“Damn braces. Bless Relaxes” –Blake’s Combined Code

 

Summary

Corporate governance is not an area usually associated with vision, imagination, or even integrity.

 

This needs to change.

 

In this lecture I have looked at corporate governance through the eyes of Blake. William Blake was a visionary, a man to whom imagination, energy and integrity were central.

 

I argue that much of the compliance burden companies face is self-imposed.

 

Business creates the problem when it begins its approach to every new code by saying “how do we comply” instead of asking “What is the spirit of this code? Do we accept it? If yes, how do we fulfil the spirit?

 

I conclude with my own, Blakean, version of the combined code, one which is intended to stimulate a response to the spirit and not the letter.

 

I commend this to Chairmen, CEOs, Corporate Affairs directors, fund managers and business commentators as essential accompaniment to the necessary but rather drier content of the UKs official combined code drawn from Cadbury, Greenbury, Hampel, Turbull, Smith and Higgs.

 

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Damn braces and Bless Relaxes

William Blake’s Combined Code for Business conducted with ENERGY & IMAGINATION

 

I would like to say a warm thank you to Tim Heath and the Blake Society for suggesting that I give a lecture that links William Blake and governance. I have found it an enriching challenge.

 

Let me start by saying a few words to introduce our two apparently strange bedfellows – governance and Blake.

 

Governance is a word whose origins go much wider than business. Indeed it was only after the Wilson report on the City of London in the 1970s that the term corporate governance began to be used. And Blake had a lot more to say about wider governance. He was operating in a revolutionary era. He was born in 1757, and as the pressure built up in Paris he was associating with radicals like Tom Paine and Mary Wollstonecraft. Just 200 years ago this year he was actually tried for sedition after an argument with a soldier.

 

But Blake continued to fight his battles in the world of the spirit and of art. He embodied energy, imagination and spiritual insight. In response to Tim Heath’s challenge I will attempt to apply his vision and his philosophy to business and its governance.

 

Some people hear the word governance and then reach for their revolvers. They think of it as some external restriction imposed on their freedom to be enterprising.

 

But this is a distortion of the meaning of the words. Corporate governance is about how we keep business honest without destroying its energy. It is about surrounding leadership with a framework of accountability so that those who depend on business and its operations may have some assurance that it is working well, even if they are too far away to watch over it. Just as our political liberty depends upon our eternal vigilance, so our market capitalism depends upon our effective governance.

 

As you have already heard, both Blake and governance run in through the veins of Alan Parker, through his remarkable father.  They also run through my veins through my father, George Goyder. Both of them for different reasons left formal education early. Both had a hunger to compensate for this. Both had invented themselves in spite of, rather than because of, their education. Both had unconventional ways of thinking about business. Where today most of their equivalents would carry a Blackberry, both were more likely to slip a book of poetry into their overcoat pocket. ( In case there is anyone in this audience unworldly enough to think that when I talk about Blackberries, I am describing something that goes in an autumnal apple pie, let me explain that I am describing an electronic device that fits in your pocket and can be used as a telephone or for sending and receiving emails!)

 

In fact governance nearly frightened off my wife from marrying me.  26 years ago, a few months after we first met, she came to stay with my parents for the weekend. She loved talking to my father about William Blake, but when she found herself sitting around at afternoon tea while he and I debated some issue around company law, she started to have serious doubts!

 

So who is this man William Blake who can take such powerful hold of people’s imagination?

 

He is, first of all, a visionary. From boyhood, he went on long walks and heard voices and saw visions which then appeared in his work. He declared himself “under the direction of messengers from heaven, daily and nightly."

He was, like the best entrepreneurs, utterly his own man.

 

Later in his life he made friends with the watercolourist John Varley, and the biographer Gilchrist describes how Varley would encourage Blake to capture his visions on paper.

