By all means regulate, but is effectiveness guaranteed?

The two extremes in approaches to delivering the objectives of economic development, however that is defined, are either the free market system or state control. However, following one or the other is not an automatic guarantee of success as each is prone to its own shortcomings or failures. It is in particular acknowledging the existence of these failures in the free market system that regulation has sought to find a role. In this context then, regulation is about creating institutional capabilities for dealing with the economic system’s potential failures, while ensuring economic benefits. Specifically, regulation is established with three objectives in mind. Firstly to mitigate against market [and government] failures, secondly to take cognisance of social burdens of economic activities, such as pollution – and address them – and finally, seek to improve the production efficiency of the economy.

But there are challenges to the practice of regulation. One of the major challenges is information asymmetry. Regulators need information of good quality to be effective in their roles. However, the regulated entities that own the information that the regulator needs are more than reluctant to pass on this information. The regulator on the other hand seeks to coax information out of the regulated entities through different incentives and mechanisms. It is debatable whether the regulator succeeds effectively in this bid, which has prompted some to argue that due to information asymmetry, both the regulator and the regulated should be part of government.

Regulation is also subject to failure. Regulatory failure is as a result of political or regulatory capture, with consequences for lack of accountability, transparency and consistency. Indeed, not everybody sees regulation as beneficial. Some argue that regulation overall leads to socially sub-optimal outcomes. Others argue that the outcomes of regulation remain second best to those of free market competition. It has also been argued that regulation is implemented not with the sole purpose of improving economic efficiency, but such that economic activities can be subject to political interference.

Given these challenges, what impact do they have on the effectiveness of regulation? Does setting up regulatory institutions necessarily guarantee efficiencies in economies? One approach that has been taken to answer these questions is the use proxies of effectiveness and regulatory quality to measure the impact of regulation on economic growth (also a proxy for performance). It was found that for the combination of the two proxies, a unit change in the quality and effectiveness of regulation was associated with just under 1% increase in economic growth. It was found that the impact of regulation on economic growth is determined by the efficiency of regulatory policies and instruments, and the quality of the governance process practised. But a number of caveats were also given, among them the fact that regulation as attempted to be measured here, using proxies, was divorced from the broader prevailing context in which it is practised, that regulation is in practice applied at different levels and differently in different sectors, that the direction of causality is not completely settled, and finally, that the question of the counterfactual remains unanswered. Given such caveats, the theory of the relationship between regulation and economic performance continues to be elusive.

But whatever the shortcomings of regulation may be, there are enough cases in recent global history, for example in financial and energy sectors, where it is readily acknowledged that had regulation, or its implementation, been more effective the failures encountered in these sectors could have been averted. It is therefore important that impact assessments of regulation need to become ‘a new governance’. In other words, it is not a question of whether to have regulation or not, but that of ensuring that regulation remains relevant and effective.

By undertaking impact assessments of regulation, it is being acknowledged that both before and after regulation and regulatory instruments are put in place, their effectiveness cannot be taken for granted. Furthermore, there are so many changes that continuously happen in the regulated sectors, in the regulatory bodies and institutions, in the economic system, and in the whole environment for that matter, that it only makes sense to regularly gauge how effective regulation is being. Assessing the impact of regulation, however that is done, would go a long way to ensuring that regulation remains relevant and effective, that failures do not happen unexpectedly, and that by indentifying the risks of failure before hand, mitigating measures can be put in place a prior.


