December is a significant month for many peoples around the world. It is the month in which two of the three great Abrahamic faiths have a major festival (Jews, Hannukah; Christians, Christmas), and the Japanese observe Omisoka. For others not professing a faith, December is significant to the extent that it marks the end of the Julian calendar. Each of these observances is distinctive, but a common thread runs through them: celebration and dedication. Yes, December is a time to reflect on the year gone and give thanks, and to ponder what lies ahead. Through this muse, I too wish to give thanks, to the many board directors, business leaders and students that I have had the good fortune to work with during 2021—both in person in New Zealand, and via video link in the United Kingdom, the European Union, the Caucasus region, North America and the Caribbean, India, several African and Middle Eastern countries, and closer to home in Australia. I have learnt a lot, and hope others have derived value from the interactions. Thank you. Peering into 2022, the prospect of travelling internationally to work in person with boards and students is enticing. Once the coronavirus situation stabilises, border restrictions are relaxed and travel becomes viable again, I will accept bookings. But in the meantime, I have decided to take on a new project. For over two decades now, I’ve had the privilege of working with aspiring and established directors on five continents, helping them wrestle with problems, consider opportunities, make decisions and learn what it means to be an effective director. Over the same period, two friends have encouraged—even nagged—me to consolidate my ideas, experiences and insights into a book. And each time it has been mentioned, I have pushed the idea away, citing lack of head space. But circumstances have changed in 2021 and the time now seems right to reconsider the prospect of writing 50,000 words about governance and the craft of board work. So, that is what I will attempt in 2022. (*) The image shows the Marsden Cross, which marks the location of the first Christian mission settlement in New Zealand, and the spot Samuel Marsden preached the first Christian service, on 25 December, 1814.
1 Comment
Every year, at about this time, sages and futurists of various stripes peer out from their sanctuaries to offer opinions of what the future holds. Many speak or write deterministically, as if they have been blessed with special powers to know or postulate the future with great accuracy. Pronouncements are read with great anticipation by many, and embraced as if categorical. But some commentators are more circumspect; their contingent expressions reveal great maturity and wisdom. “Forecasting is always a hazardous business. … no one can claim that the future is entirely inscrutable.” One does not need to look far to see examples of the difficulties faced by those charged with forecasting and strategising. Over the last two years, for example, undertones of fear and stasis have been prominent. People and companies have frozen in response to pronouncements and dictates from national leaders. Economic and social priorities have been set to one side; the main—nay, only—focus has been on the pesky virus known as Covid19. First, borders were closed and populations were locked down, in an effort to flatten the curve. Some even tried to eliminate the virus. Then, recognising their folly, leaders embraced vaccination to reduce the effects of the virus. Most recently, mandates have seen populations divided into two classes, the vaccinated and the un-vaxxed. Naysayers have jumped in, but many of their predictions have proven to be wrong as well. Meanwhile, economies have struggled and the social fabric has frayed. Amidst this backdrop, boards remain responsible for the performance of the companies they govern. Of those who recognise this (and not all do), some boards wait, perplexed by the unknowns, and others strike out, believing they can control the future, despite a plethora of externalities. Neither response is particularly wise. High performing boards and leadership teams recognise that things change, often unexpectedly. They remain vigilant, watching for weak signals that might portend the emergence of something significant. They hold options open for as long as possible. Then, when it is time, they act, decisively. The types of questions high performing boards ask (and keep asking) include:
While some of these questions may be difficult to answer, boards must persevere. Even partial answers are likely to indicate a more reliable way forward than the lazy option of blindly pursuing the supposedly categorical predictions of mediums, sages and futurists.
News of a new variant of the coronavirus emerged this week. B.1.1.529 (now Omicron, a moniker assigned by the World Health Organization) was first isolated by scientists in South Africa. Already, it has been detected in several neighbouring countries and in the United Kingdom, Belgium, Czechia, Hong Kong, Germany, Australia and Israel. Governments are reportedly “scrambling to protect their citizens from a potential outbreak". These responses are supposedly to protect but also, undoubtedly, to buy time. Given the experiences since the coronavirus disease was first detected and subsequently declared to be a global pandemic, the reactions to the latest variant are hardly surprising. News agencies and social media commentators have been up to their usual antics; newsfeeds are abuzz. Fear is a powerful catalyst, of course. But reliable guidance to indicate whether Omicron is more or less contagious, and more or less virulent, is yet to emerge. For example, the two cases in Australia are asymptomatic and both people are fully vaccinated. A calm response is needed. Another interesting aspect of the current situation is the response to those who first alerted the world to what they had discovered. When virologists in South Africa openly shared the results of their advanced gene sequencing tests, others (especially in so-called advanced economies) were quick to point the finger. They accused several countries in southern Africa of being the source of the outbreak, and ostracised them by banning travel—even from countries with no recorded cases—demonstrating the blame game is alive and well. Effective leaders (boards) do not get caught up in the blame game. They take another path:
Then, having prepared and decided upon a course of action, effective boards remain engaged. They keep their eyes open, scanning for weak signals that might portend danger. If danger strikes, they engage immediately and fully—supporting the executive response but remaining calm at all times. Is your board well-equipped to lead in an event that threatens the company’s prosperity or viability? And what is the likelihood it will oversee an appropriate response? Will it work calmly with the executives as a conjoint team to assess the situation and activate an appropriate response, or will it remain aloof and descend into finger pointing (perhaps because directors are more interested in protecting their personal reputation)? If there is any chance of the latter, consideration should be given to replacing the board with directors who are prepared to take their duties more seriously.
