What Have we Learned Five Years After the Financial Crisis?

Jordi Canals distills lessons on Leadership and Governance

20/02/2014 New York

Jordi Canals

Five years after the economic crisis that shook the world economy in 2008, we have to ask ourselves what we have learnt, how much has actually changed and, above all, what has been done to repair the damage done to the corporate reputation.

“We should not underestimate the impact of business decisions on the unfolding of the financial crisis,” IESE’s Dean Jordi Canals said at the start of a session on IESE's New York center

The betrayal of values witnessed by the public over the past half-decade has threatened consumer trust in corporations at large. Corporate affairs around the globe have too often failed to measure up to the public’s ethical and moral expectations.

Back to basics of good governance

“A company is a web of relationships,” Canals explained. But in recent years, many businesses have become near-sighted, often betraying their original visions and values. 

“These issues are important not only to protect the reputation of the company and the management team, but also to make these companies more sustainable in the long run. We need to come up with leadership patterns and processes that help companies to be successful in the long term—but more importantly to become respected institutions,” said Canals.

Four primary mechanisms

According to Canals, the key to effective corporate governance derives from four primary mechanisms: the boards, the investors, the CEOs, and the stakeholders.

Board of directors. To illustrate the role of the board of directors in a firm’s development, Canals looked back to a time when CEOs were the dominant figures while the board of directors was relegated to the back seat. “But the future is going to be a bit different,” said Canals. “Investors like a board of directors that has a view of the long term, that essentially cares about the interests of their shareholders.”

He then offered a vision for a new kind of board—one that prioritizes the “culture” of the company and the implementation of strategy, albeit without interfering in day-to-day operations. The passive role that the boards once held in business management should, according to Canals, actively focus on issues of stewardship, long-term strategy and the monitoring of the company’s operations. It is a balancing act, which requires a cautious and perceptive treatment of the bond between productive support and excessive interference. “Being on a board of directors today is more complex than ever,” said Canals.

An equally fundamental role is that of the CEO, under whom the company’s overarching management plan comes into being. For this individual, the question at hand can be seen as one of short-term versus long-term planning. According to Canals, the latter is rapidly becoming the way to success in the corporate world, as it can account for a corporation’s core values and societal influences, and perhaps most importantly for the development of the individuals who comprise, govern and support it.

The four main responsibilities of an effective CEO include the company’s mission and values, its strategy implementation, its people development—especially candidates for future leadership positions in the organization—and lastly, its impact and reputation, said Canals. The CEO must be conscious of his or her personal impact on the company, but also on the impact that the company has upon society.

The third major component of the corporate government is made up of its investors and shareholders. Like the CEO and Board, these individuals are now facing a shift in perspective: shortsighted visions of corporate growth are dissolving in the face of a new long-term trend, said Canals. Rather than focus on quarterly gains, CEOs such as Paul Polman of Unilever and Meg Whitman of Hewlett-Packard are looking beyond the short-term, encouraging shareholders to invest in their companies for the long-term.

According to Canals, what this vision sacrifices in terms of fast returns is made up for in the breadth of its effects: investors who are in it for the long run offer their commitment to the institution and its success, their loyalty to the company’s values and their continued support and trust in its working vision.