The Challenged Trickle-up of Black Executives

“Too few black and women directors – Busa”, was one of the major stories carried by Cape Times (South Africa) on March 3, 2010. According to this story, Black Africans only made up 4% of Chief Executives of all 295 companies listed on the Johannesburg Stock Exchange (JSE) between April and July 2009. As regards CFO positions, Black Africans accounted for only 2% of the 219 in existence in the JSE-listed entities over the same period. For all intents and purposes, particularly taking into consideration Employment Equity/Affirmative Action (EE/AA) efforts over the last few years, these are appalling statistics. I call it “the challenged trickle-up effect”. It is easy to conclude that this represents the failure, or ineffectiveness, of EE/AA to explain the above situation.
However, from the often dramatic and highly publicised fallout between CEOs, and aspiring CEOs, and their employers such as at SABC, SAA, Transnet, Eskom, Telkom, SAPO and Armsco, to name a few, it would appear as though even if opportunities were created to increase the incidence of Black CEOs, chances that they would succeed appear limited. And before one argues that experiences in Parastatals cannot be generalised to all Corporates in South Africa, there have been similar incidences in the private sector, though not as dramatically publicised nor publicly scrutinised. It seems there are two phenomena at work here – on the one hand embarrassingly very few Black Africans have made it to CEO positions in businesses in South Africa, but on top of that, there are many incidences of spectacular, and often public, failures of those few that have dared assume such positions.
But it is not all doom and gloom for Black Executives both in the public and private sectors since there are examples of phenomenal success. CSIR has been successfully led over the past few years; Telkom was also once very successfully led. In the private sector, there are success stories at Standard Bank as well as at FNB, again only to mention a few examples. Therefore, the issue that needs to be addressed is not one of the scarce few and far in between success stories, but one of trying to ensure that success, and indeed efficacy of leadership was pervasive, as opposed to being the exception, for the Black Executive. How does this get achieved?
The starting point would be try to understand the reasons for the failure of Black Executives in Corporate South Africa. Could it simply be that those Black Africans who aspire and/or are pushed to senior and executive positions are not ready to assume such roles? If indeed it was a question of not being ready, what kind of ‘readiness’ are we talking about? It is most certainly the case that those that have had the chance of the bite at the executive cherry hold the requisite academic credentials. It is also certain that they have had exposure to executive management courses of one sort or the other, and most definitely have had executive coaches and mentors. So what other dimensions of ‘readiness’ could be needed?
It would appear that there is more to being an Executive at the highest level of operating in an organisation than initially meets the eye. Indeed, having the right qualifications, and even delivering on the performance contract and business plan may not be enough to ensure success. Of course it does not follow that not delivering is an option, nor not having the right qualifications. But the point is that there is more to it than that. It seems there is a political savvy and astuteness required to operate at this level that no CA, MBA, MPL or AMP qualification will teach an Executive. And it seems no amount of executive coaching could impart it either.
But it could also be a simple case of having a requisite level of maturity and humility. The lack of this is particularly demonstrated in cases of break down in relationships between Black Executives and superiors, such as chairmen of boards, boards and executive committees. That an Executive could think that he or she can lead an organisation going against the chairperson of a board, or indeed the board itself, cannot be but the height of misguided arrogance.
It could also further be that not cultivating the right level, and amount, of loyalty counts for a lot in terms of the failures we are talking about. Particularly in cases where some managers may have harboured ambitions for the top job for many years only in the end to have some young upstart from outside imposed upon them. Not cultivating the loyalty of such people, if they remain in the organisation, could be a recipe for disaster.
However, it is important to also not assume that all the failures are due to the leaders themselves. There are environmental factors, both internal and external to the organisations that need to be taken into account as well. In terms of the external environment, there appear to be many antagonistic watchers, pundits and detractors of the young executive that will comment on anything and everything, from the level of remuneration and other perks the Black Executive may be getting, to commenting on the nature of dress, cars owned and/or driven, down to where the same goes for socialising, inter alia. Indeed, the level of ‘public scrutiny’ may get one to feel hounded and victimised. It is feasible that the level of maturity and humility exhibited may also have something to do with the level of scrutiny one gets.
From an internal environment perspective, every organisation has a prevailing and established culture that has existed over many decades. Not appreciating such culture and ‘going against the grain’ could also be a recipe for disaster. But in some instances, it is also just the case of one being given the top position without the authority, and thus being hamstrung in trying to execute their mandate and responsibility.
Indeed, from the foregoing, there are a number of challenges that the Black Africa Executive faces as he/she trickles up. But given the South Africa that we live in and the imperative to redress the imbalances of the past, actually of the present, how does the plight of the Black African Executive get addressed effectively? Or maybe we need not be concerned because it could simply be that, just like the first phase of Black Economic Empowerment (BEE) (e.g. NAIL, etc) petered out, so we are seeing the first crop of Senior Black Executives falling off the corporate tree. And just like alternative models have been sought to shore up BEE/BBBEE, alternative approaches will be found to ensure that Black Executives succeed in Corporate South Africa.
But simple things like bringing in an aspiring Black Executive to shadow a seasoned incumbent for a long while before being let loose on the organisation could also be done (calls for a lot of patience and humility on part of the person doing the shadowing). Furthermore, establishing an equivalent of Young Presidents Organisation that is exclusively for the Black Executive, which is used not only for supporting each other, but also for those that have been successful to liberally pass on their recipes for success to their colleagues could go a long way to addressing some of the challenges.

