Leadership is no longer a decision-making privilege, but a service to the modern organisation.

Führung ist kein Entscheidungs-Privileg

Dr. Christian Friege
Chairman of the Board of Management of CEWE Stiftung & Co. KGaA

We spoke with Dr. Friege about #FutureGoodGovernance.
The interview was conducted before the outbreak of the Corona Pandemic.


 

A ship needs a captain. There is much talk about new management concepts, about participation and freedom. How much leadership will a company still need in the future and how much agility will it tolerate? How do you envisage corporate management in the future?

A good captain today – and certainly in the future – will always combine “leadership” and “coaching” to achieve leadership: “Leadership” to set visions, goals, strategy and priorities of the organization as a framework for action and to exemplify values and corporate culture; “coaching” to put employees in an ever better position to make their contributions to achieving the organization’s goals. The latter also, but not only, applies in agile organizational structures. Traditional management by means of decisions in hierarchical structures is ultimately only of significance when it is a matter of keeping processes running, as “oil in the gearbox”, where otherwise there is a risk of standstill.

It is often forgotten that the corporate culture and the values that top management must credibly exemplify are of particular importance in this context, because in times of increasing complexity, the ability to act can only be achieved through decision decentralization. Experts then call this leadership through alignment.

It is also often overlooked that a change in the understanding of leadership towards “leadership and coaching” is a prerequisite for the adaptation of the entire organization to future and rapid changes in general. Or in short: Leadership is no longer a decision-making privilege, but a service to the modern organization.


 

The world’s gretas have also turned their attention to companies and their fields of action. What challenges do you expect in terms of social responsibility and thus sustainability in companies?

As a society, we can try to “regulate” a great deal – I believe that this is the wrong way to go.

The technological environment is changing rapidly, the competition (and also investor preferences) is turning faster than ever before and our clients have constantly new needs and requirements that product and service development must satisfy. The legislators will not be able to comply with this at all, but sustainability – and by this we at CEWE understand “sustainability with responsibility” – must be developed as a playing field for competition. The more the “Greetas of the world” achieve the status of saviours and donors of meaning, the more relevant it will be to provide the corporate performance with a proof of sustainability and to communicate transparently how this is constantly being developed.

It follows directly from this that companies in the 21st century as “corporate citizens” must also assume civil commitment beyond the direct social responsibility along their value-added chain (i. e. development of and compliance with the social and environmental standards which are directly linked to the performance of the company). The embedding of our community in the European Union, the continued existence of our democratic social order, the social market economy as an economic order and the measures to mitigate climate change must also be represented in essence by companies. Many companies are already committed to combating the rising CO2 emissions (CEWE, for example, produces all CEWE brand products in a climate-neutral manner) and the commitment of many companies with election appeals for the European elections in 2019 is also proof that this imperative is widely shared by the Boards of Management and management of the German economy.

Obviously, therefore, donations under the heading “Corporate Social Responsibility” with their marketing in glossy brochures are no longer sufficient today.


 

Trust is good, control is better. Today it is still primarily about numbers and compliance. However, artificial intelligence is changing perspectives and thinking. How can you imagine a future system for monitoring the board of directors? Will there still be a supervisory board watching over the management or will the ‘monitoring’ be replaced by a technically highly equipped external service provider?

In the context of the professionalisation of supervisory bodies (but especially in connection with internal control systems of companies), there will certainly be a more intensive use of technology, for example for fraud prevention and target monitoring. But these are no more and no less than better tools. The real question that needs to be asked remains: How do supervisory boards contribute to the success of the company?

On the one hand, it is about monitoring the regularity of the management. For their assessment we use Supervisoryalready have a wide range of tools and external advice (for example, by proposing the auditors to the general meeting of shareholders, determining their audit priorities, etc.). The rules of proper corporate governance are complex, confusing in their diversity and constant change, perhaps even soon to be largely automated, can be recorded and checked in lists, but above all can probably be learned in a final step. In most cases, the chairman of the audit committee is responsible for ensuring that the supervisory body performs these necessary tasks.

In addition, the supervisory board advises (and approves)councils Planning, strategy, investments and appoint the members of the Management Board. Here I find it very difficult to imagine how management and business experience, transfer knowledge and knowledge of human nature could be replaced by a “technically highly equipped external service provider”. And it is precisely here that successful, future-oriented Supervisory Board work becomes manifest: the diversity of the experience and perspectives of the members of the committees and the resulting joint consultation of the Executive Board by the Supervisory Boards on strategy and planning then becomes, in sum, successful Supervisory Board work for the company.


