Thursday, May 10, 2007

New POSIWID Materials

POSIWID lens (edited by Richard Veryard)
POSIWID wiki (edited by Amicus Rex)

Tuesday, November 16, 2004

Shareholder Democracy

Richard says:
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One of the preconditions for corporate governance is transparency, and systems engineering can certainly do something about this. But transparency is not enough. We need to engineer appropriate control mechanisms, so that transparent information can be properly acted upon in the interests of the real stakeholders.
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Information is never passive - there is always some reason why it is gathered, and some intention driving its gathering and presentation.

As I have suggested elsewhere, the hidden issue we are all wrestling with is "How do we measure wealth?". It is quite clear that current economic measures make very little sense, since they fail to distinguish between wealth and money. If locked-up wealth is freed and becomes available for monetary purposes, this increases measurable GDP, but it doesn't necessarily mean there has been any real increase in wealth (except for those who take a cut whenever a transfer of money takes place - e.g. bankers, governments, estate agents, lawyers).

By some measures, real wages for typical US citizens have been stagnant or in decline since the mid-1970s. They have only been able to maintain their standard of living (if at all) by going into debt. By other measures, the US standard of living has been rising since that time. These cannot both be true, so something is very fishy in the choice of measurement being made by different parties.

The message from the behaviour of Rupert Murdoch is that he wants the freedom to intercept wealth any way he wants, without any control by his public shareholders.

There is no reason why system engineering cannot be used to aggregate fundamental data according to several different perspectives. Once the data is captured and the quality of that data is understood, it can be aggregated to obtain whatever views you wish, depending on the perspectives of different stakeholders. As long as the rules of aggregation are understood by the viewer, the "bias" can be taken into account.

"Fundamentalists" of various persuasions will try to force a particular "objectivity" on the measurements and claim that all other perspectives are wrong. The rest of us do not have to believe this, unless the fundamentalists can overwhelm us by superior power, whether that be by dominating communications channels, or by the application of violence, or both.

POSIWID applies here, as it does everywhere else.

Regards,

Trevor

Monday, November 15, 2004

Shareholder Democracy

According to John Plender, the biggest curiosity of US corporate governance is that shareholders' votes on directors' appointments at annual meetings have no force. Shareholders can "withhold" their votes, but even if more than 50 per cent do so the gesture is purely symbolic and the company can continue on the management's chosen path. Plender comments: "This shareholder democracy is about as democratic as Cuba or the old Soviet Union."
[Financial Times, November 13th 2004]

Meanwhile, Manchester United management is outraged that Malcolm Glazier should have used his substantial minority shareholding this week to vote against the appointment of directors. Apparently this is bad form; complaints have been made to various regulators. Glazier's intentions towards the football club are currently unclear - but does this mean he should be denied a vote?

Many people seem unable to distinguish the viability of a company from the perpetuation of its current management. Shareholder democracy in Europe is far from being an adequate control mechanism - it lacks power as well as requisite variety. However, many US stakeholders are strongly resistant to even this weak control mechanism; meanwhile News International's corporate move to Delaware is widely seen as an escape from the stricter corporate governance environment in Australia.

One of the preconditions for corporate governance is transparency, and systems engineering can certainly do something about this. But transparency is not enough. We need to engineer appropriate control mechanisms, so that transparent information can be properly acted upon in the interests of the real stakeholders.

Wednesday, September 08, 2004

Responsibility for security & new UK compliance bill

A couple of interesting articles:


Security: Can you really trust JUST techies?

http://software.silicon.com/security/0,39024655,39123732,00.htm


UK compliance super-bill a step closer

http://management.silicon.com/itdirector/0,39024673,39123757,00.htm?nl=d20040908

Monday, August 23, 2004

Validation

Trevor has it right. The collision forecast in on track. Now, the task at hand is, knowing this, how to exploit for the business. Someone somewhere is going to figure it out and collect. Why not you?

Monday, August 09, 2004

Commitment and Self-Interest

In response to Richard's post with same subject, of July 31st, 2004:

The idea of offering shares or share options to employees and directors, as Richard says, is to align their interests with those of the public shareholders.

This would make excellent sense if the share price accurately reflected the wealth-creating activities of the company. In the days when the wealth-creation capabilities of a company could be accurately measured by looking at the balance sheet, this might have been sensible (although, in fact, the ease of measurement also rendered this kind of incentive mostly unnecessary).

The difficulty we are all faced with is that measures which made perfect sense up until about 1980 no longer work. This is because the real wealth-creating assets of public corporations are now intangible, because of the dependency for success on branding and other forms of knowledge which are mostly locked up in individual minds.

Directors of companies, like politicians, now recognise that it is far easier to manipulate the perceptions of other people than it is to change the underlying reality of what is going on. In other words, ramp the share price by concentrating on positive perception of your company in the eyes of key stakeholders, rather than paying attention to enhancing the wealth-creation process. The latter is rather hard work, because it requires subtlety, whereas the former is a well-understood process, known as marketing.

This works fine, as long as the belief system can be sustained. Like the emperor's new clothes, everything looks ok until the small boy in the crowd notices that the emperor has no clothes.

The first reaction of the emperor is to suggest that there is something wrong with the small boy. Maybe he needs a dose of Ritalin to make him better? If that doesn't work, maybe he ought to be punished (like the whistleblower who gets fired)?