The Future is HAPPENING While You Are Planning

People involved in Foresight and Futures Studies acknowledge that the future is not a fixed unknown in the horizon waiting to be discovered. It is fluid, constantly affected and influenced by peoples’ and nations’ actions, changing values and preferences. Indeed many variables such as environmental degradation, changing technologies and fickle and fluctuating consumer preferences would all need to be taken into account when trying to get a glimpse at the future. But no sooner than that glimpse has been had, than the future is changed again! Also, it is feasible that trying to forecast the future is subject to the same phenomenon as the Heisenberg Uncertainty Principle. The more you may be correct about forecasting one aspect, the more you may be totally off with regard to another.

So what is the moral of the story for business planning? That on one hand, business plans cannot just be an extrapolation of the previous years’ by a small factor into the following year because the future may be heading in a completely different direction. On the other hand, that business plans cannot be based on forecasting far into the future and attempting to rigidly stick to them – another common occurrence. This is where scenario analysis comes into its own. Scenario analysis acknowledges that there are a number of forces that may be shaping the long term future, and that different combinations of these could lead to different outcomes. From a planning point of view, it is therefore important to get a fuller understanding of the different probable scenarios of the future and to take these into account in present day strategic planning and decision making.

Strategy: What do you want to be when you grow up?

Strategy is about answering the question: “What do you want to be when you grow up?” At Innovare Growth Solutions, whenever we ask executives of businesses, who are usually beyond middle age, this question, their backs go up without fail. They all, without exception, believe they are already “grown up”!

The notion that the business needs to be growing, but its executives are already grown up is a contradiction in terms. Simply, if the business goes from the state it is in today to another “grown up” state, surely those presiding over it need to have grown somewhat as well for them to competently preside over it? But this is a digression.

The important thing is that strategy is about growing. The only way that a business remains successful is if it continues to grow. The only way that a business will continue to grow is if it continues to ask the question: “What are we going to be when we grow up?” It is not a question that is asked once and the answer filed away for posterity. It needs to be asked and answered continuously, and by the whole organization. Indeed a business that thinks it is already “grown-up” would have no use for strategy. But the business that seeks to grow cannot but have a strategy to help it chart its growth path.

Strategy is not a once off thing. As the business plots its growth path, there are many circumstances and situations that will stand in its way. And these circumstances and situations, both internal and external, change continuously with time. Hence the business also needs to continually re-chart its path in the turbulent waters of competition, market dynamics, regulation and the requisite competences for success.

Indeed Teece and Pisano (1994) observed that “[d]eciding, under significant uncertainty about future states of the world, which long-term paths to commit to and when to change paths is the central strategic problem confronting the firm”.

When You Spot the Iceberg, It is Too Late

When You Spot The Iceberg, It Is Too Late.