 

“Varley it was who encouraged Blake to take authentic sketches of certain among his most frequent spiritual visitants. …At the wish of a friend he could summon before his abstracted gaze any of the familiar forms and faces he was asked for. This was during the favourable and befitting hours of night, from nine or ten in the evening until one or two or perhaps three or four in the morning. Varley would say, “Draw me Moses, or David…Blake would answer there he is. And paper and pencil being at hand he would begin drawing with the utmost alacrity and composure, looking up as though he had a real sitter before him; ….sometimes Blake had to wait for the vision’s appearance. Sometimes it would come at call."

 

To Blake mind or spirit was what lasted, and body was merely an earthly accident. The marriage of heaven and hell, perhaps his greatest prophetic work, is about the union of reason with energy. He had hostility to the church, when it became all about reason and rules, and lost its spiritual energy, just as business people become hostile to corporate governance, when it is seen to be all abut restriction, and to lose touch with the energy that is so important to enterprise.

 

Professionally, he was an engraver. That, together with the patronage of loyal friends, is how he kept body and soul together. And he developed a unique artistic style to accompany his unique poetic voice and to communicate his unique wisdom.

 

Which brings us, naturally, to the first Blakean principle that we can apply to governance.

 

 

Principle 1: “I must create a system, or be enslaved by another man’s; I will not reason or compare. My business is to create.”

 

This principle has implications for:  

• how companies are led
• how they respond to regulation and other pressures
• how they use benchmarking and peer group comparisons.

 

 

As I speak, here in the UK preparations are being made for yet another round of high-powered dinners. The redoubtable Sir Victor Blank has summoned leading businessmen and fund managers to a meeting this month at which they will debate the issues that worry them, including the impact of new accounting standards, the government’s plans for an Operating and Financial Review, and an assessment of the impact of the combined Code. Which represents the distillation of the successive works of Cadbury, Greenbury, Hampel, Smith and Higgs.

 

Clearly they have a lot on their plate. But what will the spirit in which they tackle the issues?

 

The danger is that the dinners will be seized by a mood which I  would describe as “CVS” – Compliance Victim Syndrome. This syndrome is known to blind people to the freedom they enjoy and the choices they are free to make. It is rather like what happens to hostages who become dependent on their captors. Under CVS, the person being regulated becomes institutionalised by the regulator, pre-occupied with what they are being told to do and no longer able to think about what they would like to do.

 

If you are looking for an antidote to this syndrome, you could do worse than look across to the Atlantic where, yesterday, the last and most expensive stage in the Sarbanes Oxley legislation comes into effect. On average, this is costing each large company $5.1m , with an expected ongoing bill of $3.7m. Meanwhile, anecdotal reports from around the world reach me to suggest that the big accounting firms are seeing a major employment growth to cope with all the documentation.

 

These pressures are real. They may increase corporate vigilance. On the other hand they may merely clog the corporate brain, and distract it from new and different risks that are not picked up on the unwieldy Sarbox radar.

 

Sarbanes Oxley is the price American business is paying for past liberty – liberty maintained on the cheap without the protection of the eternal vigilance that good governance provides.

 

So what is the alternative? I think Blake has the answer, and that is why “I must create a system, or be enslaved by another man’s” is the first principle in my Blakean combined world.

 

The corporate world has become enslaved to governance. Not so much to what the codes and regulations say, as to the idea that a company is no longer free. This has become a self-imposed mental cage. Business leaders need to show the imagination to get back outside the cage. This is not done by complaining about the regulatory burden. Here in the UK the burden could be far worse. What we have is a regime which leaves room for each company to create a framework rather than be enslaved. In the UK companies are, in many areas, free to comply or explain. It is their own fault if they turn “comply or explain” into “comply or else”.

 

Reactions to the new reporting requirements embodied in the Statutory Operating and Financial Review are a good example. The OFR need not be a threat. It codifies the sensible, forward-looking reporting that the best companies have been doing for years. It is deliberately non-prescriptive in how companies report. Most of the experts I have spoken to confirm that companies which act in good faith in describing the position of their companies as honestly as they can will be no more vulnerable than they have ever been to the threat of legal action.

