05 February 2016
I like language and words. I like new words. A new word I like especially is ‘stewardocracy’. It’s really new – you won’t find it even on Google – because I’ve just made it up. So what does it mean? Literally, it means rule by the ‘stewards’. OK so far – but do we need this particular word? I think we do, and here’s why.
‘Steward’ was originally a medieval job description, and meant someone who was appointed to manage something on behalf of its owners, typically a landed estate. This is a very similar concept to the management of listed companies – they are entrusted to exercise stewardship of the corporate assets and strategy on behalf of the shareholders. It’s also true of politicians (at least, democratic ones), who are mandated by the electorate to govern in the best interests of the majority, while protecting minority interests – and indeed it applies to officials of practically every kind of institution.
But when the stewards take over, and start running things for themselves, that’s when problems begin for the owners. And it can be argued that ‘stewardocracy’ is on the rise – short-termism by senior management to protect their incentive schemes, supported by institutional investors who are also driven by short-term performance criteria, and ignored by politicians of all varieties, who seek popularity by deferring unpopular truths until after the next election – none of these will prioritise the long-term benefit of those they represent, over their own interests, if they don’t have to.
I’m not saying this is a new problem – throughout recorded history, people have tried to ‘get one over’ the boss. But perhaps the current scale of it is new, in the context of an increasingly globalised economy. And if left unchecked, it could become a virtually unassailable self-reinforcing network of vested interests. Indeed, some say this has already happened.
If the problem is not new, then neither is the solution – and by coincidence, it’s related to another medieval job title. ‘Auditors’ were originally officials sent by estate owners to check up on how stewards had performed on their behalf. They listened (hence ‘auditor’) to the steward’s account and reported back (from which we get ‘report and accounts’). And that’s where we, as PwC Finance professionals, come in – not just as auditors, but also trusted advisors – ready not just to hold client management to task on compliance and regulation, but also act as a ‘critical friend’ and challenge them when they do not align to good stewardship.
So what could this look like in the world of the CFO? The role of Finance is key to the integrity of an organisation – it should act simultaneously as diligent controller, commentator, business partner and scorekeeper:
- Diligent controller – ensuring compliance where required, an effective control environment, and relevant management and financial reporting
- Commentator – analysing the data to provide meaningful insight into business performance and future plans, to assist management decision-making
- Business partner – creating a genuine mutual relationship with key business functions, so that Finance can understand their needs and provide value-added service
- Scorekeeper – providing objective MI, that both reflects actual achievement, and ensures KPIs encourage behaviours to align with strategic goals
The first three of these can be broadly linked to our Finance Consulting dimensions of improved Control, Insight and Efficiency. And in general, our clients (with our help, naturally!) are making progress, through technology, process design and organisational structures.
But it’s the last role – scorekeeper - that is most relevant to the issues raised by ‘stewardocracy’. Setting KPIs, annual targets, and the related incentives involves a degree of judgement, and is naturally subject to pressures of self-interest. This is where we should be able to influence management, where things may be heading off-kilter – and indeed our reputation as trusted advisors relies on us doing exactly that. Are we doing enough? I suspect we could do more.
But whatever you think, if you should hear someone talking about the increase in ‘stewardocracy’, and how we should do more to combat it, remember you first heard about it here!