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Ten things every CEO must know in 2018

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The world is changing and unless companies change their ‘purpose’ to something other than executive remuneration and stockholder returns, they will lose their licence to operate from the stakeholders that actually matter, writes JESSICA YELLIN, founder of It’s a Shovel.

South Africa is well behind the curve, but the good news (or bad, depending on where you sit on the issue!) is that the money is moving into ESG (Environmental, Social, Governance) and the recent Steinhoff disaster has proved to the local market that pesky governance and compliance issues are important!

So, like it or not, it’s time to get with the programme. Here are my top ten things every SA CEO needs to know this year:

1.      Leaders with a sense of purpose are more successful 

For your company to embrace #ReputationWithPurpose and reap the benefits, you need Purpose! And it’s not just good for the company, it’s good for you too.

New research has shown that actually having a sense of purpose, not a specific set of characteristics, is the key to successful leadership. However, according to a report in HBR, less than 20% of leaders know what their individual purpose is and even less can actually spell it out.

“The process of articulating your purpose and finding the courage to live it—what we call purpose to impact—is the single most important developmental task you can undertake as a leader.”

Finding your purpose and / or properly interrogating that your stated purpose is ‘real’ is a process, but before you rush off to your closest quack coach consider this: if you’re clever enough to be ‘at’ or ‘close to’ the top of the pile, you’re probably clever enough to figure it out yourself! It just needs time, brutally honest introspection, curiosity and an open mind.

 

2.      Hurry up and find your purpose because the CEO Activism trend isn’t going away

South African CEOs have since 1994 become conspicuously silent beyond a couple lame attempts via Business Leadership SA. And as they say, silence implies consent so no wonder that memes like #whitemonopolycapital get as much traction as they do!

Internationally, the Activist CEOs are not only shaping policy but also driving revenues for their businesses because, surprise surprise, consumers respect leaders and by extension their organisations, for being brave, taking a stand and making change happen!

In his piece, The New Politics of Business, Doug Randall, CEO of The Protagonist, sums it up best: “The days of businesses operating in a silo are over. Consumers have grown to expect that the brands they interact with participate in conversations happening in the world at large. Brands are powerful, and they can significantly influence the narratives they engage with. Getting involved in controversial narratives makes brands, and the communities around them, stronger. It’s just imperative you understand how those narratives may impact your organization, for better or for worse and be prepared to answer for them.”

It’s time to find your voice and weigh in on the many, many, many issues that confront our country… but of course this implies that you have to be doing something too!

 

3.      All of the above is the Millennials’ fault, but best you learn to love them because they going to make or break you!

So much has been written about the Millennials that I’m not going to bore you with the demographics or even the psychographics. Their impact is now in the numbers! According to The Reputation Institute, Millennials now represent 27% of global spending power (and increasing daily!), 15% of them define themselves as Activists (#ahem) and 85% of them use their phone more than 40x per day (although I bet your usage is similar!).

Even more relevant here is that reputation is more important to them than previous generations! Top reputation ranking companies score 2.5bps higher amongst Millennials.

Translate this into bottom line: 1 bps = 2.6% increase in market cap… you do the maths on your own business… Ka Ching, Ka Ching!

 

4.      Sustainability is now an economic issue and not just a bunch of greenies

How much research do you need to see to prove the point that sustainable companies deliver better financial results? Well, my friends at Arabesque Asset Management have done the hard work for you and commissioned the University of Oxford to review 200 pieces of academic literature on the topic. Their report From Stockholder to Stakeholder makes for fascinating reading, but I know you don’t have the time, so here are the highlights:

a.      Sustainability is one of the most significant trends in financial markets for decades.

b.      90% of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies.

c.      88% of the research shows that solid ESG practices result in better operational performance of firms.

d.      80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices.

e.      Based on the economic impact, it is in the best interest of investors and corporate managers to incorporate sustainability considerations into their decision-making processes.

f.       Active ownership allows investors to influence corporate behaviour and benefit from improvements in sustainable business practices.

g.      The future of sustainable investing is likely to be active ownership by multiple stakeholder groups including investors and consumers.

Still not convinced? Well then I suggest you cash out those stock options and go far, far away!

 

5.      A poster in the toilet cubicles is not going to turn your business into a sustainability-driven, purpose-led success story.

Once upon a time, internal communications consisted of your PA putting together a weekly company newsletter full of clip art and comic sans.  Most companies have moved past this, but still the internal comms function is generally the “Cinderella” of the Communications Team with the sexier corporate communications and marketing sisters getting the glory and budgets.

But there is now too much at stake. Make sure your internal communications professionals fully understand your business and objectives; can pick up and respond to the nuances within the business; and can deliver sound, strategic and creative internal communications that is able to shape the culture you need to get ahead.