 

Companies are subject to a constant process of change. What challenges do you expect for your company in the next 10 years? How will they change your company? What will change for the employment and qualification of the employees?

The list of buzz words and trends (there does not always seem to be a clear line between the two) is long, probably endless: digital transformation, mobile technology, artificial intelligence (AI), environment and climate, mobility, Generation Z, agility, conscious consumer, “I want it – now”, digitally connected consumers, “everyone is an expert” etc. pp. In the end, there is a trend that summarises all of this for a company like CEWE Serving customers. With all the new technologies, with all the new products and innovations, we will only be successful in the long term if we use them to understand our customers more and more individually, and to offer them the right products and services at the right time and in the right place/medium, to deliver them faster and faster, including what has to be produced personalised. This also includes developing relevant brands, maintaining a dialogue with customers and addressing them individually.

Everything else is a consequence of this. So customer requirements are followed by applications of AI to get better analysis tools, development of mobile apps to reach customers etc. The decisive consequence, almost a circular argument, because one (serving customers) cannot be done without the other, this decisive consequence is the increasing importance of employees. They have to develop constantly, just as customer requirements change and new technologies and processes become necessary. Here the trends (or buzz words) are lifelong learning, technological change, qualification in “digital and data literacy”, new work organization, corporate culture, cultural fit and alignment as criteria for recruiting, etc. This will undoubtedly make “learning ability”, “cooperation ability” and “creativity” more important as qualifications. And those who cannot or do not want to learn will find it harder in the future. But I cannot see that technology stands against employment as a whole and I am sure that qualified employees will remain scarce and sought-after in the long term.

After all, I think that hectic rush and haste, overreaction and “chasing every trend” do not help at all. If we think for the future with great composure and just as much seriousness and then act in the present, if we find the balance between future and current challenges, then we will also master these major changes that are becoming apparent well.


 

There is much debate about centrality vs. decentralisation, agility and core competence in organisations. Will there still be companies in today’s sense of the term in 20 years’ time? What changes in terms of corporate organization and financing do you expect or would you like to see?

Yes, there will still be companies in our sense of the word in 20 years’ time. The craft enterprise will hardly change in its organisation and still be very busy. The larger the company becomes, the more the decision-making power will move to the periphery, i.e. to the company’s interface with customers and the (market) environment. This is also due to the fact that many commonly cited trends are causing increasing complexity that companies have to deal with – this requires the ability to act quickly, especially in customer interaction. It is questionable whether this always requires the change to a network organization (center and periphery). But management and work organisation will adapt.


 

Car manufacturers will become mobility service providers, food producers will become lifestyle providers, media houses will become data science companies. Where will your industry develop? Will industries – as we know them today – still exist in ten years’ time? What will happen then?

Industries have developed because similar needs and similar technologies can best be handled in similar organizations. Thus, printing companies and bookstores have developed apart, or machine builders and vehicle manufacturers. Within the industry there is competition, and always some cooperation (e.g. through industry associations). The “platform economy” now bundles customer access, expands the industry order a little (travel portals, real estate portals) or very much (Amazon, partly also Google) and functions according to the principle “The Winner Takes It All”. So will there still be industries in the future?

Here again, the primacy of customer needs applies. Is it convenient for the customer to find everything in one portal? The growth of Amazon speaks for it, the decline of the department stores speaks against it (even though they may have made strategic mistakes). Do customers in Europe want a dominating online player who wants a monopoly on the Internet, as Google or Facebook could be accused of doing? The resistance of EU institutions, civil society and, more recently, the public prosecutors’ offices in many US states casts doubt on this. Niches and specialised companies will remain suitable as models of competition to the dominant platforms, perhaps even grouped together as “industries”. Nevertheless, it remains largely unclear how customer access and service delivery processes will be organised in a decade.

However, two things seem to me to be reasonably predictable: Firstly, not all basic customer needs will change completely overnight. This still requires time within which good companies can adapt. For example, neither digital photography as a replacement for analog photography came as a surprise, nor are industry insiders surprised by the growth of smartphone photography. So companies can adapt. And secondly, the diversity of change is also leading many people to retreat into their private, secure space (“cocooning”), returning to the tried and tested. Then the many photo files on the smartphone are printed out as a photo book, becoming an important anchor for positive memories as a photo album of the 21st century.


 

Today, corporate leaders are being asked by various parties about the corporate purpose or the specific mission of the company. How do you meet this demand? What positive or critical lessons have you learned from this? What advice do you give a CEO from another industry on how best to approach this topic?

We have a very strong corporate culture that has grown over generations. It also clearly stands for what we describe as sustainability – sustainability with responsibility. In addition, we have the great advantage of having a lot to do with pleasure in our retail photofinishing business: our customers take photos of the positive moments in life, the special trip, the wedding, the child’s schooling and design a CEWE photo book around them. We also serve our customers with this joy.

