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    Emergent challenges for boards of directors in 2017

    Accountability Decision Making Governance Performance Research Strategy
    The action of turning the calendar to welcome a new year generally sees commentators spring into print, creating lists of trends, predictions and recommendations for their field of interest. This year has been no exception, with many contributions in the areas of boards, board practice and corporate governance including by the CEO of Diligent Corporation, EY, KPMG, the Institute of Directors and Martin Lipton, amongst others. Some of the suggestions are specific to a jurisdiction or an operating context and some, when read together, are contradictory. How should boards and directors decide what is important and how their time should be allocated? Which commentaries are most relevant, and what issues do boards need to pay closest attention to?
    ​Rightly understood, the role of the board is to govern: to provide steerage and guidance to ensure desired company goals (purpose) are achieved  (i.e., to practice corporate governance). The board needs to give its full attention to this demanding task, lest it become a cost centre—simply monitoring management—or, worse, subservient to management. The following suggestions provide a starting point for boards wishing to improve effectiveness in 2017:
    The pursuit of value (embrace a performance orientation): The board of directors carries the ultimate responsibility for business performance. This is understood in law, but what of practice? When surveyed or interviewed, many directors say that business performance is a high priority of the board. However, a quick review of how boards actually spend their time reveals a slightly different story: most boards seem to be more concerned with compliance, monitoring and control activities—the avoidance of corporate and reputational risk. If the board is to fulfil its responsibilities well, it needs to become a source of value creation (cf. value protection or risk avoidance). This means allocating sufficient time to the consideration of corporate purpose and strategy, and ensuring that all strategic decisions are taken, explicitly, in the context of the agreed purpose and strategy. (This is not to say that performance monitoring should be ignored. Rather, boards need to ask management to report actual performance against agreed strategy and strategic priorities, so that the board can determine whether desired outcomes are being achieved or not. If the CEO's report is written in this way, the board can take it as read, rather than waste time interrogating each section.)
    Understand and respond to the complex risk landscape: In recent years, many correspondents have encouraged boards and directors to become more savvy in specific risk areas. These have included climate change, cybersecurity and disruptive technologies, amongst others. While calls for specific expertise to be added to the board are not inappropriate per se, the more pressing challenge for boards in 2017 is to embrace an increasingly complex risk landscape holistically. Directors, collectively, need to be able to identify major risks to the business (i.e., the achievement of strategy and desired performance goals) on an on-going basis and, having understood them, make informed decisions to maximise the chance of achieving the agreed strategy and goals. This is not to ask directors to be experts on all emerging risks in a dynamic landscape. That is wasteful and, probably, futile. Boards need to stay focussed on the big picture—the determination and achievement of strategy. In so doing, boards should seek out experts (notice the plural) from outside the company (this is important, otherwise, the board risks being captured by management), to address the board directly and debate the likelihood and appropriate response options to emergent risks. This additional source of information should enhance both the board's consideration of strategic options and the quality of the strategic decisions that follow.
    Accountability: Many companies have suffered at the hands of sanguine and, sometimes, fraudulent managers and ineffective boards (because they are not sufficiently engaged or informed) in the past. Sadly, more examples emerged in 2016 to suggest that some boards continue to flout their responsibilities: Wynyard Group and Wells Fargo being two of them. It is little wonder that 2016 saw further rises in shareholder activism. At the core, the problem is social; one of behaviour and expectation. If boards are to contribute effectively, to minimise the chance of corporate failure, one or both of two accountabilities—the board holding management to account and the board providing an account to shareholders—must be addressed. Directors are appointed by shareholders, and boards are responsible for both ensuring the on-going performance of the company they are charged with governing and ​providing an account to shareholders. While a strategic mindset is crucial (the value creation imperative), the underlying attribute needs to be one of service: the board and management working harmoniously together, as a team in service of the company. 
    These suggestions are offered for the consideration of boards seeking to make effective contributions in 2017 and beyond. While this short list is neither exhaustive nor intended to replace any other list, it may provide a useful basis for debate at a board meeting. The three suggestions—drawn from personal observations of boards in action, interactions with directors and readings—seek to establish an overall context to assist boards consider emerging trends and strategic opportunities, and so govern effectively in an increasingly complex world. If you would like to discuss the applicability of these suggestions to your situation, please get in touch.
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    The gift of time: use it to your advantage

    Accountability Decision Making Governance Leadership Performance Strategy
    One of the great joys of the holiday season is the opportunity it presents to let the mind wander, both to relax and recharge after a busy year, and to draw strength for the year ahead. Whether out walking, chatting with friends, completing personal projects or, more simply, sitting and reading, the time and space afforded by the lull in both business activity and the associated flow of correspondence is one to be savoured. 
    Amongst the books and papers that I have read recently, the edited summary of a speech by Admiral James Stavridis at the National Defence University convocation in 2011 stood out. (Stavridis retired from the US Navy in 2013. He is now Dean of the Fletcher School of Law and Diplomacy at Tufts University.) Stavridis offered the class of 2012 three keys to successful leadership in the 21st-century: read, think, write. The straightforward though wide-ranging message contained some real gems, applicable to leaders from many walks of life, especially those involved in demanding and fluid environments. Here are a few of the standout comments:
    "The quintessential skill of an officer [leader] it to bring order out of chaos."
    "Reading is the rock upon which you will build the rest of your career."
    "We must think our way to success in incredibly complex scenarios."
    "After you read and think, I would argue you must write. Writing is essential in communicating what we have learned, as well as allowing others to challenge our views and thus make them stronger."
    "Diversity of capabilities, capacities, and responses to any challenge should be seen as a strength, not a weakness, but only if action and tools can be used synergistically."
    Stavridis said that collaboration, an innovative mindset and a preparedness to move quickly in response to emergent opportunities are crucial attributes if leaders are to meet and successfully overcome complex situations. The keys—of reading, thinking and writing—provide the foundation. However, a comprehensive approach is still needed: to bring together and synergise the talents of a variety of people from many different quarters, because no one person has all the insights let alone answers.
    The parallels between the military examples mentioned by Stavridis and the business context are striking. If military campaigns are to be successful, generals must understand complex and fluid situations, deal with emergent opportunities and challenges, and make decisions promptly. Similarly, company success is contingent in no small measure on the effectiveness of the board as a decision-making team.
    ​Despite the seemingly unending demands that press in, the most valuable asset in the director's arsenal remains: the gift of time. How will you use it to your advantage over the next twelve months?
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    Crafting an organisation with purpose

