How Boards Can Assess the Health of Their Companies

File this under ‘the risk of finance thinking’.

So many times companies ‘instil financial discipline’ and blow up their proposition. They forget the job that their customers are hiring them to do, cut costs, lose focus, and undermine the key intangible factors that make up the proposition. This type of thinking is a disease that starts with P&L and balance sheet and working backwards – unsuprisingly neglecting the value-creating assets that don’t make it here such as employee experience, expertise and engagement.

I can think of three retailers I’ve worked with where this was a core issue – two of which were private equity-owned.

Consider how Home Depot, born of two founders, stumbled when its board hired Bob Nardelli from General Electric to be CEO and instill big-company discipline. He did, but he also diversified from the core, substituted cheaper clerks for expert staff and cut, among other costs, the bonus pool for frontline excellence. When Home Depot slipped to last among U.S. retailers in customer satisfaction and its market value declined by 55%, the board stepped back in, meeting with employees and learning how to restore the company’s original focus on a close, advisory relationship with customers. They then brought in a CEO who unwound the diversifications and invested in the stores, requiring senior executives to work in stores each month, rehiring expert staff, and bringing back special awards for heroic performance by store employees. Today, the company has regained its mojo.

Source: How Boards Can Assess the Health of Their Companies

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