 

Too many business people are wallowing in a sense of persecution when they could be seizing the opportunity to develop a better dialogue with investors and other stakeholders.  How refreshing, then, to read an account in the Financial Times this week of a debate about the effect of regulation on mid-cap companies. One AIM-listed company, PGL, is quoted as saying “We do not see legislation as red tape – rather it complements our own rigorous standards and makes us more customer aware”.

 

Everyone who starts a company is different. Never lose the individuality of your company. Never approach a problem of governance by enslaving yourself with the question, “How do I comply?” Instead, try starting with the spirit.

 

Start by asking. “Given that this is a unique company, with its own character, what is the right approach for us?”  Create a system that is right for you, and then see if you have any problem complying with anyone else’s expectations.

 

In other words, I must create a company that has character and individuality and no code is going to stop me!

 

The same principle has implications for remuneration. The remuneration consultants’ peer-group driven recommendations are the last resort of the conformist. Instead of focusing on how the pay of your directors compares with others, why not concentrate on how good a job your people are doing and pay them what you think is fair, and aligned to the long term interests of your company and its shareholders?

 

The principle also has implications for the way investment performance is judged – but that is another story which tomorrow’s Company has tackled in its own Inquiry.

 

So Blake’s code would say to the Chairman and CEO of every company:

“I will create my own framework of governance. In responding to new codes or regulations, I will always start by seeking to understand the underlying purpose and values behind it, and not get bogged down in its detail. Having understood the underlying purpose, I will then create a system of implementation that is compatible with my values and objectives, and not blindly seek to comply with the letter.

 

“My actions will not be driven what everyone else is doing. There is no safety in numbers: true security comes from being true to myself and my values. I will not allow the pressure of the peer group or any corporate code to get in the way of the entrepreneurial nature of this activity. My business is to create.  Comparison with others has its place, but taken too far it is the road to conformity and dullness and I did not go into business to end up there.

 

“I will use benchmarking to help me reason and compare. But ultimately good leaders do not perpetually look over their shoulders. In governance as in strategy, our job is to be creative.”

 

 

Principle Two: Without contraries there is no progression

 

In full, this aphorism reads

“Without contraries there is no progression. Attraction and repulsion, reason and energy, love and hate; are necessary to human existence.”

 

This principle is about  the need for diversity and a climate of challenge in the processes of governance.  And it is addressed particularly at the Chairman.

 

This principle has implications for

• the selection of board members
• the conduct of board meetings AGMs, investor presentations, and other meetings within the corporate calendar
• the choice of key performance indicators, and therefore for the content of company reports.

 

To what extent can the Chairman say that board meetings are designed in a way that permits the flourishing of contraries ?

 

As Blake said in the Proverbs of Hell,  “If the fool would persist with his folly he would become wise.”

 

Boards need members who persist with foolish questions until they arrive at satisfactory answers.

 

So Blake’s Code has the Chairman say:

“It is my job to ensure that the company’s rules, policies and habits promote the flourishing of contraries. That means ensuring that people are not worried about saying the wrong thing; that they are encouraged to challenge and disagree. It means eliminating the corrosive process where Corporate Affairs Directors and other courtiers second guess the wishes of the person at the top and are heard to say things like “I don’t think that is what the boss wants”.

 

“It is my job to crack the creeping conformity of behaviour in the boardroom. It is my job to bring in new techniques of discussion that break up this conformity and inject the naïve questioning on which learning depends. ?  It is equally my job, in a disciplined way, to shake up the AGM and bring the company’s critics into these and other discussions. I need to break the cocoon of the boardroom, and expose directors occasionally to unhappy workers, dissatisfied customers, and late-paid suppliers.

 

“It is, equally, my job to ensure that we have a CEO who is equally approachable and open to challenge.”

 

A good example of this is the experienced Chairman and board advisor I spoke to recently who likes to ask all board members to write down on a post-it note the answer to the question “How does this company make money”.