I suggest you point them to this fantastic resource: Disrupting the Function of IC

 

6.      Sadly, however, great internal comms isn’t good enough either! You need HR and IC to work together to deliver Employee Engagement 2.0

Employee Engagement… the Holy Grail! How much kak have you read on the topic? How many surveys have you done? How many ‘ interventions’ have you wasted money on?

Everything you’ve seen or heard to date is a load of bull.

There’s a simple formula*: Employees must feel “in flow” in their jobs + they must have a deliberate career path + they must feel attached to at least one other person in the organisation + they must feel like a mentor / ambassador + you need to have active, functional social networks through which relevant, honest, timely communication must flow.

Only when you have personally fulfilled, connected employees can they function together to deliver the ‘employee engagement’ that you dream of. Because you really do need it, especially if you are going to be steering a new course!

* I developed this with a former colleague who is way cleverer than me and you’re welcome to   chat to her if you need some help in this space.

7.      Has anybody actually read King Code IV?

No, it’s not a new Dan Brown novel.

Yes, it applies to you too!

Nothing like a good corporate scandal to wake everyone up! We should actually be thanking Mr Jooste. Well, maybe I’ll consider it if my Pension Fund recovers.

Point is, there were blatant lapses in governance at Steinhoff for years and no one raised an eyebrow because they were all too busy counting the cash! Well, the chickens have now come home to roost and going forward, best you are able to recite King IV in your sleep. I can’t tell you how many listed companies’ websites still reference King III… hello!!! And as for unlisted companies… whatever!!!

I’m sure you have read it, but just in case you need a refresher, here you go: http://c.ymcdn.com/sites/www.iodsa.co.za/resource/resmgr/king_iv/King_IV_Report/IoDSA_King_IV_Report_-_WebVe.pdf

 

8.      A big, fat corporate burp is sometimes exactly what is required

To my horror when I shared my #ReputationWithPurpose deck with someone recently he said it looks like “corporate indigestion”. Eventually I got over myself, but he makes a valid point. It is a lot to swallow… but consider it an Eno’s: fizzes in your nose going down but makes everything better by releasing a big, fat burp!

In fact, it’s nowhere near as bad as Eno’s. You don’t need to implement the whole lot at once, it’s designed as a process. Baby steps will get you there.

But it will probably result in the expulsion of hot air. Maybe that means you need to change some people in your organisation? More than likely you will need to change the culture. And you will certainly need to get rid of waste. All of these are good things. Don’t be scared!

 

9.      You need to learn to manage your shareholders

I’ve read the most interesting articles recently on Agency Theory and the implications it has for corporate governance. Once again the Harvard Business Review explains it way better than I ever could so please take out half an hour to read the whole article.

The basic premise is that the traditional agency theory model is flawed. Shareholders do not ‘own’ the company and therefore shouldn’t direct what the company does. It argues for a company centric approach in which the executive team and Board are responsible for creating value for all stakeholders. The only problem with this view is that is depends on competent and ethical executives and we have seen clearly that this is not always in place.

I believe we are moving into a time of increased shareholder activism which sounds like a good thing but isn’t always. Fund managers are not always right and they also have bonus targets to meet.

So I guess the only adult thing to do is to engage actively with your shareholders, within the bounds of the applicable regulations, and if they don’t get your #ReputationWithPurpose vision then do as Howard Schultz of Starbucks recently did and tell you shareholders to invest elsewhere .

 

10.  If it’s not fun anymore, quit

Sustainability and #ReputationWithPurpose refers to you too… your life needs to be sustainable and it must have purpose (as per point 1). If what you are doing isn’t delivering this, then either change it or leave. I did, and I’ve not looked back!

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VoD cuts the cord in SA

Some 20% of South Africans who sign up for a subscription video on demand (SVOD) service such as Netflix or Showmax do so with the intention of cancelling their pay television subscription.

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That’s according to GfK’s international ViewScape survey*, which this year covers Africa (South Africa, Kenya and Nigeria) for the first time.

The study—which surveyed 1,250 people representative of urban South African adults with Internet access—shows that 90% of the country’s online adults today use at least one online video service and that just over half are paying to view digital online content. The average user spends around 7 hours and two minutes a day consuming video content, with broadcast television accounting for just 42% of the time South Africans spend in front of a screen.

Consumers in South Africa spend nearly as much of their daily viewing time – 39% of the total – watching free digital video sources such as YouTube and Facebook as they do on linear television. People aged 18 to 24 years spend more than eight hours a day watching video content as they tend to spend more time with free digital video than people above their age.

Says Benjamin Ballensiefen, managing director for Sub Sahara Africa at GfK: “The media industry is experiencing a revolution as digital platforms transform viewers’ video consumption behaviour. The GfK ViewScape study is one of the first to not only examine broadcast television consumption in Kenya, Nigeria and South Africa, but also to quantify how linear and online forms of content distribution fit together in the dynamic world of video consumption.”

The study finds that just over a third of South African adults are using streaming video on demand (SVOD) services, with only 16% of SVOD users subscribing to multiple services. Around 23% use per-pay-view platforms such as DSTV Box Office, while about 10% download pirated content from the Internet. Around 82% still sometimes watch content on disc-based media.

