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Management Practices in the UK

In their exhaustive study of patterns of management and productivity among companies in seventeen countries, Bloom and Van Reenen (Why Do Management Practices Differ across Firms and Countries,) found that UK managers fell into the middle of pack with respect to “overall management”.  When considering management practices and styles among UK emerging companies it is useful to understand the broader context of management practices throughout the country regardless of type and size of firm.  In an earlier study of management practices in hundreds of manufacturing companies in France, Germany, the UK and US, Bloom and Van Reenen, working with other colleagues (Management Practices across Firms and Nations), found that UK productivity lagged behind the US and that 10% – 15% of the gap could be attributed to differences in management practices between the two countries and that UK firms included in the survey had the widest variation in management practices among the four countries including the highest proportion of “poorly managed” companies. The researchers noted that the relatively poor performance of UK management in relation to the other three surveyed countries was somewhat puzzling given that the UK had moderately high levels of competition and low levels of regulations, two factors that the researchers argued were important drivers of good management practices.

Bloom, Van Reenen and their colleagues did a follow up study in the Autumn/Winter of 2009 and 2010 (Constraints on Developing UK Management Practices) with many of the same UK companies that they had previously surveyed to identify any intervening changes in management practices and found that management practices appeared reasonably persistent over time (i.e., the well-managed firms in 2006 tended to also be the well-managed firms in 2009) and that management quality appeared to have improved among the firms as a group, particularly with respect to adoption and implementation of “lean operations”.  The researchers observed that the improvement in management practices was greatest in situation where the company faced increased product market competition or had upgraded its skills and that companies also performed better when managerial turnover had occurred, a finding that the researchers suggested might indicate that companies were making managerial changes to bring in people capable of implementing better management practices.  The researchers also touched on constraints to improving management practices in the UK and cited, in order, an inadequate supply of managerial human capital, inadequate worker skills and informational barriers (i.e., “not knowing what changes to make”).




Drafting the Initial Bylaws for a New Corporation

One of your first opportunities to introduce clients to the requirements of corporate governance is through the preparation and explanation of the initial bylaws for a new corporation at the time it is being formed and organized.  The content of the bylaws will depend on a variety of factors, most notably the rules set out by the statutory and case law of the jurisdiction in which the new corporation is formed and organized, the stage of development of the corporation and, of course, the specific dynamics of relationship among the stockholders of the corporation. Using the information that you should have collected from an Incorporation Questionnaire, as well as other discussions with the founders, you should prepare an initial draft of the bylaws before the certificate of incorporation is filed (for examples, see Specialty Forms at §§ 8:117 and 8:120 in Business Transactions Solution) and send it to the founders with a transmittal communication–letter or e-mail–that highlights some of the key issues that are covered in the bylaws. 


Silicon Valley Management Style – The Good and the Bad

Rogers and Larsen found that the primary reason for the failure of high technology companies in Silicon Valley was poor management, as opposed to lack of capital, technical difficulties with products or poor human resources.  In turn, the successful firms were those in which senior management delegated authority and closely monitored all products and systems.

Many books and articles have traced the development of the “Silicon Valley approach” to management and the stories generally begin back in the 1940s and 1950s with iconic firms such as Varian Associates and Hewlett Packard (HP).  Important managerial characteristics of these companies included the removal of restrictions on pursuit of new ideas and innovations; employee participation in the company’s successes through the use of stock options, a strategy intended to foster cooperation and enthusiasm throughout the workforce; emphasis on teamwork; and the ability to manage rapid change.  A famous story, often retold, about the beginnings of Silicon Valley focuses on the decision in 1957 of eight employees of Shockley Labs to abandon the firm led by William Shockley, a Nobel Prize-winning co-inventor of the transistor, to form Fairchild Semiconductor to escape Shockley’s intense micromanagement and forge their own company based on “open communications, laissez-faire management styles, flat organizational structures, and generous distributions of stock options”.  Bernshteyn argued for the proposition that successful Silicon Valley firms operated under a non-traditional management style that fostered growth, creativity, innovation and employee retention and relied on a “bottom-up” approach that began with finding and hiring the brightest and most nimble managers and employees, finding the right place in the organizational structure to maximize their strengths and empowering those employees by avoiding excessive direction and rulemaking from the top.

HP is often held out as the premier example of the original Silicon Valley management style and the management philosophy articulated by the founders of HP, Bill Hewlett and David Packard, became known as the “HP Way” and has been described as including respect and trust for the individual, hiring the best people and matching them to the right job; contribution to the customer and the community, integrity, teamwork, innovation and continuous learning with the help of customer feedback.  Carly Fiorina revised and updated the HP Way as the “Rules of the Garage” in 1999 and admonished HP employees to believe they could change the world; work quickly, keep their tools unlocked and work whenever; know when to work alone and when to work together; share tools and ideas and trust their colleagues; set aside politics and bureaucracy; accept that it is the customer that defines a job well done; acknowledge that radical ideas are not bad ideas; invent different ways of working; make a contribution every day; and believe that together HP employees could do anything.