As summer gives way to autumn in the Northern Hemisphere—and soon winter—so various externalities that frame the work of boards and enduring performance of companies continue to press in. Topical externalities include climatic change; shifting geo-political forces; technological disruptions; diversity, equity and inclusion demands; ever-increasing levels of regulation; the emergence of ESG; and, stakeholder capitalism. The challenge for all directors and boards, whether they acknowledge it or not (or even notice or care!), is to respond well in the face of what is patently a dynamic environment—to ensure the fiduciary duty they accepted when agreeing to serve as a director is fulfilled. Steerage and guidance—the essence of corporate governance—requires every director, and the board collectively, to be alert, to both set a course and to respond well in the face of externalities. The mind’s eye needs to be looking ahead, to ensure the reason for the journey remains clear, and that decisions are made in the context of advancing towards the objective. Quite how that should be achieved is the underlying question that has driven my life’s work. Following an extended break from writing—a consequence of dealing with the passing of our patriarch—I have ‘arrived’ back at my desk to think and write again, about organisational performance, governance, strategy and the craft of board work. If you have a question, or would like to learn more about a particular aspect of board work or the impact boards can have on organisational performance, please let me know! If we are to journey far, we need to explore relevant topics and learn together.
Over the past eighteen months, many commentators, critics and self-styled experts around the world used the onset of the coronavirus pandemic to promote new ways of working; postulating that working from home is somehow better or more productive than working in a group setting (in an office or boardroom, for example). Zoom became a 'thing' (lockdowns being the catalyst, of course); Microsoft Teams, too. Proponents have suggested that the conduct of board meetings and annual meetings via video link (virtual meetings) saves time and money, and increases participation. But, as the weeks and months have passed, the novelty of working separately has began to wear off. Stories of frustration have emerged, with widespread claims that decision quality and productivity has suffered. Staff and managers who once asserted the benefits of #WFH—even to the extent that people would not have to commute to office space any more—have gone quiet. Younger staff are pining to be together again; social magnetism at work. And what of boards and their effectiveness? Can boards maintain high levels of productivity and decision quality when directors cannot meet together in person for extended periods? Might the availability of high quality video links and board portal software supplant the need to meet together in a boardroom? In considering these questions, let's acknowledge that the board is a social group, and social groups work better when they are together. Not having to travel to a meeting is attractive to many, but proximity trumps distance in relationships, n'est-ce pas? Also, decisions are made the under tutelage of the board chair, following interaction to discover, discuss and debate. But body language, non-verbal cues and unspoken reservations are difficult to discern when on-line. What is more, the wider context within which the board and company operate is dynamic and generally complex, and ambiguity is prevalent, due to missing information. If boards are to be effective (measured by the board providing steerage and guidance in pursuit of agreed company purpose; making smart decisions; holding management to account for execution; and, verifying progress towards agreed strategic goals), directors need to be on their game. For this, they need to be competent in role; be actively engaged (individually and collectively); know why they are there; understand the business of the business, the company's strategy and the strategic implications thereof (just one in six directors do); and, exercise control constructively—all of which is made easier if they meet together. Do you agree or disagree? If you disagree, I'd love to hear your thoughts and experiences!
Tennis is a wonderful game; almost anyone can play. From schoolchildren to elite professional players, the sport is exhilarating; the excitement is often palpable. One of the reasons tennis is attractive is that it is straightforward. The boundaries between acceptable and unacceptable play are, usually, well marked. The ball is served, and if is returned and bounces within the boundaries, play continues. If not, the score is adjusted and play is restarted with another serve. But, neither the net nor the lines play the game, players do; winning or losing is the result of two players (or four, if doubles) having played against each other within the playing space. The distinction in tennis between the rules, the playing of the game, and the score at the end has strong parallels in governance. Boards are charged with playing the game (that is, governing—providing steerage and guidance, in pursuit of an agreed goal) within the boundaries of various statutes, regulations and policies (the rules). The 'result' is company performance, which is usually reported in the annual report and any other reports to legitimate stakeholders. As with the distinction in tennis, neither the statutes or regulations, nor the annual report are the game. The 'game' is governance, and it is played by the board. Statutes and regulations are necessary, without doubt, but they are no more governance than rules are tennis. Another facet of tennis is the player ranking table, which identifies comparisons between players at a population level. The very best players feature at the top; lesser players, further down. Positioning on the ranking table can be a source of motivation for players (to train harder, to embrace various tactics to improve their performance, for example), But position alone does not improve playing standards, player skill or on-court conduct. And so it is with boards and governance. The position a company occupies on a ranking table (adherence to corporate governance standards or ESG metrics, for example) provides a comparative indication of how the company measures up against others. But that is all—to read in more is folly. The likelihood of ranking companies by corporate governance scores improving standards [compliance], for example, is about as tenuous as ranking tennis players improves player conduct. Why so? Standards and rules are thresholds; boundaries that distinguish between acceptable and unacceptable. Nothing more, and nothing less. Tennis players wanting to improve their game focus on fitness, technique, strategy and tactics. Similarly, companies intent on improving performance need to focus their attention and efforts on purpose, strategy and execution.
