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January 31st, 2018

Mac Van Wielingen Explores Drivers of Performance

Early in December 2017, Mac Van Wielingen addressed a small group of senior business leaders in Calgary. His talk titled, Advanced Governance: Strategy and the Imperative of Performance, explored the performance challenge facing most companies, critical drivers of performance and how they relate to strategy. The talk concluded with a selection of Advanced Practices aimed at assisting leaders in the development of great strategy. This blog recounts the key ideas and themes presented in Van Wielingen’s talk from my point of view as an audience member. A summary powerpoint presentation is also available here

 

The Performance Challenge

Central to the discussion of performance is the empirical reality that most businesses eventually underperform and fail. Research shows that half to two-thirds of newly formed companies statistically disappear within their first five years.1 However, this performance challenge is not only a threat to newly formed companies, as numerous mature and once leading companies have also hit the wall of underperformance and/or experience high profile corporate meltdowns (i.e. Blackberry, Nortel, Lehman Brothers, etc.)  Van Wielingen explains, “I focus on the point of performance, because I am always asking myself: What is the typical experience for a management group or board of directors? The evidence points to a typical experience of a serious, everyday performance challenge."

Van Wielingen points to research exploring the theory of positive skewness, which has been shown to be prevalent in public equity returns, as well as private equity and venture capital.2 Positive skewness centres on nonsymmetrical distributed returns of a portfolio, as a result of numerous frequent small losses and a few extreme gains. Therefore, such a distribution, tells us that a small number of companies drive the overall value creation of a portfolio. Recent research from the University of Arizona,3 further supports the theory of positive skewness. Reviewing lifetime returns (listing to delisting) of 26,000 stocks over a 90-year period in the U.S., the study found that six out of 10 stocks did not outperform low-risk treasuries. The study points to the fact that as the overall stock market has outperformed low-risk treasuries – this performance can be attributed to a small number of companies.  

Given this evidence, Van Wielingen cautions, “If we are going to run our businesses like most businesses are run, it is only reasonable to expect that you will end up like most businesses.” However, do not pass this viewpoint off as an unduly pessimistic outlook. For, as Van Wielingen highlights, understanding the facts, allows us to ask ourselves, “What can we do differently to increase the probability that our companies will survive?”

 

Drivers of Performance  

A copious number of business books and guides to corporate strategy have been written that promise to provide the secrets to success. Van Wielingen shares, “In my business career, I have been continuously searching for the one big driver of performance.” In his quest, he studied numerous drivers from vision to capital structure to culture (view a more complete list of performance drivers in the accompanying presentation.) From this journey, Van Wielingen states that he learnt, “there is no silver bullet. There are multiple drivers. Each is essential; each offers the opportunity to create a competitive advantage. If any one of the fundamentals is missing, your organization may be in peril.”

The conclusion is that comprehensiveness is an essential ingredient for good strategy. Simple. All you must do is do everything, and it all well. Van Wielingen, himself admits that this is no easy task, it is hard work. Further, many executive leaders have told him that it all sounds too complex and overwhelming. To aid overwhelmed leaders, Van Wielingen points to the foundation of the Governance of Performance and a selection of Advanced Practices, which can help pave the way to integrate comprehensiveness into strategy. 

 

Governance of Performance

Governance of Performance looks at the respective roles of management and the board of directors, and the structure of responsibilities and authorities within an organization. This is critical as it addresses how the board’s role links with organizational performance. The board has authority over all material fundamentals of an organization. This includes, but is not limited to, issuance of debt and equity, CEO selection and performance management, capital spending and material transactions. In Van Wielingen’s view, the role of the board goes beyond passive compliance and advisory, stating, “the Board and Management are a partnership, sharing in the leadership responsibility of an organization – the board can be seen as the control partner and management is the executive partner.” In this way, management has the responsibility to develop and implement strategy, but the board has the ongoing responsibility for essential due-diligence and, ultimately, the decision if the strategy is good/great and justifies the commitments of the organization. It is with this mindset that boards can move towards operating at an optimal level and fulfilling duties relating to performance.

 

Five Advanced Practices

To conclude his talk Van Wielingen offers five Advanced Practices, all of which he has used, and seen to generate success. However, Van Wielingen stresses that this is not a complete list and there are many more that could be addressed. The five practices are summarized in the table below. For a more detailed description please view the accompanying presentation.