While the Silicon Valley management style has been widely praised, and attempts to emulate it have proliferated around the world, some have expressed concerns about some of the consequences of focusing too much on managing change through flexibility and embracing “lean and mean” resources management strategies.  Pfeffer, for example, began with the premise that the model of Silicon Valley management that had emerged by the early 2000s was based on four basic ideas: a “free agent” model of employment that demanded that employees look out for themselves and be prepared and willing to move on—change jobs—at a moment’s notice; extensive reliance on teams of outside contractors that could be expanded or reduced quickly and efficiently; use of stock options as an important element of compensation; and the belief that value to the organization was measured by the number of hours worked (i.e., working long hours was the norm).  He noted that companies built on these principles would presumably be well positioned to pivot quickly as their environments shifted; however, he suggested that the free agent mentality created excessively high turnover that was actually quite costly to companies in terms of having to recruit and train new staff, manage and minimize disruption to relationships with customers and other strategic partners and worry about whether former employees were using their ideas in new jobs with competitors.  Pfeffer also questioned whether outsourcing was conducive to building a sustained competitive advantage since a large portion of the knowledge generated during outsourcing arrangements resided outside of the company.


Employers Must Have Reasonable Basis for Requiring Investigation Confidentiality

Before they begin any internal investigation, employers and their counsel must consider how information uncovered during the investigation is to be preserved in confidence. Of course, some of the information collected during the investigation may already be eligible for protection under some form of confidentiality or nondisclosure agreement. The confidentiality of internal investigation materials may also be eligible for protection under the attorney-client, work-product or self-evaluation privileges, provided that such privileges are not waived during or after the investigation by inadvertent or intentional disclosure of the information. 

In order to maximize the chances that the results of any investigation, or legal review for that matter, will be eligible for protection from unwanted disclosure, employers should take the following steps: 

•           Generate a record that supports an expectation of privacy and intent to prevent and cure violations of law.

•           Obtain formal authorization of the investigation from management that makes it clear that the purpose of the investigation is to render sound legal advice to the company.

•           Ensure that qualified counsel is selected to coordinate and control the investigation, including, without limitation, ensuring that all investigation participants are instructed to report directly to counsel.

•           Formally direct employees to cooperate in the investigation and make sure employees are aware that counsel represents the corporation.

•           Educate managers in the laws and practices relating to protection of internal communications, including the operation of the legal system and the role of counsel.

When making plans relating to creating and preserving desired privileges employers must be mindful that National Labor Relations Board (“NLRB”) and the Equal Employment Opportunity Commission (“EEOC”) have objected to overly broad confidentiality requirements that companies have attempted to impose on employees in the context of internal investigations of workplace issues.  For example, the NLRB has taken the position that a non-management employee has the right to speak with co-workers about workplace concerns under Section 7 of the National Labor Relations Act and that this right is not outweighed by generalized concerns of his or her employer regarding the integrity of an investigation, and the EEOC is on record that imposing overly broad confidentiality requirements violate federal anti-discrimination laws. Both regulatory agencies have indicated, however, that employers may request confidentiality from their employees on a case-by-case basis when the employer has made an individualized assessment that reveals case-specific risks that present a legitimate and substantial business justification for a confidentiality instruction.  Accordingly, employers must abandon traditional practices of telling employees “to keep the investigation confidential”, and including such language in all policies and other forms relating to investigations, in favor of making sure that the above-referenced case-by-case assessment is made and making sure that if a confidentiality request is made it is accompanied by a clear statement from the employer that it believes such a requirement is reasonable under the circumstances.  


What Your CTO Should Be Doing!

Glasser provided an interesting and straightforward catalogue of what he saw as the key roles of a CTO of a startup company operating in the high-tech arena.  His list began with ensuring that the company had the best technology to carry out the specific technology-related activities that were required in order for the company to competitive and this meant creating and continuously engaging with the appropriate suppliers and other allies and making sure that the technology requirements for each company project were clearly understood among the members of the teams working on those projects.  In that regard, he noted that “[t]he greatest leverage is when the project is in its earliest phases, when we are deciding on architectures in the context of market requirements and when technology choices are being made”. The second item on his list was creating options for the company—either for existing businesses or launching new businesses—and being heavily involved with other functions, such as business development, in incubating opportunities that are based on exploiting technological breakthroughs.  Glasser’s third activity for the CTO was attending to the health and well-being of the technical community including acting as the public face of technology for the company and making sure that technology optimization is taken into account in all decisions and activities throughout the organization.  Finally, the CTO needs to be involved in the formulation and execution of the company’s overall business strategies given that Silicon Valley companies are competing by forging technical excellence in the products and in the processes used to create those products. 

Glasser’s ideas were similar to those described by Ries a few years earlier when he argued that “[t] CTO's primary job is to make sure the company's technology strategy serves its business strategy” and then suggested that the effective CTO need to be adept at several specific skills including platform selection and technical design; seeing the “big picture”; providing options; finding ways to “get 80% of the benefit for 20% of the cost; growing technical leaders; and owning the development methodology.