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.
The invisible hand, Adam Smith opined, is a metaphor for self-corrective power in systems. If one party within a system, or one part of a system, becomes too strong or dominant then, sooner or later, an alternative will emerge, to restore equilibrium. Regardless of whether it is applied personally (think: bodily effects of obesity), in politics (extreme ideologies), or at population (demographic and social inequities) or even planetary level (geological stresses), the maxim holds, it seems.
In business, the self-corrective power is the market. If price is perceived to be too high, or too low; workplace culture or employment conditions are unhealthy; product or service quality does not meet expectations; or, return on funds invested is too low, prospective customers (staff, suppliers, shareholders) respond—they seek alternatives. This inherent power, held by those who interact within the system, has underpinned sustainable commerce for centuries, even millennia.
And yet some governments and para-governmental agencies find it necessary to intervene, through the creation of rules. But such interventions are usually costly, and they rarely achieve enduring equilibrium. Inevitably, those with decision-making power within companies find ways around what they perceive to be unreasonable barriers to sustainable prosperity. Please don't misconstrue this observation as a wholesale rejection of rules. It is not. Rather, it is a plea for regulators and boards to take stock. What is the minimum regulatory or policy framework to facilitate commerce and ensure fairness; the point beyond which effort will naturally be diverted, resulting in inefficiencies?
Consider stakeholder capitalism as a case in point. Advocates argue a more stringent regulatory framework is required to ensure the value created by companies is 'shared equitably'. This seems fair. But what if an external stakeholder group influences company strategy in a direction different from that which the board and management have agreed is appropriate? Where does accountability lie is such a situation? Should external stakeholder groups be held to account if they ‘force’ certain practices and policies onto a company that impair the performance of the business and lead to in value erosion? The more time spent satisficing the expectations of external stakeholders, including complying with regulatory requirements, the less time remains to pursue agreed goals and sustainable performance.
If company leaders—boards in particular—focus resolutely on the pursuit of agreed strategy, and on the achievement and reporting of results across the three critical dimensions, namely, social (staff, client, supplier satisfaction, which includes fair pay, good relations, etc.); environmental (impact, minimising footprint) and economic (financial return to shareholders), prosperity should follow. But if leaders trade recklessly; abuse staff or suppliers, price goods and services above what is reasonable, or disregard the environment, the company they govern deserves to struggle or, in severe situations, fail. Regardless, the invisible hand will have made its presence felt. What more should anyone expect?
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.
Thoughts on corporate governance, strategy and the craft of board work; our place in the world; and, other things that catch my attention.