There were two interesting stories in the International Herald Tribune yesterday (20^th April 2009).  They were in fact on the same page.   For me this was ironic for I believe the two articles express the antitheses of true leadership.

Article 1:  "Standards for bonuses start to shift"

The first article talked about the new way remuneration "experts" are now suggesting that managers and particularly senior managers, should have their bonuses calculated.  Poor things, the economic climate does not now give them the opportunity to base their bonuses on business profit, shareholder value or some other meaningless performance measure.

So, the latest thinking is to base a bonus on another measure such as preserving cash flow.  Now, I'm not an accountant and although I have a general notion of cash flow, I needed to do some research.  Basically, cash flow is the movement of money in and out of the business.  If you have more money coming in than you do going out, then the business remains solvent.  

On the surface, this seems like a reasonable (and important) thing to measure.

Cash flow analysis involves examining the components of your business that affect cash flow, such as accounts receivable, inventory, accounts payable and credit terms.  By performing a cash flow analysis on these separate components, you'll be able to more easily identify cash flow problems and find ways to improve your cash flow.

A quick and easy way to perform a cash flow analysis is to compare the total unpaid purchases to the total sales due at the end of each month. If the total unpaid purchases are greater than the total sales due, you'll need to spend more cash than you receive in the next month, indicating a potential cash flow problem.

With me so far? 

You can probably already see some of the financial flaws in using "preserving cash flow" as a measure for paying senior manager bonuses (unless you're the CFO who will probably quite like the idea).  But there's another major drawback to using cash flow.  You can quickly improve your cash flow by delaying payment of your creditors - easy, pay them in 60, 90 or 120 days and see how that improves your cash flow.  Mind you it will also very quickly "tick off" your suppliers!  (There's one company that I refuse to do business with now, because they kept delaying payment of my 14-day invoices by 60 days).

For example, the article quoted Xerox as replacing "revenue growth" as a bonus measure with "cash flow" and "earnings per share".  Now, managers may (and I say "may") have some influence on cash flow.  But most managers are so far removed from "earnings per share" that it would be extremely difficult to suggest any performance that would make the direct link.

Financials and relevant performance measures aside, when will people realise that paying bonuses, no matter in what format do not lead to improved performance?  It irks me so much that businesses continue to make this mistake that I just had to put that sentence in bold.

Article 2:  "Better results from a broad view of ‘we'"

And now for the good news. 

I was impressed with what Nell Minow, a corporate governance expert, business proprietor and former company president, had to say in an interview about leadership.  To quote Nell:

"One thing that helped move my thinking forward was that I noticed in my first job that there was something very definitional in who was included in somebody's "we" and who was included in somebody's "them."  I found generally that the more expansive the assumptions were within somebody's idea of who is "we" - the larger the group you had included in that "we" - the better off everybody was.  I started to really do my best to make sure that my notion of "we" was very expansive and to promote that idea among other people."

Wow!

I've written previously about one of Nelson Mandela's key leadership qualities, inclusiveness, and that's what I think Nell is also describing.  It's early days yet, but I've also seen much of this in Obama, recently at the G20 summit but also previously, for example before he announced the troop withdrawal from Iraq he telephoned former President Bush to let him know.

For me "inclusiveness" is one of the key leadership qualities.  And what a great way to make it happen - thinking about your definition of "we".

More good news!

Well, it's good for me and I'm hopeful you'll all agree.  My book "What To Do When You Become The Boss" has just been taken up by McMillans and will be published in India.  A small print run to start with, but I'm hopeful.

Cheers for now.

Bob