The Titanic was meant to be an unsinkable ship. And so it should have stayed if it was not for the iceberg. Actually, that if it was not for the fact that the iceberg was spotted too late. There has been many a company out there that has been the titanic of their industry, and also ended up spotting the ‘iceberg’ of their market too late, with disastrous consequences.

It is not just in the late-spotting of the iceberg that the problem lies. It is also in the fact that the Titanic was so set in its path that it could not maneuver quickly to avoid the iceberg. In other words, the momentum of the Titanic was such that it was very difficult for it to change its course to avoid hitting the iceberg. So for a moving vessel with a lot of momentum, when the iceberg is spotted, it is usually too late. In other words, if it was not for the momentum, the iceberg could have been avoided.

Many a businesses are in such a state. They are so set on their courses, so dependent on the path they are on that by the time they spot the iceberg, it is too late. Businesses should not wait until they see a hindrance and/or obstacle before they seek to change the course of their business because it may be too late. But also, businesses should already have inbuilt in them the nimbleness to allow them to maneuver quickly to change course as and when obstacles loom.

Beware because by the time you spot the iceberg, it may be too late.

Inexorable March to Orderliness

Inexorably, Humanity Marches to Perfect Orderliness

Military parades, particularly in communist regimes like North Korea, can be an amazing display of orderliness and precision. The soldiers, as seen in a march-past, move their limbs with such split-second synchronization that the whole thing defies belief. Tearing oneself away from the spell cast by such ‘military precision’, one observes about oneself what, in comparison, appears to be complete disorder and chaos. But this cursory and superficial comparison could be deceiving. What appears on the surface to be disorderly and chaotic belies significant amount of order. In fact, the whole advancement of the human civilization is an inexorable march to orderliness.

I am sure this might be hard to believe. But cast your minds back to say 300 years ago when telling the time of day was a hit-and-miss affair. When the sundials used to tell time where fixed to one location, and their ability to indicate the time of day was contingent upon whether it was day or night and on weather conditions. Even if ‘moon-dials’ had existed, they would have also been subject to weather conditions! So not only where devices not portable, but even if one were able to build a portable one that could be set up on the side of the path – presuming one could consistently establish one’s compass bearings – one would not have always been able to tell time as indicated above. It therefore goes without saying that in this era, ‘keeping to time’ would have been near impossible.

Fast forward to the 21st century and I bet you have already glanced at your watch a couple of times since you started reading this short article. You are sitting at a café waiting for your friend to join you for a cup of coffee. He is already running 10 minutes late and you are wondering what happened. Did he perhaps not get the time right? Could he have forgotten, or was there miscommunication of the rendezvous? You decide to give him another couple of minutes before ‘checking up on him’. Presently, you are heard saying, “Hey Vusi, aren’t we supposed to be meeting for coffee this morning?”, appearing to be talking to yourself as you speak into your cordless Bluetooth mobile telephone headset. Vusi assures you that he has not forgotten, but is running late due to the late arrival of his flight from Johannesburg. He estimates that he will be with you within 5 minutes.

Well, what do you know? We have just gone from having difficulty to tell time and keeping it, to expecting life and activities around us to happen within very narrow margins of time. Indeed, it is amazing that we have moved from not being able to tell time consistently with the use of comparatively huge devices, to being enslaved and held to ‘time’ ransom! What is even worse is that devices like mobile telephones have become activity-synchronizing devices that we use to compel each other to fall in line with the time. So with the proliferation of these time-keeping and activity-synchronizing devices, all humanity is becoming like one giant army, inexorably synchronizing itself to marching like an army on parade! Not so much as in everybody doing the same thing, but in being compelled to be ordered and organised in the way that we go about each day’s activities.

The Google Prayer

Our Google
Who Art in the Ether
Feared be Thy Reach
Give us this Day Our Daily Information
Forgive us our Plagiarism
As we Forgive those who Plagiarise Against us
Lead us not into Pornography
But Deliver us from Fraud
For Thine is the Ether
The Reach and the Content
Wherever and Whenever