“Linear and non-linear television both play significant roles in South Africa’s video landscape, though disruption from digital players poses a growing threat to the incumbents,” says Molemo Moahloli, general manager for media research & regional business development at GfK Sub Sahara Africa. “Among most demographics, usage of paid online content is incremental to consumption of linear television, but there are signs that younger consumers are beginning to substitute SVOD for pay-television subscriptions.”

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New data rules raise business trust challenges

When the General Data Protection Regulation comes into effect on May 25th, financial services firms will face a new potential threat to their on-going challenges with building strong customer relationships, writes DARREL ORSMOND, Financial Services Industry Head at SAP Africa.

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The regulation – dubbed GDPR for short – is aimed at giving European citizens control back over their personal data. Any firm that creates, stores, manages or transfers personal information of an EU citizen can be held liable under the new regulation. Non-compliance is not an option: the fines are steep, with a maximum penalty of €20-million – or nearly R300-million – for transgressors.

GDPR marks a step toward improved individual rights over large corporates and states that prevents the latter from using and abusing personal information at their discretion. Considering the prevailing trust deficit – one global EY survey found that 60% of global consumers worry about hacking of bank accounts or bank cards, and 58% worry about the amount of personal and private data organisations have about them – the new regulation comes at an opportune time. But it is almost certain to cause disruption to normal business practices when implemented, and therein lies both a threat and an opportunity.

The fundamentals of trust

GDPR is set to tamper with two fundamental factors that can have a detrimental effect on the implicit trust between financial services providers and their customers: firstly, customers will suddenly be challenged to validate that what they thought companies were already doing – storing and managing their personal data in a manner that is respectful of their privacy – is actually happening. Secondly, the outbreak of stories relating to companies mistreating customer data or exposing customers due to security breaches will increase the chances that customers now seek tangible reassurance from their providers that their data is stored correctly.

The recent news of Facebook’s indiscriminate sharing of 50 million of its members’ personal data to an outside firm has not only led to public outcry but could cost the company $2-trillion in fines should the Federal Trade Commission choose to pursue the matter to its fullest extent. The matter of trust also extends beyond personal data: in EY’s 2016 Global Consumer Banking Survey, less than a third of respondents had complete trust that their banks were being transparent about fees and charges.

This is forcing companies to reconsider their role in building and maintaining trust with its customers. In any customer relationship, much is done based on implicit trust. A personal banking customer will enjoy a measure of familiarity that often provides them with some latitude – for example when applying for access to a new service or an overdraft facility – that can save them a lot of time and energy. Under GDPR and South Africa’s POPI act, this process is drastically complicated: banks may now be obliged to obtain permission to share customer data between different business units (for example because they are part of different legal entities and have not expressly received permission). A customer may now allow banks to use their personal data in risk scoring models, but prevent them from determining whether they qualify for private banking services.

What used to happen naturally within standard banking processes may be suddenly constrained by regulation, directly affecting the bank’s relationship with its customers, as well as its ability to upsell to existing customers.

The risk of compliance

Are we moving to an overly bureaucratic world where even the simplest action is subject to a string of onerous processes? Compliance officers are already embedded within every function in a typical financial services institution, as well as at management level. Often the reporting of risk processes sits outside formal line functions and end up going straight to the board. This can have a stifling effect on innovation, with potentially negative consequences for customer service.

A typical banking environment is already creaking under the weight of close to 100 acts, which makes it difficult to take the calculated risks needed to develop and launch innovative new banking products. Entire new industries could now emerge, focusing purely on the matter of compliance and associated litigation. GDPR already requires the services of Data Protection Officers, but the growing complexity of regulatory compliance could add a swathe of new job functions and disciplines. None of this points to the type of innovation that the modern titans of business are renowned for.

A three-step plan of action

So how must banks and other financial services firms respond? I would argue there are three main elements to successfully navigating the immediate impact of the new regulations:

Firstly, ensuring that the technologies you use to secure, manage and store personal data is sufficiently robust. Modern financial services providers have a wealth of customer data at their disposal, including unstructured data from non-traditional sources such as social media. The tools they use to process and safeguard this data needs to be able to withstand the threats posed by potential data breaches and malicious attacks.

Secondly, rethinking the core organisational processes governing their interactions with customers. This includes the internal measures for setting terms and conditions, how customers are informed of their intention to use their data, and how risk is assessed. A customer applying for medical insurance will disclose deeply personal information about themselves to the insurance provider: it is imperative the insurer provides reassurance that the customer’s data will be treated respectfully and with discretion and with their express permission.

Thirdly, financial services firms need to define a core set of principles for how they treat customers and what constitutes fair treatment. This should be an extension of a broader organisational focus on treating customers fairly, and can go some way to repairing the trust deficit between the financial services industry and the customers they serve.

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