As the Roman poet Juvenal said, “Quis custodiet ipsos custodes?”.

This Latin phrase literally means “Who will guard the guards themselves?” or “Who will watch the watchmen?”.

This is such a relevant question today, both in public life and in business.

Why?

Because if you get mediocrity in charge, they naturally hire only those who will not expose their mediocrity. The system becomes self-perpetuating and, ultimately, destroys value.

So, it’s an issue we should all be passionate about.

The effect of spiralling, self-perpetuating mediocrity hits us all.

It hits us directly.

It hits us in the pocket.

Because mediocrity undermines performance. And performance affects both share price and dividends (which are a share of profits). And that affects how much a company can employ. And how much it can pay.

And then it affects the performance of investments and pension funds. Remember – most pensions are nowadays ‘defined contribution’ (variable payout based on investment performance), NOT ‘defined benefit’ (a guaranteed % of salary).

Pension performance touches everyone’s life… and touches us NOW… not just when we’re old. Just one aspect is the fact that the grey pound is incredibly important to our economy (every economy). It’s the time when we have the greatest discretionary spending power (mortgages paid off, children flown, etc).

So this isn’t some vague ‘ticking time-bomb’ message. It’s NOW.

Back to the theme: mediocrity is not a nebulous, conceptual thing – it’s something that is affecting us all.

What to do then?

Quis custodiet ipsos custodes?

Well, it always astonishes me how much faith the City and Wall Street put into each new leader of quoted businesses.

Every time, they’re presented as the silver bullet… the person who will transform the company’s performance. In almost all cases, they inevitably disappoint… only to be followed by a whole load of hype about the next new leader who follows… who disappoints… only to be followed by a whole load of hype about…. etc etc.

It’s a depressing cycle.

(In some cases it works… but very few… the hyped leaders are themselves usually mediocre… at best).

What to do? It all comes down to two things:

• Lack of hard but realistic targets for senior management (especially relatively short-term – agile – goals which can be monitored and measured before non-performance becomes critical)
• Lack of third-party, independent scrutiny (we touched on this last week)

Senior management become past masters at explaining why targets have not been met, rather than celebrants of over-achievement. They are SO convincing about how it’s someone else’s fault… or how market conditions have changed the landscape… or some other BS.

And remember… third-party, independent scrutiny is of no value if it is simply used to criticise. It can’t just be negative, but MUST be constructive.

If it comes up with positive, active improvement suggestions, it is invaluable – helping to set realistic, but ambitious, targets for a business and its senior management.

Note, however, that to be able to effectively set those realistic stretch targets for a business, the scrutineers need to actually understand the business.

My old man (who was a big bossman in his time) used to say that he used a big five consultancy, and also used a small, expert, specialist consultancy of people who had worked in the industry.

The Big 5 output was demanded by the City and Wall Street (but in reality was useless). The specialist was the one whose advice he actually listened to and implemented.

Why, then, do the financial markets continue to listen to the Big 5?

The answer must be one simple word – ‘ignorance’.

The money world is full of people who have never run a business. They have read a book, or been on a training course, or done an MBA. And they think they know how an industry works.

They do not.

And just as mediocrity breeds mediocrity, so ignorance breeds ignorance.

We should wish for this situation to change.

We should wish for it passionately.

If the guardians and advisors actually knew what they were talking about… if they had hands-on experience… if they were true specialists… then the money-supply and the stock valuations would make more sense.

If they made more sense, then they would produce more reliable performance over time.

And if that were the case, then our investments – whether personal or through pension funds – would also be more reliable over the long-term. Because mediocrity would be called out, and sacked in short order, and replaced with senior people who were actually focused on results, not excuses.

Quis custodiet ipsos custodes?

Custodes independentes et periti esse debent.

(look it up on Google Translate!)