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Boards and crises: seeing the bigger picture

20/4/2020

The unexpected outbreak and spread of Covid-19 has had a seismic effect on the lives and well being of people, around the world. Politicians and government officials have activated crisis response plans (some more quickly and effectively than others) and business leaders have reached for their continuity plans. Amongst the turbulence, little if anything is clear—except that SARS-CoV-2 has our attention.

Horizons have shortened, and most if not all resources have been diverted to deal with the situation. This is reasonable, but it also exposes the company to a significant risk. Business leaders (especially boards) need to keep one eye on the future, because the crisis will eventually pass. When it does, companies need to be ready to 'go' in the post-crisis environment, lest they be outgunned by others.

The most pressing questions for boards as they look to the future relate to the wider operating context, the answers of which inform strategic choices.

What has changed, and what might things look like after the crisis has passed?
How does this effect our ability to compete; and our ability to win?
What adjustments (both strategic and operational) are needed to ensure the company is positioned to thrive in the future?

As boards work through these and other related questions, careful judgement (wisdom and maturity) is needed, to both balance competing interests (resourcing the crisis versus strategising the future) and to avoid traps that have the potential to stymie the company's recovery. Here are three pitfalls that can entrap boards:

Short horizon and great detail: While horizons are, naturally, shortened during times of crisis, boards need to begin looking further into the future early. But, when they do, they need to resist the temptation to dive into the detail (many directors associate detail with higher quality decisions and the mitigation of risk). This is a trap. A strong focus on perfection and detail diverts one's gaze away from the big picture, the wider context within which the company operates. Emerging but still weak signals and new risks will be missed. Left unchecked, the resultant strategies and decisions will be little more than long lists of activities. Roger L. Martin's words speak volumes: "True strategy is about placing bets and making hard choices. The objective is not to eliminate risk but to increase the odds of success". If in doubt, play long—but refine often.
An over-optimistic outlook: Strong leaders like solving problems, but they are also prone to thinking they are better or more capable than they are. We see it in politicians, project leaders and business executives: humans have an innate tendency to overestimate their abilities, especially to predict future outcomes. Boards are no exception. One way of mitigating this is to ensure someone acts as an advocatus diaboli (devil's advocate), to challenge the thinking at each step along the way. Another is to explicitly seek expert advice from independent sources. An external facilitator with a strong personality (to manage egos!) can also be very valuable.
Confusion over the board–management nexus: This trap is more common than most care to admit. Usage of the term governance over the last 15–20 years has become so widespread (in appropriate and inappropriate contexts), that is has become a panacea for all manner of corporate activity and ills. With it, the board–management nexus has become clouded, with the two parties unsure of who is doing what. If the board and management are to work well together, with the company's best interests to the fore, a well-defined of division of labour is required, to allocate to tasks explicitly to the board, to management, or to both.

The temptations to look just ahead; embrace detail; mitigate all risks; confuse strategy and tactics; conflate the roles of governance and management; and be highly optimistic are very real—more than many would care to admit. But they are by no means insurmountable.

Boards intent on ensuring the company is well-positioned to emerge from a crisis intact know that high quality steerage and guidance is vital: a clear sense of purpose (reason for being), a coherent and appropriately resourced strategy that is relevant to the circumstances, a dedicated team and effective oversight. They also know that this principle holds regardless of the company's size, sector or span of operations.

A much brighter future awaits those companies that do not lose sight of the bigger picture as they work through the mire towards solid ground.

The consequences of confusing oversight and overreach

17/4/2020

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One of the perennial challenges boards of directors need to deal with concerns boundaries—the question of how to govern effectively without stepping over the 'line' into management, in particular.

The theory is easy: the board's governance role includes setting direction (purpose, strategy) and boundaries (policy), allocating resources and holding management to account for results in accordance with specified parameters. The role of the manager is to run the company within specified parameters and report progress. The board is also responsible for providing an overall account to shareholders and legitimate stakeholders. And there should be a clear separation between the parties. This seems remarkably straightforward.

But in practice, the going is often far from straightforward. Divisions of labour may be unclear or, worse, assumed. And, contrary to institutional 'best practice' guidance, the board and management actually need to be proximate if decisions are to be informed and management is to action them well. The challenge is greater again if individuals hold director and manager roles, as is often the case in smaller, privately-held companies. Inevitably, opportunities for confusion surface, pressure on resources mounts, and progress towards overall goals may stall (assuming a goal has been determined). Yet board duties remain, undiminished.