If we were to further develop and codify this culture – and this is my advice to another CEO – we would pay particular attention to three aspects. Firstly, the corporate purpose, in modern terms the “purpose”, must necessarily be based on the culture that has evolved and take this as its starting point. Secondly, the formulation must be discussed in detail and throughout the company, over a sufficiently long period of time. Experience has shown that mission statements decreed by the management have no effect. And thirdly, the final formulation should always contain the special, unique features of the company described in a prominent place. Otherwise the purpose of the company becomes interchangeable, when the company with its employees and its customer performance is certainly unique.


 

The so-called stakeholders, in particular the (institutional) shareholders, are exercising their ownership rights and obligations much more than just a few years ago. It has therefore long since ceased to be sufficient to tick off the requirements of a code (“comply-or-explain”). Internationally, the intensive and permanent communication/interaction of stakeholders with corporate management is gaining ground (“apply-and-explain”). What trends do you see here and how do you assess them?

There is no question that shareholders are exercising their ownership rights more intensively than before. And that is a good thing, if this is done constructively, through the existing institutions “Supervisory Board” and “Annual General Meeting” and if equal treatment of all shareholders “under the same conditions” is ensured. CEWE is definitely a burnt child in this respect; since 2006/2007 activist hedge funds have been trying to push through a high payout against borrowing. But also the activities of the institutional shareholders, who are more and more going over to having applications to the general meeting checked by service providers and very schematically, do not have to bring about an improvement of the Corporate Governance.

The rigidity of such rigid rules may help to measure with supposedly “the same cubit” and to prove the diligence of capital investment companies in their exercise of voting rights. However, it is exactly the opposite of what management today recognises as the right thing to do: Agility, making decisions close to the customer (or the managed share), responding to the individuality of the customer with personalized offers, etc. I expressly advocate reassessing the balance between audit-proof proof of due diligence and an individual consideration of each stock corporation.

After all, the Code and the trend towards “apply-and-explain” is at best correct on average, but more so for the large Dax 30 companies. As a consequence, this means increasing problems for smaller, listed stock corporations, which are deprived of management attention that would be better invested in coping with changes in the market and social conditions. By the way, we (and this certainly applies to many smaller AGs as well) as Europe’s only listed company in our sector would like to limit transparency where it primarily serves to inform our competitors.

Above all, however, the application of the Code of Conduct gives the impression of “good governance” if all the check marks are correctly set and all the formalities are complied with. It is true that good governance requires the “Honourable Businessman” who, above all, behaves morally in ever new situations in the interests of his company and his stakeholders and acts to the best of his knowledge and belief. This may involve an old-fashioned interpretation of proper business conduct. Nonetheless, it explicitly precedes our understanding of “sustainability as sustainability with responsibility”. And the CEWE Group has done well in this respect since 1912 in five management generations.


 

#FutureGoodGovernance is currently still comparable to a crystal ball in many areas. Which future aspects of good governance are particularly important to you? What would you wish for if you had three wishes? Where do you see the political challenge? And what responsibilities will companies and their managers have in the future?

First wish to politicians: we have a fundamental social problem: we are trying to cure all “injustices” with ever new rules in a world that is changing faster and becoming increasingly complex. This does not work particularly well for two reasons: (1) the new rules only take effect when the world has already turned much further and (2) the high complexity of the rules then gets stuck in their implementation and enforcement at the latest. Perhaps simpler rules are one way to achieve this, and they are then more likely to be based on common values.

This brings me to my second wish for the GCGC: regulations to tick off (“apply”) should not replace values (“respectable businessman”). Only by placing values alongside the rules as binding guidelines for entrepreneurial action will we achieve a framework that can withstand change. And we all expect such changes in the future and at an ever increasing speed.

The third wish remains for members of the Management Board and Supervisory Board: Let us strive to always act in an exemplary manner. This is what we need to lead our companies, because in future we will have to lead them more by corporate culture (and example) than by instructions. And we also need this, incidentally, when the public perceives us as being as highly compensated as Bundesliga footballers. Just as footballers contribute to winning the game, we must also contribute to the future viability of our societies. If we can make this transparent to our supervisory boards, but also to our employees and shareholders, it will certainly be much more effective than any “say on pay” discussion at the Annual General Meeting.

And then perhaps a small summarizing extra wish: Let us develop corporate governance for management and supervisory boards together in such a way that it supports the management of the company and does not primarily employ legal departments and law firms.

Thank you very much for the interview!