 

Advanced Practice

Background

Critical Question

Vision

Find a way to describe your vision that is compelling and that is moving towards what is viewed as a leadership position in your industry.

 

Are you living your vision to be a leading business?

 

Strategy

Strategy creates coherence and rationale for the commitment of an organization’s resources. It must be integrated into the purpose of an organization. The most important condition is that strategy is comprehensive. Ask yourself if you can put a checkmark next to each driver of performance, and if there is internal consistency?

What you are trying to achieve is broader than one variable it goes beyond solely profit. In addition to profit, purpose also needs to include a perspective on risk, timeframe, and quality of human experience.

Can you evidence that you have great strategy?

 

Organizational Competencies

We are generally well-aware of technical and functional competencies, but not as much of organizational competencies (i.e. leadership and communication), such as: priority setting; determining what is material; workplace coordination; and clarity and direction on values.

An effective way to assess this is 360 performance reviews.

Can you evidence an objective understanding of leadership capabilities within your executive team?

Accountability

Accountability is the acceptance of responsibility and the willingness to be answerable for progress towards a desired outcome within a particular domain of responsibility. It is often a proxy for performance.

A method to build a performance-based culture with high accountability is to implement self-evaluated progress monitoring reports.

Can you evidence that you have accountability processes that support learning, adaptation, and performance?

 

Culture

A large body of research tells us that there is a link between strength of culture and performance. (See: Predicting Corporate Performance from Organizational Culture 3 and Organizational Culture: Can It Be a Source of Sustained Competitive Advantage? 4)

An effective tool to assess this is an annual ‘Strength of Culture Survey.’

Can you evidence an objective, unbiased understanding of strength of culture?

 

 

In Summary

Highlighting the realities of pervasive underperformance, Van Wielingen makes a strong case for a need to re-envision how strategy is developed and how performance is managed. Central to his argument is the need for comprehensiveness within strategy, which embraces all key performance drivers both in how they are integrated into the purpose and internally managed. In Van Wielingen’s view, a critical component of sustained performance is the role of the board in strategy development and performance management. This role must go beyond the traditional passive, compliance-based role to include the sharing of leadership responsibilities in the organization. Providing insight on five selected Advanced Practices, Van Wielingen offers a path forward to leaders striving sustain performance of their organizations.

 

To read more of Mac Van Wielingen and Viewpoint Research’s work please see the following documents and publications:

Fraser Institute Acceptance Speech – October 2018

The Evolving Role of the Corporate Board – Part 1: Governance, Strategy and the Imperative of Performance – Summer 2015

The Evolving Role of the Corporate Board – Part 2: Culture as Governance and the Link with Performance – Winter 2017

 

About the Author:

Megan Hjulfors, MSc, MBA
Senior Advisor, Communications

Megan is a Senior Advisor, Communications at Viewpoint with responsibility for all communications strategy and execution. Buidling on almost of decade of public company investor relations and corporate communications experience, Megan is keenly interested in the role of corporate governance specifically in the areas of performance managment, ESG integration and culture. Megan has a Master of Science in Media and Communication from the London School of Economics and an MBA (Finance) from the University of Calgary.   

 

References

1) Parsley, C., & Halabisky, D. (2008). Profile of growth firms: A summary of Industry Canada research. Ottawa: Industry Canada, March 2008. 

2) Buchner, A. (June 2016). Dealing with non-normality when estimating abnormal returns and systematic risk of private equity: A closed-form solution. Journal of International Financial Markets, Institutions & Money. 45 (2016) 60–78. Available at https://www.sciencedirect.com/science/article/pii/S1042443116300488?via%3Dihub

3) Bessembinder, Hendrik. (November 2017). Do Stocks Outperform Treasury Bills? Journal of Financial Economics, Forthcoming. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447   

3) Gordon, G., & DiTomaso, N. (1992). Predicting Corporate Performance from Organizational Culture. Journal of Management Studies. 29. 783 - 798. 10.1111/j.1467-6486.19

4) Barney, J. (1986). Organizational Culture: Can It Be a Source of Sustained Competitive Advantage? The Academy of Management Review, 11(3), 656-665. Retrieved from http://www.jstor.org/stable/258317