Some people hanker for the good old days, and want us to rely on "common sense" to separate the wheat from the chaff. Surely decent folk can tell the difference between real wealth-creation and bogus manipulation of perception? This seems to be the idea behind the Christopher Alexander school of architecture. We can tell what is real by direct perception, so we don't need to measure anything.

Monetary fundamentalists want us to believe than anything that can't be measured in money terms doesn't exist, and can therefore be ignored. If the numbers in the spreadsheets look ok, then everything is fine. If the money is flowing into my coffers, that is all that matters. The question of whether the money is being effectively stolen from elsewhere is irrelevant.

The only way out of this mess is to devise convincing measures of wealth. Until that is done, there is no way to distinguish between wealth-creation and wealth-interception.

It is impossible to measure wealth until we can agree on what it is. Without convincing means of measuring it, we are at the mercy of the people who say they can measure money, that money is wealth, so everything that doesn't produce measurable money returns produces no wealth and is therefore worthless.

The inability to measure wealth-creation in any terms at all is disastrous. Take a look at the terrible damage caused by the Soviet Union if you are not convinced of this!

Regards,

Trevor

Friday, August 06, 2004

Comfort

The work of writing the "book" is going quite well. It is amazing to watch the pieces and parts of the old crusade fall into place. The trick was to identify the right target audience and then invent a coherent rack to hang the data on. The ease with which it is clustering gives confidence that it will be a book worthy of the effort. It's the first time I ever liked my own writing. Maybe it's a bad omen, but the initial draft will be out soon. This time I will judge success by how violently all but the target audience despises the document. Why didn't I think of this decades ago.

Saturday, July 31, 2004

Commitment and Self-Interest

Standard investment advice is to diversify. Among other things, this means that it's not a good idea to hold significant quantities of shares in your own company, since you are doubly exposed if the company fails. (Think Enron.)

Meanwhile, it is widely supposed that the company's interests are served if the directors and employees have an investment stake in the company as well as an employment stake. This is supposed to align the personal interests of the directors and employees with the interests of the company. There is personal commitment to the success of the company, with an inflated cost of exit.

Furthermore, by having large personal shareholdings, company directors demonstrate their confidence in the company's present state and future prospects, and their belief that the shareprice undervalues the true worth of the company.

There is therefore a structural conflict of interest between company (external shareholders) and employees (especially directors). How is this resolved?

Either the individual directors take an irrational stance in respect of their personal investments, accepting an unbalanced portfolio with a sub-optimal risk/reward ratio. However, we should not expect true alignment between the interests of a director with an unbalanced investment portfolio, and the majority of shareholders whose investments are (of course) properly balanced and diversified.

Or the directors cheat. For example, holding derivatives that hedge against the excess exposure to the failure of the company. For example, manipulating information. And as a privileged class, the directors hedge against failure by awarding themselves massive termination payments. (While not illegal, this is a morally corrupt practice.)

According to this argument, directors are driven by the system towards either madness or badness. (Some manage both at once.) The answer is not to recruit a new cadre of morally upright and selfless leaders, but to change the system.

Tuesday, July 27, 2004

IT looks the weak link in compliance

Publication:Computer Weekly; Date:Jul 27, 2004; Section:This Week; Page:4
COMPLIANCE
IT looks the weak link in compliance
Nick Huber nick.huber@rbi.co.uk 
IT systems could be the weak link in an organisation’s compliance projects, according to Ernst & Young.
The professional services firm found that more than 40% of large US companies surveyed had discovered “significant weaknesses” in the IT systems underpinning projects to comply with the Sarbanes-Oxley regulations on corporate governance.
Sarbanes-Oxley, which comes into force next April for UK firms listed on US stock exchanges, will require companies to link financial reporting systems in different offices and subsidiaries.
Section 404 of the Sarbanes-Oxley Act 2002 requires listed companies to report on the effectiveness of their internal controls, such as rules embedded in IT systems or financial safeguards.
IT problems highlighted by the Ernst & Young survey included controlling employee access to sensitive financial information and IT security.
“Management should not underestimate the IT implications of Sarbanes-Oxley and the volume of work this requires from the typical IT department,” said Erol Mustafa, partner at Ernst & Young. “Businesses often fail to understand fully how their IT systems actually control business processes. Documentation and testing of these controls is critical, and documentation that already exists often does not reflect the reality.”

Thursday, July 22, 2004

Having Their Cake...

Dear all,

I don't know if you are aware of this web site:

http://www.havingtheircake.co.uk/

A quick look suggests it is a good place to look for facts which might demystify the role of senior management as "Masters of the Universe".

Regards,

Trevor

Royal Dutch Shell

Dear all,

Quoted from article "£150m bonanza for Shell's auditors" page 09 Internal Auditing & Business Risk, July 2004:

KPMG and PwC face questioning by the Securities & Exchange Commission, the US financial regulator, over their role at Shell. A damning report into the reserves fiasco by the American law firm Davis Polk & Wardwell found that "aggressive" booking arose because Shell's internal reserves audit department was "understaffed and undertrained". The report added: "The function was performed by a single, part-time former Shell employee", with almost no training in regulatory issues.