Recently, I announced the findings of empirical research conducted over an eight year period. The aim of that research was to discover how many boards are fully aligned in relation to corporate purpose. The findings were staggering: five per cent of the participating boards—yes, one in twenty—were completely aligned in relation to corporate purpose. When asked, every director and executive had an answer, but only five boards (out of one hundred and three, to date) had one answer. How can any board do its job (make informed decisions, and provide effective steerage and guidance) if it has not first agreed on an objective (purpose) to work towards? Compare this situation with that of a plant. The example in the picture—echium vulgare, or, more commonly, viper's bugloss or blueweed—is as good as any. Echium vulgare, a native of Europe, is an introduced species in parts of north-eastern North America, south-eastern South America, and New Zealand. The plant is toxic to horses and cattle, but the bright blue flowers are very attractive to bees. And, despite the toxins in the plant, honey produced from the nectar is very tasty indeed! "So what?" you might ask. To compare a board and a plant seems a little odd. Yes, maybe, but please allow me to explain. E. vulgare, like all other plants, has a single purpose, which is to grow and reproduce. All the plant's energies are dedicated to this single goal, using the resources available to it. Nothing more, and nothing less. In contrast, many companies operate without an overarching and enduring goal, as the research mentioned above shows (save to make a profit). And that begs another question: how can any organisation realise its full potential without first establishing a clearly defined and achievable goal? 'Purpose' has become a hot topic in board, shareholder and stakeholder circles. Some have interpreted purpose to mean mission and vision: an overarching goal the company intends to achieve. Others have a different understanding—one that positions the company as a servant of society, as the question below illustrates: How can a company not be in the business of improving human health and making the world a better place? This question, posed by a US-based leadership consultant, positions purpose as a catalyst to influence or resolve an external societal or environmental situation. In effect, the underlying expectation is that the company prioritises something external and, most probably, well beyond the company's means and ability to influence, much less achieve. The difference between the two understandings is stark, as are the implications. Readers will, probably, gravitate towards one or other, and some may hold such strong views as to be offended by 'the other one'. And that is okay; shareholders and the board can strive to achieve whatever they want—such is their prerogative. What matters is that every board takes responsibility for answering the question, of why the company it is charged with governing exists. Essentially, "For what purpose?" Without this, the company will lack a North Star, and efforts to create a meaningful strategy, let alone allocate resources well and achieve high levels of performance, will be fraught. But, if purpose is clearly stated, and agreed and understood by every director and all key staff, the company will not only attain membership of a most desirable club—the Five Percent Club—the board will have established a robust foundation upon which a coherent strategy can be developed, resources allocated, decisions made, and the full potential of the company pursued. And that, I think, is a good thing.
1 Comment
A few weeks ago, while facilitating a board masterclass at Naivasha, Kenya, I had the good fortune to see some local wildlife at close range. Some people consider walking in close proximity to wild animals to be dangerous, for it may portend harm or injury, but others embrace the activity with open arms. Thinking, that well-spring from which ideas and insights emerge, innovations are birthed, and humanity progresses and flourishes, is similarly polarising. One of the things I have been thinking about recently is quite selfish: What direction should I take my writing in 2024? Musings is nearly twelve years old (first entry was in March 2012, which coincided with my doctoral research efforts, and sharing of conference papers and articles). While the longevity makes it a rarity, my motivation has not changed. It has been to share thoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention. Apart from the introduction of 'boardcraft', a word I coined in 2020, this overarching goal has remained consistent since day one. From humble beginnings, when entries garnered just a few readers, the blog is now widely read. Over the years, many readers have been graciously engaged in a discussion about a topical matter, or asked for help to realise potential. And that has been wonderful, thank you. And, as you might expect, some entries have garnered high attention; others less so. Readers seem to prefer pragmatic guidance over provocations or calls to think more deeply about something. Recent examples of the former include writings on questions, chairmanship, and storytelling. Now, as we stand on the cusp of 2024, my hope is that Musings remains relevant and useful into the future. And with that, may I ask a favour? (Actually, provide an opportunity, to crowdsource Musings!) What topics and style would ensure Musings remains relevant and useful as it moves into its teenage years? Do respond in the comments block below, or send me an email. And, thank you in advance.
The prospect of looking back on the year past at this juncture seems a little odd, even presumptuous, given five weeks remain in 2023. And yet, with the onset of the holiday season (Christmas, Hanukkah, Diwali, as relevant in your cultural setting), I have noticed minds are starting to turn; casual comments in my hearing indicate some people are starting to reflect on the year soon-to-be-gone; others upon what the future might hold. As someone called on to think broadly about organisational challenges and opportunities, and to share insights that might be helpful to helping boards govern with impact or realise organisational potential, I too, take time to ponder. To think about what has passed, what lies ahead, and how one can help is not only smart, it is vital—if one is to learn, make adjustments to stay on track and achieve goals and, over time, become a better person. Turn now to the person you see in the mirror. What did you set out to achieve in 2023? Did you set specific goals? If so, have you checked progress? Are you still on track? Have you taken into account changes in the environment around you and made adjustments, or have you pressed on in spite of changing circumstances? As a leader, you owe it to yourself—and all those you interact with—to check progress periodically and make adjustments if you have veered off track or lost sight of the goal. For the record, my goal for 2023 was audacious; to ensure every director and board I had the privilege of serving, globally, derived some benefit from the interaction. The goal was audacious because 'every' set a high bar; essentially, it left no room for slippage! Thankfully, feedback to date suggests I'm doing OK. Hopefully, the feedback still to come is consistent with that received through the year. If it is, I'll wrap up the year contented; tired but contented.