In times of crisis, the situation is complicated by matters well outside the board's control, and time is of the essence. Understandably, the board's attention moves from oversight and strategic opportunities, to the very short-term—stabilising the company and protecting assets. The decision cycle speeds up, necessarily, as new information comes to hand. Previous decisions may need to be retracted and changed. All of this is quite normal and appropriate in crisis situations. However, if the board goes further and gets directly involved company operations including instructing staff, specifying how things should be done and even doing them, then it is stepping well across the ‘line’ and into management. This is overreach, and it can be dangerous because it undermines the foundations that underpin strong board–management interaction. The casualties are many and varied, but three of more common ones are:

Accountability: If the board steps in, the accountability link breaks. The board can no longer hold management to account for implementing board decisions right when it's needed, or for any consequential effects that may flow. In effect, management is let off the hook.
Productivity: If the board steps in and takes over when things get tough, staff commitment to high levels of productivity through the crisis ('commitment to the cause') is likely to dwindle, because they know the board will take up the slack. And if this happens, expect costs to rise and staff satisfaction to fall.
Engagement: Staff commitment to, first, stabilise the business through the crisis, and, second, the achieve desired levels of performance into the future is likely to suffer. Expect absenteeism to climb. Some staff may work to rule, and staff turnover will probably increase.

The resultant (negative) impact on company performance could be significant. Yet these casualties can be avoided, if the board chooses to work collegially with management to get through the crisis. For this, trust is crucial. The board should also ensure a well-defined division of labour is in place, and it must delegate well with clear lines of accountability, and maintain strong and open lines of communication.

The parallels for governments and citizens are stark. In times of crisis, governments often use powers such as declaring a state of emergency and suspending civil liberties while order is being restored. If these decisions are taken, as has happened in many countries following the COVID-19 outbreak, they need to be accompanied by self-evident measures such as 'no gatherings of greater than 100 people', or 'maintain a 2m separation from any other person'. If people are clear about what is required, and why, they can make adjustments to fit within the requirements. However, if petty and nonsensical procedural rules are also introduced (how far one may drive, alone, for example), the linkage of trust breaks and some undesirable consequences may follow. In extreme cases, the people may even revolt.

The temptation to overreach is great. Power is an enticing thing, after all. But politicians, like boards, must avoid the temptation to overreach if at all possible. If the board (government) focuses on 'what' is needed and 'why', and management (the people) concentrates on 'how', the likelihood of a great outcome is much higher.

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Every stick has two ends

14/4/2020

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To suggest that the COVID-19 pandemic is the news story of the year is, as they say, a bit of an understatement. And it is easy to understand why. The personal, community and economic impact has been dramatic. Many thousands of people have died; untold millions have lost their jobs or soon will; community life has been put on hold; and economic activity has, largely, ground to a halt.

As of today (14 April), nearly 2,000,000 people are known to have been infected by the SARS-CoV-2 virus. The actual number is unknown, but it will be far greater, without doubt. About 120,000 deaths have been linked to the virus as well—although most were due to co-morbidities. Only a small portion of the reported fatalities were directly due to COVID-19 (data from Italy suggests 12 per cent).

Understandably, most of the reportage has concentrated on the headline numbers, decisions by politicians, and the public health response. But personal stories have featured too. As you would expect, partisan biases are also on display: Trump has been slammed and Ardern lauded.

Despite the seemingly strong alignment apparent across the reportage, the picture being painted is far from complete (the situation is still developing, after all), and it may not be accurate either. Underlying data may be misunderstood, misinterpreted or missing. Yet decisions need to be made, and decisions have consequences, just as sticks have two ends.

The challenge for politicians is no different from that boards of directors face all the time. The best and most effective boards are those who seek counsel from a diverse range of perspectives (including competing options) before they make a decision.

This article, positioned prominently on the front page of the Dominion Post today, highlights the emerging situation in New Zealand and the challenge for political decision-makers. It is well worth reading, as much for the language used as the story itself. The first sentence in the print edition read, "A group of public health experts has broken ranks on the Government's lockdown strategy ...". (The online edition was subsequently edited, at 8.28am, to read, "A group of public health experts has challenged the Government's public health strategy ...".) The cited experts argue that, with the border secure, various restrictions in place can (should) be relaxed, to enable people to return to a level of normalcy. This view is at odds with the advice the government seems to be relying on, but it remains valid as an option nonetheless and, therefore, merits consideration.

Whether the government decides to balance the best interests of the economy and society, or to hold tightly to the current course, should become clear soon. Regardless, its decisions will have consequences, just as every stick has two ends. Politicians, as boards of directors, ignore this truism at their peril.