Have you ever wondered what it would be like to travel in a plane without any knowledge of where you might be headed? While this prospect may excite some, the idea of flying without a destination or purpose in mind beggars belief for most people. Successful air travel is predicated on knowing the destination; a precursor to the pilot creating a flight plan to make the journey and arrive safely. Air travel is, generally, safe and straightforward when this principle is applied. But things can go wrong, and if they do, pilots must be ready to respond well. For that, years of training and accumulated experience are vital. And vigilance too: continuously reading onboard and external signals to verify progress, and to spot and respond to any emerging problems. Successful governance is directly analogous. Knowledge of the destination and how to get there (purpose and strategy) is vital, as is constant monitoring of both the general direction (to verify progress is being made towards the desired goal) and the current situation (to detect any emerging problems). Boards are, in general, reasonably good at reading and understanding the current situation. But they are not nearly as good when it comes to general direction. Knowledge and agreement around the ultimate goal, how to get there and how progress might be measured remains problematic. If directors and boards lack clarity on these matters, their ability to govern well and ensure the performance of the company into the future is lost. The consequential risks are high. Chances are, the board and the company will be knocked around—moving but not making progress, just like a cork in a washing machine. Does your board have this in hand?
Recently, during a meeting with a company director, I was asked if I'd be interested in seeing the company’s production facilities, to provide context for an upcoming assignment. Context is everything, so I gladly accepted the offer. As we walked, we chatted about a wide range of things. At one point, I asked how things were going since the board's decision to embrace a strategy to become a higher-performing business. His response was as telling as it was succinct: They say ‘high performance’, but all I see is ‘average’. The melancholic admission was unexpected, but not surprising. Apparently, the most recent board report showed that staff turnover had been creeping up, and engagement scores were trending downwards. And yet the atmosphere in the boardroom was sanguine when I visited. Clearly, something was amiss. This vignette highlights one of the great challenges in business—strategy execution; ensuring that strategy planned becomes strategy executed. Regardless of the motivation for creating them, intentions and strategies are not worth the paper they are written on if desired outcomes are not achieved. When things go wrong, the problem can often be traced back to one or both of two things: lack of will (the "won't" barrier), and lack of know-how (the "can't" barrier). Both are indicators of a failure of leadership; a failure to equip staff, and motivate and engage them to embrace the call to action. But the root cause may lie elsewhere. If strategy implementation is OK but expected outcomes do not follow, the problem is more likely to be one of governance. This is because ultimate responsibility for organisational performance [outcomes] stops in the boardroom, not the executive suite. Some may challenge this, on the basis that the executive is responsible for running the business and implementing the strategy. They are, but for the avoidance of doubt, responsibility of determining purpose, setting overall strategy and ensuring results are achieved lies with the board of directors. There’s no getting away from it: the buck stops at the top. If there is a gap between what the board says it wants, and what is subsequently observed as reality, the likelihood of great outcomes is low. The ‘saying–seeing’ gap must be bridged, and the board needs to own this. Here are some questions the board may wish to consider:
So, to the direct question: Is your board across this?
Did you know that every living creature on Earth has approximately two billion heartbeats to spend over its lifetime (yes, 2,000,000,000)? I never knew that until I read this article recently. Brian Doyle writes so well. He brings science to life. Of heartbeats, he writes: "You can spend them slowly, like a tortoise and live to be two hundred years old, or you can spend them fast, like a hummingbird, and live to be two years old". This article set me thinking. How I should spend the rest of my two billion heartbeats? Part of my answer is to continue to help boards govern well. Another is to nurture important relationships. As a leader, how will you spend the rest of your heartbeats? And what impact do you hope to have?
As a devotee of life-long learning and a student of history, I keep an eye out for ideas and examples to share with boards and directors—in the hope that some might prove useful to help boards lead more effectively, from the boardroom. Amongst the news feeds and magazines that cross my desk (actually, computer screen), this journal often contains thought provoking articles. Recently, I was looking through some older issues and stumbled across this item, which explores effective leadership. The author offers seven 'keys' to effective leadership, as follows (I've taken the liberty of attaching a comment to each—a consideration for boards and directors):
Comments?
|
SearchMusingsThoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention. Categories
All
Archives
April 2024
|