Twice this week, I have been asked about my reading and thinking habits. One enquirer wanted to know much time I spend reading and pondering insights garnered from various authors; the other whether I schedule [slow] thinking time. Although neither asked explicitly, both enquirers seemed to assume that quiet time and the notion of reading widely are important to me. And, indeed they are. But, why? The practice of reading serves, I think, two inherent objectives: to maintain currency with trends and developments, and to become a better person. The objective is not to become a technical expert capable of regurgitating data and ideas (ChatGPT can do that), but a more holistic thinker—one who discerns problems and opportunities, considers them from different perspectives, asks appropriate questions and draws relevant conclusions. More succinctly, someone who leads a reflective life. May I propose something? To philosophise is to breathe. In my experience, and that of others who I have been fortunate to interact with, the ideas that emerge from the practice of philosophising provide a solid foundation for that which follows. And yet many business leaders and board directors claim to be too busy to take time to ponder (think about) possibilities that might lie below the surface or around the corner. Quite why such a (seemingly) bedrock activity is neglected is a curiosity to me; high quality thinking is an antecedent of effective leadership and governance, n'cest ce-pas? When people I interact with, especially friends and clients, say they see a better me (someone who is on top of his game, is nice to be around and who offers relevant and considered advice), such observations tend to coincide with a period of reading literature (or other so-called 'brainy' books) and thinking deeply about the questions posed by the authors. While comments like this are gratifying, they serve a higher purpose: to remind me to make time, regardless of what else is going on around me. (And, in case you are wondering, my answers to the enquirers were, "About 12–15 hours each week" and, "Yes.")
One of the great challenges for board directors and executive leaders concerns written expression. How might one cast vision, report progress clearly, make a request unambiguously, or argue a point convincingly if the key messages are not clearly stated? Directors and executives owe a duty to their colleagues in this matter, for written reports are the primary vehicle for sharing ideas, proposals and data before each board meeting. To suggest the quality of the report (especially, the clarity of the message within) may be the difference between success and failure (that is, acceptance or rejection) is, probably, a truism. So, if we are to be convincing in our argumentation, we need to write well. But how? The first thing to acknowledge is that writing is a craft. And, as with any other craft, proficiency is something that emerges over time, as principles are learnt and applied in practice. Look to others who write well, and glean from them. Seek feedback from your readers too, and make adjustments. I have long relied on the guidance of William Zinsser (1922–2015), especially that offered in On writing well. Another great source is the Blue Book of Grammar and Punctuation, which provides specific instructions. How do you ensure board reports and business proposals are well written, and what tools and approaches do you use?
Do you have a question about governing with impact, or driving organisational performance?22/8/2023 One of the great joys of being an independent advisor is the opportunity to spend time with people from a wide range of backgrounds; business and social experiences; walks of life; and, in my case, countries and cultures. The depth and breadth of humanity never ceases to amaze me. Paradoxically, a common thread runs amongst the diversity: people intent on improving organisational effectiveness and making a difference spend lots of time asking questions, lots of questions. When a question is asked from the floor after a keynote talk, during an advisory engagement or professional development workshop, or as part of a confidential discussion or informal chat, something mysterious happens: Both parties learn! This should come as no surprise, for no one has all the answers—although some people behave as if they do. Recently, I posed several questions board directors may wish to consider. The response to that musing has been overwhelming, so I thought an open invitation might be in order. If you have a question about any aspect of corporate governance, strategic management, board craft or the challenge of governing with impact—either personally or on behalf of a board you serve on—please ask and I will gladly respond. Use the comment link here or, if you prefer, send an email. Let's learn together!
The role of company director has become quite visible over the past couple of decades. From hardly rating a mention in the popular press or polite society fifty years ago, public awareness of boards and directors has blossomed in recent times. Questionable practices and failures of various kinds have seen boards become a source of board fascination and disdain—targets of criticism in the eyes of the business media, political class, regulators and, increasingly, the wider public. Activists, institutional investors, proxy advisors, and other stakeholders and supernumeraries have sought to exert influence and press various claims too, on both company priorities and board decision making (think: ESG, disclosures, DEI, climate change, net zero, and more besides). While some boards have responded well to changing circumstances, others have battened down the hatches. Defensiveness can be an important response at times, but it is not a sustainable tactic given the mandate to govern (provide appropriate steerage and guidance to achieve a specified goal). If directors are to steer and guide effectively, they need to consider information, ask questions to check progress and elicit missing information and, having debated various options, make decisions. This is crucial, for the questions directors ask may be the difference between effectiveness and ineffectiveness in role. The following list provides a useful starting point for boards intent on governing with impact:
Do you agree or disagree—I welcome your thoughts on this! Also, what other questions have you found useful?
