Delivering long term sustainable value with offensive/defensive behaviours

Delivering long term sustainable value with offensive and defensive behaviours: importance of balance/natural harmony.

Extract from Management Innovation eXchange – Sean Lyons:

If capitalism in the 21st century is to deliver long term sustainable value it must achieve a healthy balance between offense and defense. This will require a notable correction to the current imbalance in order to create a natural harmony between these two antagonistic yet complimentary principles.

Problem

To gain an understanding of what modern capitalism represents one must observe corporate behaviour which represents the essence of capitalism. A commonly held view of economic theory is that the western capitalist model is primarily driven by the motivating factors of greed and fear, the former is the motivation to extend ourselves in search of even greater rewards, while the latter is the motivation to protect that which has already been achieved lest it should be taken from us. Progress no doubt requires both, while prudence and common sense would suggest that long term sustainability requires a healthy blending of the two. This search for a middle path has been the subject of much debate down through the centuries. The recent financial crisis and the resulting global economic downturn has highlighted the unhealthy nature of greed when left unchecked, resulting in the prevailing capitalist paradigm and the blinkered focus on short term financial rewards. This in turn has given rise to a growing belief that “Capitalism” if it is to survive in the 21st century, will need to adapt and evolve in order to satisfy the imperative to deliver long term sustainable value.

An old sporting aphorism states that “offense wins games, defense wins championships”. The financial crisis clearly highlighted the imbalance which currently exists between “offense and defense” in the corporate mindset. This imbalance is reflected in the unequal focus on bringing the dollar in through the front door (offense) and the focus on preventing the dollar from leaving through the back door (defense). Recent events indicate that short term capitalism tends to focus disproportionately on the former often neglecting the latter.  Such a mindset has resulted in excessive risk taking in search of short term rewards at the expense of longer term sustainability.

There are many reasons for the financial crisis however the following strategic, tactical, and operational issues have strongly contributed to the unhealthy imbalance referred to above:

– On overly narrow focus on pure financial metrics while ignoring important non financial issues;

– A focus on short term interests at the expense of broader long term stakeholder interests;

– The lack of Board level appreciation of the necessity of having a formal systematic corporate defense program in place within their organization to help ensure that their stakeholder interests are adequately safeguarded;

– The lack of a seat at the C-Suite table for a “defense” champion to challenge, scrutinize and add a degree of balance to the formulation of corporate strategy and policies;

– The resulting lack of transparency and responsibility for corporate defense, where accountability is fragmented and diluted at the executive management level;

– The lack of coherent co-ordination of defense related activities at a functional level leading to the development of silo type structures which means that they are not in alignment with one another but rather operate in isolation resulting in both ineffectiveness and inefficiency.

Solution

The challenge facing capitalism is wide-ranging however restoring a natural equilibrium between offense and defense in the corporate mindset will go a long way towards improving the situation going forward. This can perhaps be best achieved by a degree of tweaking and joining of the existing dots rather than a complete overhaul of the entire system.

Correction of this current imbalance requires a broader stakeholder (shareholders, clients, staff, business partners, local communities, and society) focus and a more holistic view of how best to safeguard these stakeholder interests in the long term. Ensuring that there is sufficient focus on long term sustainablility (survival) will however require a subtle shift in corporate consciousness. Such a shift will necessitate a change of attitude in relation to the fundamentals of corporate health and a clear appreciation of corporate health requirements in the short, medium, and long term. This will involve further educating the corporate world so that defensive behaviour is now seen in a positive light, necessary for the achievement of long term sustainability, rather than being seen as a necessary evil. Corporate strategy must therefore incorporate a balance between offense and defense in order to arrive at a natural equilibrium. This will require a subtle blending of both of these antagonistic yet complimentary principles, which are inherently intertwined and mutually interdependent within a dynamic system. In essense the principles of offense and defense represent two sides of the same coin and therefore cannot and should not be addressed in isolation of one another.

Corporate defense in its broadest sense represents an organization’s collective program (formal or otherwise) for self-defense. It represents the measures taken by an organization to defend itself and the interests of its stakeholders, from a multitude of potential hazards (risks, threats, and vulnerabilities), the occurrence of which could be detrimental to the achievement of the organization’s objectives. Successful corporate defense requires manageing all of the organization’s defense related activities in a co-ordinated and integrated manner.

Corporate Defense Management (CDM) represents a multi-dimensional framework aimed at better safeguarding stakeholder interests. It involves incorporating an extended “five lines of defense” model (beyond the traditional “three lines of defense” model) to help provide appropriate oversight to address organizational challenges relating to responsibilities, accountabilities and transparency.

More:

http://www.managementexchange.com/hack/achieving-healthy-balance-between-offense-and-defense-21st-century-capitalism

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=904765

http://www.managementexchange.com/sites/default/files/corporate_oversight_and_stakeholder_lines_of_defense.pdf

http://www.managementexchange.com/sites/default/files/optimized_corporate_defense_programs.pdf

http://www.managementexchange.com/sites/default/files/corporate_defense_insights.pdf