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Governing at distance: one director's experiences

9/4/2020

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The rapid spread of the COVID-19 virus has shaken communities and commercial activity around the world, to the very core. Since late February, strict restrictions on human movement both between countries and, now, within communities have been imposed, in the hope of containing the virus and, in one case, of eradicating it. The scale of the impact on lives, social structures and economic activity has yet to be measured, but it will be large, I suspect. The scars will remain tender for some time in many cases.

Unsurprisingly, many people have been inventive in response to the situation they now find themselves in. Neighbours are meeting at a distance, and internet traffic has grown exponentially as people have taken up online entertainment options and relied heavily on social media to keep in touch with each other. All of this is to be expected; humans are social beings, after all.

The vacuum left from the pausing of economic activity has been filled by creative thinkers and opportunists offering all manner of webinars, 'best practice' check lists and other forms of guidance to help individuals, groups and businesses reconfigure their lives and businesses. The Internet is now awash with them. Some are well-informed and helpful, but most of the ones I've seen are little more than attention-seeking noise.

My own work patterns have changed too, mainly as a result of the restrictions on movement now in place. These include using electronic communications tools such as video conferencing in place of in-person board, coaching and other client meetings; and the telephone and email to keep in touch with colleagues and clients. The following points summarise my experiences as I have sought to govern at distance this past month:

Online board meetings are hard work. Zoom has become, overnight, 'the' tool of choice for teams and workgroups who need to meet together. I have used zoom many times since the lockdown, including numerous one-on-one interactions, two board meetings, a panel interview and discussions associated with a CEO recruitment. The one-on-one interactions and the panel interview were very productive. But the board meetings were more demanding: one was reasonably productive, the other was hard going. Let me explain:
- In one board meeting, the chief executive, board secretary and directors all connected in from different locations—no two people we seated together. This meant that everyone was interacting with the computer screen. Also, the participants all know each other well; they are a tight unit, underpinned by high levels of trust and confidence in each other. The meeting was three hours long (a little shorter than the normal in-person meeting). The shorter-than-usual agenda was dominated by matters associated with the crisis, and the chair stopped the meeting every hour so participants could stretch, grab a drink and use the bathroom. These things (everyone connecting remotely, a tight agenda, comfort breaks, trust and confidence) laid a foundation for a focussed discussion and some good decisions. However, looking at a computer screen for three hours was both physically and mentally demanding, especially when using headphones or earbuds. My concentration reserves were exhausted by the end of the meeting. Also, interaction between the chair and board secretary, who normally sit beside each other, required a few conscious interruptions, whereas normally such exchanges did not interrupt discussion at all.
- In the other meeting, the chair and one of the directors were located remotely from the remainder of the directors and the business manager. Some of the directors had not previously used video-conferencing in a group situation. The directors seated together looked at the computer screen when the chair was speaking, but otherwise they tended to look and interact with each other. Also, the computer screen the group was using was located in an open office space. While no one else was in the room for much of the meeting, three or four people did pop their heads in and, once, a person used the room as a thoroughfare. The two main observations from this experience were that the two directors located away from the others did not engage as fully as they normally do, and that interaction quality was compromised due to both the unfamiliar surroundings and the interruptions.
Technical challenges can get in the way. Brief sound delays or video outages break meeting flow, and people, naturally, loose concentration quickly. If distortion and background noise are to be minimised, good equipment and connections are a 'must'. I've also found that if people place their laptop or tablet (or, worse, their phone) on a table-top, the result can be disconcerting—the view up people's noses makes concentration difficult! It is far better to place the device on top of a box or pile of books to lift the camera to eye level.
Most things take (me) longer. I have led three video conference meetings in the last week or so, two of which were scheduled board meetings. Though unintended, my behaviours were a little bit different from that in in-person meetings. Differences included summarising the discussion more often; calling on people by name to draw them out (normally, a visual cue was sufficient); and adopting a more formal approach to meeting protocols, especially moving and putting resolutions. Consequently, meeting flow was impaired somewhat, relative to in-person experiences at least.
Business productivity is down, not up. Managers have told me that everyday interactions are proving more difficult as a result of people being in different locations, and that supply chains are not running smoothly because movement is restricted (despite logistics being named as an essential service). Also, operational staff are taking more care as they go about their work; observing distancing (curiously the 2m distance requirement is often closer to 3–4m in practice!) and personal hygiene protocols. Consequently, goods are not arriving when expected and business processes are taking longer than normal, with the follow-on impact on productivity.
Most boards will (probably) revert to type. The human condition is driven by social interaction—we are not created solitary creatures. Yet the COVID-19 outbreak has forced us apart—social distancing (actually, physical distancing as I noted several days ago). Various correspondents have predicted that working from home will become normal, permanently; and that videoconferencing will supplant in-person exchanges. I am not convinced of either. The human need to be together is too powerful. Also, communication effectiveness is constrained when you can't see another person's eyes or gestures, or have a brief side discussion with a colleague. Almost all of the directors and executives I have spoken with over the past ten days have said they are looking forward to returning to a level of normalcy, which, for them, specifically means in-person interactions.