I have spent four days in Australia this week, meeting with directors, advisors and a couple of institutional leaders in two state capitals. While the weather has been great, a few storm clouds [metaphorically, on the governance horizon] were apparent. Whether these are serious problems, or just differences of opinion, they strike me as being worthy of discussion. I’d be delighted if you would ponder the following situations, and share your thoughts to help me understand why boards, more often than not, erode value.
These examples demonstrate, to me anyway, that questions of what corporate governance is, the role of the board and how governance might be practiced are far from resolved. Directors and their advisors seem to be their own worst enemies. Flawed understandings of what governance is (the provision of steerage and guidance, to achieve an agreed strategic aim), and how it might be practiced, remain serious barriers to boards fulfilling their mandate, which is to ensure the enduring performance of the company. Why do some directors’ institutes, advisory and consulting firms, regulators, academics, and media commentators continue to discuss “best practice” and promote various matters that have little if any direct impact on achieving sustainably high levels of organisational performance? Surely attention needs to be on helping directors and boards do their job well, n’cest ce-pas? I have a few ideas to crack this problem, but I’m keen to hear what you think.
Board are funny things. They are comprised of selected individuals (directors, board members) charged with meeting together to consider various matters for the purpose of making decisions. While it is true to say directors meet, decisions are made by the collective whole—the board—not individual directors. Therefore, every decision is unanimous. Complicating matters, boards only 'exist' when directors meet, and board work is, largely, endogenous; so, they need to be coordinated—someone needs to 'drive' the board. The term 'chairman' (also, 'board chair, 'chair' or sometimes, 'chairperson') is the term used to identify the board member who carries such responsibilities—these being to convene the board’s meetings, ensure duties are discharged, and that steerage and guidance (that is, governance) is effective. But, as all directors are equal in law, the chair's role is exercised through influence, not command in any controlling sense. Given this, how should a board chair, well, chair the board? While there is no one 'best' way of chairing, the following characteristics are conducive to better outcomes:
Governance is tough because, inter alia, things change, sometimes unexpectedly; boards often need to make decisions without all the information they want; linkages between decisions and outcomes are contingent; and, directors' duties are unbounded. If boards are to govern with impact, chairs need to be alert: to ensure directors are actively engaged, and that they identify and consider relevant information, think critically and, together, make smart decisions in the best interests of the company. The chairs' priority is to convene the board and its work, and keep directors on track and the organisation safe. For this, a deft hand is needed.
I’ve been holidaying in Scotland this week, the first of two in the Highlands after whistle-stop visits to Edinburgh and Glasgow. I prefer the countryside over cities, the wide-open spaces and the scenery. The vistas in Scotland are especially magnificent, especially if the weather is fine, which it has been this week. Today, I saw the Jacobite Steam Train in action as it crossed the famous Glenfinnian Viaduct—well almost in action, for the chance of a wayward spark starting a fire in the adjacent bracken has limited this famous tourist experience to a push-me pull-you configuration with a heritage diesel locomotive bringing up the rear. The question, in my mind and the minds of others witnessing the viaduct crossing, was, “Which locomotive is actually doing all the work?” Or, more plainly, what is driving what? From the picture, the answer is not immediately obvious. However, the very presence of the diesel locomotive provides an important clue. And so it was. Today, the Jacobite Steam Train excursion was, in fact, the Jacobite Steam Train experience, powered by diesel. The visual imagery provides a powerful analogy for something else I saw today; a press release issued by the Institute of Directors entitled, “ESG must not neglect governance!” The headline implies that governance (from the Greek, meaning to steer, to guide, to pilot) is little more than a component of ESG (a means of measuring corporate performance). This, despite governance being the term that describes the work of the board of directors (the means by which companies are directed and controlled). But, reading on, the situation is not quite as it first seemed. Dr. Roger Barker, head of the policy unit, acknowledged the importance of boards taking non-financial (so-called, ESG) factors into account when making decisions. But he also noted the emergence of an “ESG industry” that has started to control various agendas, with little interest in the enduring performance of the company. And, with it, boards are being subordinated to a lesser role. Barker issued a strong call: to subsume governance within ESG may well result in the important work of the board in driving business performance becoming neglected. Bravo, Dr. Barker! This is exactly what institutions need to be telling their members and others interested in corporate performance: ESG is a measurement and reporting mechanism, no more and no less. The board of directors is duty-bound to ensure the performance of the company, now and into the future, a high calling. If it is to discharge its duties well, the board needs to remain in control, driving the agenda. In doing so, the board should consider various externalities including social and environmental factors), of course, but it should not be beholden to them or to those applying the pressure.
|
SearchMusingsThoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention. Categories
All
Archives
February 2024
|