Ken Olisa, founder and chairman of London-based technology merchant bank Restoration Partners, grew up in poverty, raised by a driven single mother struggling to make ends meet as a typist, bookkeeper and office manager. She pushed her young son to work hard in school and win a scholarship to the University of Cambridge, where he studied natural sciences and embarked on a career that, among other things, saw his appointment as the Queen of England’s Lord-Lieutenant of Greater London in May. A promoter of social justice and good corporate governance, Olisa, 63, counts a moral compass among the most important lessons his mother taught him. “The feisty right-and-wrong view is something I definitely inherited from her,” says the Nottingham native, who recently spearheaded the creation of a new governance index.
Launched in June, the index — created by the London-based Institute of Directors, of which Olisa is a board member — seeks to rank FTSE 100 companies by how well they’re run. The methodology, developed by London-headquartered consulting firm Z/Yen Group, starts with a perception survey that asks practitioners, including members of the IoD, accountancy organizations and governance bodies, to rate the 100 biggest companies traded on the London Stock Exchange based on their view of the quality of each one’s governance.
The IoD then compiles a separate ranking by scoring each corporation based on 53 observed characteristics garnered from public records, such as whether it has issued profit warnings or been investigated by regulators in the past year. The final index brings the two scores together by weighting company characteristics according to how closely the survey responses correspond to those factors.
Businesses in the financial and consumer services sectors, including Barclays and grocery chain Tesco, dominate the bottom tier of the IoD index. “There’s a herd instinct in industries,” Olisa says, explaining that the correlation shows how bad behavior can spread among competing firms. The index gives no sign that good behavior is similarly contagious: The top-ranked companies, including London-based drug maker AstraZeneca and Royal Dutch Shell, the Hague, Netherlands–based oil and gas giant, hail from a diverse range of sectors.
Without being able to see into the boardroom, accurately measuring a company’s propensity for bad behavior presents a puzzle for researchers, and none have succeeded yet. “The history of these kinds of indexes has not been very good,” says David Larcker, an accounting professor with Stanford University’s Arthur and Toni Rembe Rock Center for Corporate Governance. However, Larcker stresses the importance of continuing research and keeping the debate alive. Olisa’s index is “a first step,” he says: “Let’s see what we can learn going forward.”
According to Larcker, such indexes typically assess firms through surveys or based on observed structural factors, like whether the chief executive and chairman positions are separated. One challenge is that governance structures that work for some companies may not safeguard against bad behavior in others, and “nobody has really been able to come up with a governance Rosetta Stone,” he notes.
Olisa acknowledges that the index is a work in progress and that it’s too early to assess its predictive abilities. “At the Institute of Directors, we don’t have to win the argument, but we do have to get the debate going,” he says. “And we’ve done that.” As the project continues to evolve and judge companies based on more criteria, Olisa hopes the IoD can turn it into an investable index that will afford passive fund managers some protection against poorly run companies in the indexes they currently track.
The idea to create a corporate governance index came to Olisa after a bad experience. Irritated by the prevailing sentiment that improper corporate governance was an inherent trait of companies run by foreigners, he joined the board of Eurasian Natural Resources Corp. in 2007 to help the Kazakh mining outfit shape its business to thrive in the U.K. He and Richard Sykes, a fellow board member and former chairman of U.K. pharmaceuticals company GlaxoSmithKline, quickly realized that the current directors weren’t independent, most being related to the founding shareholders by trade and some by family ties.
After the duo championed a governance overhaul, both were ousted at the 2011 annual general meeting. Olisa’s time with ENRC earned him two new titles: the first British-born black man to serve as a director of a FTSE 100 company and the first director of one to be fired at an AGM. Sykes came in second for the latter. “But that’s only because we were fired alphabetically,” Olisa jokes.
Besides his work with the IoD, Olisa applies his governance expertise at Restoration Partners, where he advises tech companies on mergers and acquisitions, business development and accessing capital markets. He started the firm in 2006, drawing on more than 30 years of experience in the sector that started with roles at International Business Machines Corp. and Wang Laboratories, in response to what he saw as a lack of knowledgeable advisers for tech companies in the U.K. “The psyche of the entrepreneur is really critical,” Olisa says about the source of Restoration’s competitive advantage: “We understand the tech sector, and we understand the entrepreneur.”
The firm’s high-profile ventures include the 2010 sale of British antimalware software maker Prevx to U.S. cybersecurity company Webroot and the January launch of the Virtual Technology Cluster, a partnership with American aerospace and defense conglomerate Lockheed Martin that aims to bring together small U.K.-based Internet security companies for support and investment.
Olisa is also active in the nonprofit sector, where he sits on the boards of charities that assist homeless, disabled and impoverished people. Olisa chairs the London-based Powerlist Foundation, which identifies disadvantaged youth with leadership potential and gives them education, mentoring and career support. In a speech to the foundation’s summer school students, he shows the teenagers his house and the circumstances in which he grew up and urges them to dream big. “I obviously had no idea all those years ago I would be like this,” Olisa says, quoting from the address.