One final point. These are my experiences. Some may be familiar, others less so. Regardless, if you have any questions or comments, please get in touch. If you are prepared to add your experiences, as similar or different as they may be, I'd be delighted to hear them and am sure others would be too. Please leave a reply below.

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Leadership when it matters

7/4/2020

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It has been said that a leader without any followers is, in reality, just a person going for a walk. Followers are, by definition, necessary. But the presence of followers is an incomplete measure of a leader's effectiveness. Messages of praise by acolytes and enthralled observers are rarely useful indicators either.

The winning of an election by a national politician, civic leader or a company director reveals little about the quality or effectiveness of their subsequent leadership. It simply shows they were more popular than their rivals on the day of the election! Consider the UK Prime Minister's victorious 'peace in our time' utterance in 1938 (which proved to be short-sighted, even deluded); the Watergate scandal (second-term presidential hubris); the Christchurch City Council's consents debacle (leadership ineptitude); and Wells Fargo's mis-selling of accounts (executive-level malfeasance). Chamberlain, Nixon, Parker and Stumpf were all thought to be leading well, but all ultimately stumbled when it mattered.

That leadership is a function, not a position, is axiomatic. And like magnetism and gravity, leadership cannot be seen directly; only through its effects. Indicators of leadership effect include the behaviours, decisions and actions of a leader as an overall goal is pursued.

The past three weeks have produced innumerable examples of leadership behaviours and use of positional power to exert influence or make decisions in response of the COVID-19 outbreak. Here's a few examples:

Chinese authorities initially covered up the outbreak.
The President of the United States closed the border to travellers from the EU (and subsequently the UK and elsewhere), and claimed that the war on COVID-19 would be won by Easter.
The Prime Minister of New Zealand implored to people to stay at home and be kind; and, in relation to locking the country down and implementing border controls, claimed to have acted early and hard.
Singaporean and South Korean authorities locked down borders, and quarantined those confirmed or thought to have become infected by COVID-19.
The British Prime Minister asked people to go about their business, but subsequently locked down the country, and caught the virus himself.

An amalgam of factors contribute to any leader's effectiveness. These include (but are not limited to):

Providing a clear and credible objective: Has the leader clearly articulated an overall vision or end-state to be achieved—and is it realistically achievable?
Being visible: Is the leader visible, available and on-hand?
Being consistent: Are the leader's actions and behaviours consistent, or are they variable depending on the immediate situation?
Decisiveness: Does the leader make decisions with the intention of advancing towards the stated objective, using the best-available evidence and advice, or do they dither?
Acting with integrity: Is the leader honest, with a strong moral compass, or do they mislead?
Fairness and equity: Is the leader impartial?

Prime Minister of New Zealand, Jacinda Ardern, has been lauded for her handling of the COVID-19 outbreak. She is widely regarded as being a great and empathetic communicator, which should not be surprising given her training is in public relations and communications. The form is good, but what of the substance of her messages? Is Ms Ardern actually providing strong leadership, as many have opined? The factors listed above is one means of considering these questions:

The Prime Minister has been highly visible during the COVID-19 crisis. She has attended press briefings, frequently appearing at the daily press update alongside the Director-General of Health and others to deliver news and answer questions. Her empathy with the plight of many is palpable.
The stated objective, currently, is to eliminate COVID-19. New Zealand is the only country to have taken up this lofty goal. If it can be achieved, that would be wonderful. But don't think for a minute that it will be easy. It will require complete isolation at the border for an extended period. Is such strict isolation feasible given New Zealand is an international trading nation within a global economy? And what of the longer-term economic outlook? The credibility of the objective is dependent in no small measure on the exit path—how to restart the economy. As yet, nothing has been announced.
The State of Emergency and enforced lockdown that New Zealand is enduring has stopped much economic activity. While the primary, logistics, healthcare and grocery sectors are operating, most retail stores and all non-essential businesses have been closed. Outdoor sports and fitness pursuits including team sports, surfing, mountain biking and many other types of outdoor exercise have been banned. Waiting times to enter supermarkets now exceed one hour in many places. The Police have been empowered to detain people flouting the rules, and individuals have been detained. Yet amongst this, the Minister of Health has seen it fit to ride his mountain bike and go to the beach. Of themselves, these actions by the Minister are not inherently unsafe. But they do set a poor example; a high degree of arrogance from a Minister who should have known far better. That the Prime Minister did not sack the Minister of Health immediately upon learning of his actions, or accept his resignation (which was offered), raises questions about the Prime Minister's performance, especially in relation to equity, consistency and decisiveness.
Calls to close the border and implement strict quarantine measures were first made at the end of February. In the days that followed, a bevy of academics, researchers and some self-styled experts published predictions about the large number of people who would die to COVID-19 infections. Some suggested 10,000, others 80,000. These numbers have been repeated by the Prime Minister on several occasions, which has the effect of endorsing them. The Prime Minister also said that as many as 4000 people may become infected before the 'curve is flattened', a number that is less than the predicted number of deaths! All of this, despite the Director-General of Health, an exemplar of stability and consistency, saying that he expected the curve to flatten in 10–12 days (from the date of the lockdown) and that that the case count would rise to about 1000–1400 by then. And it has. Why the Prime Minister did not heed the advice of her top health sector official is not known. Dire predictions (and several at that) and worse-case scenarios are of little help when the likelihood of them occurring is, essentially, nil. Meanwhile, the border has remained porous, despite claims of acting early and hard, allowing infected travellers to not only return, but disperse around the country.

The picture that emerges here is one of a communicator who is endearing, building esprit de corps. But oratory without substance is not sufficient. Leaders need to set out a credible goal, clearly; be decisive and consistent; and insist that decisions are acted on, in full.

Calls for the Prime Minister to move beyond both empathetic sound bites and measures that would not look entirely out of place in a socialist regime are gaining traction. The time to consider the future is now; to forge the pathway towards economic recovery and the restoration of civil liberties within a functional civil society, is a matter of great urgency. And that is where the extent, quality and effectiveness of the Prime Minister's leadership will be laid bare. Leadership when it matters.

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(Mis)counting the cost?

3/4/2020

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Like many people, I've been reading reports of the spread of COVID-19, and the impact it is clearly having on both the health and well-being of communities, and the economy. The number of confirmed cases is growing. Daily reports in New Zealand show confirmed and probable cases (April 3: 772 cases, 96 probable). Globally, the number of deaths attributed to COVID-19 also continues to climb, even though the vast majority of the deceased had comorbidities.

Stepping beyond the human elements for a moment (anxiety, cabin-fever, ambivalence, physical distancing), aspects of the reportage have confused me (and others as well, I know), to the point I wonder about the underlying motivations of some of the reporters.

Consider the case count: How many people have or have had COVID-19 in New Zealand? The following data lifted from the Ministry of Health website:

	Cases	Probables	Total
April 2	723	74	797
April 3	772	96	868

The New Zealand media is reporting the total (797, 868) as the number of cases of COVID-19 in New Zealand. But, when the Ministry of Health's criteria is applied (definition of a probable case, here), the actual number of cases is the lower number (723, 772). The WHO, too, is reporting these same official numbers.

The question that emerges from this analysis is straightforward: Why does the media persist in overstating the case count? Is it ineptitude, bias, or something more sinister?

Fatalities: Official reports from around the world have been clear: many (most, but perhaps not all) of the patients who have died had comorbidities at the time of death. Was COVID-19 actually the cause of all the reported deaths (as the media has implied), or was it a contributory factor alongside other factors?

In and of themselves, these misrepresentations by the media are probably of little consequence—until you consider that they may be indicative of a bigger problem that does merit attention.

If New Zealand is to climb out of the hole it is now in, some bold decisions are needed. Decision-makers need to think strategically, not tactically. There is widespread agreement that the social and economic costs of the measures currently being taken in New Zealand in response to the COVID-19 outbreak are going to be very high. The effects of the community lockdown, widespread economic destabilisation and imposition of high levels of sovereign debt will probably linger for a long time. They may be generational.

The decision to stop was easy; it has been made (although questions remain over whether the border is actually closed). The looming decisions concern when and how to restart. Ultimately, the quality of these decisions will be, to a large extent, dependent on the quality of evidence presented. If the government is to expedite the economic recovery, it needs to set ideology and worst-case models aside, and enlist seasoned, non-partisan critical thinkers to analyse the raw data, draw rational conclusions and present pragmatic recommendations. Without this, the real cost will continue to climb; a winter of discontent indeed.

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Boards and crises: seeing the bigger picture

The consequences of confusing oversight and overreach

Every stick has two ends

Governing at distance: one director's experiences

Leadership when it matters

(Mis)counting the cost?

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