 

Another might break away from the formal agenda and try getting all directors to write down their real concerns anonymously before the meeting and so spark a more heartfelt discussion about the real issues.

 

 

Principle 3: This life’s five windows of the soul / Distorts the heavens from pole to pole / And leads you to believe a lie / When you see with, not through the eye

 

Blake distinguishes between two kinds of seeing – with the eye and through the eye.

 

I understand Blake to be talking about the power of the poetic imagination. And the ability which it gave to look beyond the material world into the world of the spirit.

 

This poetic imagination enables us:

“To see a world in a grain of sand;

and a heaven in a wild flower;

to hold infinity in the palm of your hand

and eternity in an hour”          

 

To put it at its lowest, we can learn from Blake the humility of recognising how little we see and understand with the conventional frames through which we view life.

 

That can lead us, if we want to be led, into much deeper reflection on Blake’s belief that our earthly selves are no more than a temporary packaging of spirit.

 

But even if our rational side will not allow Blake’s imagination to take us this far, we can obtain his help in learning how limited is our perspective in business when  we view success only with and not through the eye.

 

In business terms seeing through the eye is the kind of oversimplified view that judges a company either by the last quarter’s trading or by how interesting it is in terms of corporate activity.

 

Seeing through the eye does not mean ignoring what you see with the eye, but going beyond that to form a more balanced and three-dimensional  view. It means seeing the context, and understanding, longer term where a company is going. It means going beneath the surface to the spirit and soul of the company.

 

It means judging whether a company is really credible, in its leadership and its business model. It means looking beyond the current excitement about commodity prices or fashion. It means refusing to play the earnings game, where variation from norm, not underlying health becomes the preoccupation.

 

This principle applies not only to executive and non executive directors but to all who comment on and evaluate their work:

• Fund managers and investment researchers
• Journalists and commentators

 

It means recognising the essential duality of success – the two surfaces of success. Qualitative and quantitative. Soft and hard. Financial and non-financial. 

 

One of the encouraging things of the last ten years  has been the development of new methods of evaluating companies. Not a week goes by without my getting a call from a new research outfit which is developing tool to help us better understand the opportunities and risks around a company in a new way.

 

Most admired companies; great companies to work for; the Dow Jones Sustainability Index; the work by Innovest and others on the links between environmental sustainability policies and share performance; the Standard & Pores governance ratings; new reputational indicators and so on.

 

This is hardly surprising, given recent experiences of companies that have suffered from a the kind of leadership that could only focus on what they could se with the eye. Boots, whose Chairman Nigel Rudd regretted an excessive focus on cost cutting and felt that this had contributed to the decline of the Boots brand. Rentokil, whose former CEO, Sir Clive Thomson, earned the title “Mr 20%” as a result of his determination to please those in the City who saw with the eye and not through the eye and into the soul of the company which was being weakened by this narrow focus.

 

As Blake puts it in the Marriage of Heaven and Hell, "The hours of Folly are measured by the clock, but of wisdom, no clock can measure.”

 

There is, ultimately, a soulless emptiness about companies which see themselves as machines for generating results. And, sadly, we still have the attitude that companies who emphasise a purpose beyond the immediate financial return must be less focused or effective.

 

So what about the most efficient car manufacturer in the world?

 

I have recently been reading “The Toyota Way.  The author, Jeffery Liker, comments:

“Throughout my visits to Toyota in Japan and the United States, in engineering, purchasing and manufacturing, one theme stands out. Every person I have talked with has a sense of purpose greater than earning a paycheck….Toyota’s strong sense of mission and commitment to its customers, employees and society  is the foundation for all (its) …other principles and the missing ingredient in most of the other companies trying to emulate Toyota.”

 

So Blake’s principle would read:

“The one dimensional way in which we view success in business distorts our organisations and diminishes our performance. As leaders of organisations we will not allow people inside or outside to see our merely with the eye. We will use all available methods to encourage them to see us through the eye, to look inside the organisation and understand its spirit.

