Gospel According to GaaS (7/25): The Culture of Consequence

Every king will be beheaded on the altar of consequence.

Actions and reactions are equal and opposite. — Isaac Newton (Third Law of Motion)

I have always been drawn to Isaac Newton’s third law of motion because it offers valuable insights into how external forces can influence the direction of an organisation. This law holds a special place in my heart as it highlights the guiding principle behind what I call the “altar of consequence.” While Newton’s rule applies to the science of motion, its relevance extends to the corporate world, particularly in Nigeria and similar emerging economies. A corporate adaptation might read: actions should elicit equal reactions to uphold a culture of consequence.

The process of governance is delicate yet immensely profound. It is easy to lose impactful points in the niceties of diplomacy, balance, and conformity. Don’t get me wrong, these qualities are essential but are more suited to mature and stable companies. For a Proprietary Investment Company (PIC), however, maintaining a permanent startup mentality is crucial for two reasons. First, a PIC invests in troubled and undervalued companies, making a startup mindset essential to drive the required reforms. Second, a PIC faces significant exposure to the risks associated with its investee companies, necessitating rigorous risk monitoring and tracking, traits emblematic of a startup approach.

Governance’s ultimate goal is to prevent a culture of no consequence. Without this, a company loses its ability to instil the culture necessary for success. As Peter Drucker famously said, “Culture eats strategy for breakfast.” Put differently, a lack of cohesive and productive culture makes implementing any strategy an impossible task.

As a Director, a Managing Director’s (MD) position is not guaranteed; it is entirely performance-based. The MD’s role is to deliver results; when they do, they should be appropriately compensated. Conversely, when an MD underperforms, accountability mechanisms must be enforced. If an MD significantly outperforms their targets, their rewards should reflect this exceptional performance.

Sustained excellence could even warrant co-ownership of the company, an incentive to retain high-calibre talent. Performance metrics should always align with strategies and plans approved by the Board, reinforcing the premise of my previous article, “Strategy-Led Operational Oversight.”

Challenges to Accountability

Holding Executive Management accountable is easier said than done. The following blockers often stand in the way:

1. Human Influences: Personal relationships, such as friendships, family ties, and colleague bonds, can erode objectivity and independence. Prolonged proximity within a professional setting tends to nurture these bonds, complicating accountability.
2. Conflict of Interest: Conflicts arise when a director’s personal interests clash with those of the company. This represents a significant threat to governance, especially when management supports such conflicts. Directors in these situations struggle to hold management accountable effectively. In subsequent articles, we will expand more on these conflicts of interest.
3. Skill Gaps: Governance demands specialised skills and a deep understanding of the business model and operations. The increasing sophistication and fast-paced nature of modern enterprises elevate boardroom discussions. Directors lacking the requisite expertise cannot hold management accountable.
4. Owner-Manager Structure: While this structure has advantages, it also risks undermining accountability. When an MD, by virtue of ownership, wields influence over governance decisions such as board appointments, the process becomes fraught with challenges. Alienating a founding or high-performing MD is rarely in the company’s best interest, but a balance must be struck to ensure the MD remains effective and accountable. If the MD persistently fails to align with the Board’s directives, the Board may face difficult decisions, including termination.
5. Charismatic Leadership: Larger-than-life MDs or founders, especially those credited with the company’s success, pose unique challenges. Directors may hesitate to hold such individuals accountable. However, as with owner-managers, a well-calibrated approach is needed to ensure accountability without disrupting operations.

A Path Forward

Addressing these blockers requires carefully crafted solutions that align stakeholder interests with the company’s objectives without compromising governance integrity. Accountability is the foundation of a productive culture; without it, the strategy will falter. Directors must embrace their duty to hold Executive Management accountable, ensuring long-term success.

Newton’s third law reminds us that every action has a corresponding reaction. In governance, the “altar of consequence” serves as the ultimate equaliser, demanding accountability and reinforcing culture. For Proprietary Investment Companies operating in challenging environments, the culture of consequence is not just a management tool; it is a survival mechanism.

When governance is executed with precision, it fosters a culture where strategy can thrive, and organisations can achieve their fullest potential.