one minute or 100 years is not an indicator of any of that. You have lots of jobsworths saying you have to have term limits because that refreshes the board – but why?
Warren Buffet did not step down after three, six or nine years from Berkshire Hathaway. I don’t see Jeff Bezos standing down from the helm of his creation – Amazon – any time soon. Term limits, per se, do not make any sense to me at all.
It is a random idea from the UK Governance Code which has been hijacked by bureaucrats and applied all over the place with neither rhyme nor reason.
And even the UK Governance Code does not mandate term limits; it works on comply or explain. The explanation is that those long-serving board members are making a robust contribution to the definition and delivery of strategy and the conformance to rules.
You were part of the Independent Parliamentary Standards Authority (IPSA) established to resolve the Parliamentary expenses scandal. Are there any parallels with the current debate around executive pay?
There are two dimensions to the answer. One concerns the trust in people in positions of responsibility. The second is confidence in the system or process – its ‘fairness’. The principal parallel is that both are matters of trust and fairness.
The MPs’ expenses scandal was minute in scale, atomic even, compared to any kind of financial scandal happening in any country, at any time. But it was not the amount of money that was the issue; it was the affront to public trust, just as it is with executive remuneration.
If you lose the trust of the public, you lose the right to the respect on which you depend to be able to do things, whether you are a business, an MP, or a citizen.
The governance system broke down partly because the people under scrutiny were also judge and jury of the process. There was a big fight before we were appointed, about whether the expenses data would be made public or not.
MPs said they should decide how expenses are organised, and also police the management of expenses and, if something goes wrong, decide what to do about it and how to repay the money. The prevailing view in the Palace of Westminster was it was none of the public’s business. It was the MPs’ business to run Parliament.
But that was demonstrably wrong as subsequent events showed. As in every other walk of public life, politicians also only operate with a licence – one which comes from public trust. This should be obvious in politics because we vote for them.
It is less obvious in business, but it is still true, and what the Philip Green and BHS controversy reminded everybody was that even if you are a private company you still have obligations to the wider public because a) they buy from you, and b) they have pensions and other rights.
No one is free of societal responsibility and when it all goes wrong and trust is damaged, the consequences can be dramatic, as they were for Parliament.
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