 

“It is my job to understand the duality that underlies the success of our enterprise. Alongside rigorous recording and reporting of financial performance, we will focus on the things that lay the foundations for future financial success. For example, measures of:

·         how our employees feel about the way they are led

·         how far we are felt by all our stakeholders to practise what we preach

·         whether our employees are being developed

 

“We will not submit to the judgement of analysts, investors or any other commentators who bring a narrow perspective on a business. Seen with the financial eye, a business is a set of commercial arrangements, and has no personality. Seen through the eye, it has a soul; it has a character, and it has vital relationships, and its longer term survival and prosperity depend on how it lives and behaves and what it believes in.  In order to survive today it needs commercial disciplines but in order to grow for tomorrow it needs pride, belief, loyalty, energy and imagination – all the things that come from seeing through the eye .We will look for, and educate our investors and commentators who use techniques that enable them to look through the eye, not just with the eye.”

 

 

Principle Four: Everything that lives, lives not alone nor for itself

 

This principle follows logically from the previous one.

 

The moment we see through, not with, the eye we see that business is not master of all it surveys. We understand, with Blake, the interconnectedness of all living things, and realise that is natural to articulate our purpose in a way that explains how we secure our survival needs while contributing to those around us.

 

A business is only able to exist because of the support systems provided by the planet, by society and by past generations.

 

This is not to deny the degree of selfishness that is necessary to the market economy. Blake, that chronicler of contraries, would have had no problem with the concept of capitalism as a living tension between selfishness and citizenship. After all he says “Energy is the only life and … reason is the bound or outward circumference of energy”

 

We need the energy that that selfishness provides, but equally we need the outward circumference of good citizenship, of self self-restraint or what George Goyder would refer to as subordination.

 

And it soon becomes obvious that this outward circumference is indeed based on reason, not some economically irrational altruism. Any business that publicly stated that it was purely in business to make money for its shareholders without regard for the rest of its stakeholders would soon be in crisis.

 

So each business has to find its own way of articulating how it co-exists with its stakeholders and with the planet on which it depends. For the business to prosper and continue to make money it has to have a way of expressing its purpose that makes equal sense to staff, shareholders and society.

 

This principle has implications for:

• How the Chairman and CEO describe the purpose of the organisation
• How they link the fulfilment of the organisations objectives with the needs of those  around it – its stakeholders and neighbours.

 

So the fourth principle in the Blakean code would read:

“As Chairman and CEO of this organisation, we acknowledge that commercial success and survival is bound up with the health of society, environment and the planet. We cannot and will not describe the purpose of our business in exclusively selfish terms. We will explain how it depends on the health of the society around it we will draw all the strength we can from acknowledging this interdependence.

 

 

Principle 5: He who would do good to another must do it in minute particulars / General good is the plea of the scoundrel, hypocrite and flatterer / For art and science cannot exist but in minutely organised particulars

 

This principle has particular implications for:

• a company’s approach to risk management
• the culture of the company
• corporate responsibility policies and the way progress against these are measured.

 

Attention to detail is widely recognised as an essential component of success. Managers expect to be masters of detail in the analysis of their operational efficiency. Retailers want the daily sales figures on their desk but also walk the shop floor so that they can feel the pulse of the operation.

 

So far the same attention to detail is missing in the measurement of the behaviours and impacts of a company. But as part of the necessarily dualistic approach, tomorrow’s leaders and tomorrow’s governance will need this.

 

Every time there is a corporate fraud or disaster there are people close to the scene who say, ”I knew there was something wrong”.

 

Good risk management is about identifying those observations before the event. It is about screening people to see if they work to the same values. It is about sampling how supervisors treat staff, how front line staff treat customers. There is no point in having grandiose statements about a company’s values unless those same values are tested by its governance. That would mean:

• The board and executive committee seeing the summary of the company’s latest indicators which show the current gap between what the company preaches and how it behaves in practice
• The board setting the example by evaluating itself and surveying those with who it deals to obtain their feedback on its behaviours
• Refusing to promote people who achieve results but do so in a way that does not fit the values.

 

The same is true of measuring and reporting in the area of social responsibility. The fine statements need to be accompanied by meaningful measurement of impacts.

 

So this fifth principle of Blake’s combined code would read:

 

“As CEO I need to ensure not only that we define and state our purpose and values in a way that acknowledges our interdependence with the world around us, but also to show how in practice and in detail those values are practised in the leadership and governance of our business.

 

“Good intentions are useless they are followed through into the frameworks and disciplines and the behaviours and role models which people in and around the business will follow.

 

“This means ensuring that our governance operates as a virtuous circle. First define purpose and values. Then define what they mean in each of the company’s key relationships and areas of activity. Then devise performance indicators. Then measure, report and review on our performance against those values.

 

“Finally have dialogue about the result, outside and inside the boardroom, culminating in a review which decides what we need to change in either the values or the behaviour if we are to close the gap between the two.“

 

It is this process, and not some mechanistic maintenance of a risk register, that represents the essence of good risk management.

 

 

Principle 6: Joy and woe are woven fine / A clothing for the soul divine

 

This principle

has implications for how a company deals with success and how it communicates.

 

It is untrue to the nature of life to pretend that everything is OK. Every organisation is, in practice, a combination of the good, the bad and the ugly. The dilemma is always how to report honestly without destroying the confidence on which business continuity depends.

 

Blake was right to say:

“A truth that’s told with bad intent

Beats all the lies you can invent”

 

Sometimes a company cannot and should not expose all that is going on as it prepares to make a takeover bid, investigates a director for malpractice, or encourages people inside the organisation to open up and be self critical.

 

But once the due importance of privacy is established, there is a need to create a culture in which the story is told with all its warts. A company whose future success is going to be held back by the failings of its employee culture needs to say so.

 

It needs to create a culture in which bad news can be told. Otherwise the bad news is swept under the carpet.

 

I know of acquisitions which looked shrewd on paper but were disastrous in practice simply because the people making them had no idea that the company they were taking over had a culture of deceit.

 

Companies need to be good at celebrating and promoting success. But equally good at talking about the failure.

 

When the John Lewis Partnership encourages their partners to offer anonymous criticism in their Gazette, they are doing something to live by the joy/woe equation.

 

When the Co-operative Bank publishes each year the results of asking its suppliers whether they think it treats them fairly, and lives up to its stated values, there is no hiding place. And far from being commercially damaging, it provides a spur to performance.

 

When Warren Buffet in his annual newsletter says he thinks he has had a lousy year for his investors this is powerful in enhancing their trust.

 

We are back to the real intention of the UK’s new operating and Financial Review. It is not so much a case of “publish and be damned” as “publish and be trusted”.

 

So the sixth principle in Blake’s code of good governance would be:

“We will base all our communication on the idea that there is at any time as much woe as joy in our organisation. When we are behind schedule, below budget, or otherwise have bad news, we will share this all the time it does not jeopardise our competitive position.“

 

 

So there are the six principles in the Blakean Combined Code. I am sure I have on occasion, failed to represent the true depths of Blake’s philosophy.  In the next few minutes I hope you will teach me how. Equally, to those of you in this audience more versed in practical governance than in Blake, I wish to learn where I have failed to reflect market reality in this code.

 

In one of Blake’s works, I found the following passage:

“Then I asked. ‘Does a firm persuasion that a thing is so, make it so?’

He replied ‘All poets believe that it does, and in ages of imagination this firm persuasion removed mountains; but many are not capable of a firm persuasion of anything.’

 

I think that summarises all that I have been trying to say in this lecture, and indeed, all that Tomorrow’s Company stands for.  I want to see us shift our thinking about governance. I want us to stop believing that codes and systems imposed by others can ever be the answer. I want us to recognise, in business and in all organisations, that governance is what we make of it, and if we start with a firm persuasion of what we want to achieve with that governance, then our firm persuasion will win through.

 

But let us always start by deciding what our firm persuasion is, and not allow others to dictate it for us.