    Accountability Decision Making Governance Performance Strategy
    Earlier this year (September), I had the privilege of attending the Organisations with Purpose conference, an event that sought to address questions about why organisations exist—their reason for being. The two-day event, which was jointly organised by London Business School and Blueprint for Better Business, was well-attended by some leading academic thinkers and, significantly, a few influential business leaders as well. 
    An overriding theme pervaded the conference: Companies with a single, clearly defined and communicated purpose tend to perform better than those that do not. To hear others summarising evidence-based research and case studies on a topic that I've been interested in for some years was great. It filled in several gaps in my understanding. A summary of the conference proceedings is now available. I commend them to you.
    The high point of the conference was the Blueprint for Better Business framework, a model to guide decision-making in purpose-driven businesses. It was compelling, to the extent that I've registered to attend a two-day immersion workshop, ahead of introducing the framework to companies in Australasia from early 2017. 
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    On corporate governance, boardroom ethics and Brexit

    Accountability Decision Making Governance Performance Tough Questions
    One of the joys of working internationally is the opportunities it presents to discuss topics in a range of different contexts. While most of these discussions are either private (with clients) or rather impersonal (conference presentations), some are recorded for the benefit of a wider audience—including this recent conversation with Lavaniya Das of Azeus Convene. We talked about corporate governance, boardroom ethics and how the C-suite is dealing with Brexit:
    If you want to explore any of the points discussed in this interview, or challenge them, please feel free to either reply below or get in touch via email.
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    How can boards exert influence from the boardroom?

    Accountability Decision Making Family Business Governance Research
    A burning question for many directors is encapsulated in the title of this muse. In recent years, the business media has published many stories about boards; questionable board practices; assertive CEOs that 'take over': and, missteps and failures that seem to emanate from the boardroom. Some of these stories are justified, whereas others lack substance. Alongside, the academic community has investigated the question, although typically from the perspective of a desk-based researcher using public data or, at best, interview comments. Reliable knowledge about the board's role in influencing business performance has remained elusive. Sadly, unsubstantiated claims have filled the void.
    I have spent several years investigating the question of board influence beyond the boardroom as well, to discover whether boards are simply disempowered groups that meet to rubber stamp decisions, or whether influence (especially over firm performance) is possible. The quest has included longitudinal observations of board meetings; interviews with chairmen, directors and chief executives; and, the analysis of very large piles (mountains, seemingly!) of board papers, minutes, reports and observation notes. Useful insights have been gleaned from informal discussions with directors have provided useful insights as well.
    While no definitive answers to the burning question have emerged (in any predictable sense anyway), a pattern is clearly apparent:
    • Influence is possible. The board's active and sustained involvement in an agreed set of strategic management tasks (especially strategy formulation, strategic decision-making and verifying strategic outcomes are being achieved) is crucial if the board's interventions are to have any effect on the achievement of desired business performance goals. Director capability, board activity and boardroom behaviours matter. Specifically, the harmonious expression of five underlying behaviours are necessary if the board is to have any impact.
    • However, outcomes are not guaranteed. The board does not operate the company directly (that task is normally assigned to the chief executive), and many other factors both within and outside the company (most of which are outside the board's direct control) can affect actual performance. 
    Findings have been written up in my doctoral thesis. These findings are summarised in two published papers, with similar sounding titles.
    • How boards influence business performance: Developing an explanation. This paper was published in Leadership and Organization Development Journal (Volume 37, Issue 8), an academic journal.
    • Board influence from and beyond the boardroom: A provisional explanation. This paper was warmly received (it received the best paper award) at the European Institute of Advanced Management Studies' 13th Annual Workshop on Corporate Governance in Milan in late October 2016.
    Copies of the papers are available here. If you want to know more, please get in touch. I'd be glad to discuss the findings (especially the implications and guidance for practice) with any board or group intent on realising and sustaining high levels of company performance.
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    Improving board effectiveness: Let's meet, in Sydney

    Accountability Conferences Decision Making Governance Research
    If I had a dollar for every time questions of board effectiveness and how to drive performance from the boardroom has been discussed in my hearing, I'd be well off. My role in answering these questions will continue in Sydney at the end of the month.
    • The organisers of the Governance Institute of Australia annual conference (28–29 November) have invited me to be a panelist alongside Simon Pordage and Amanda Wilson. I am looking forward to serving the Australian board and governance community in this way. The topic that the panel will be wrestling with, "The pursuit of productivity", promises for a lively discussion!
    • Following the conference, I will remain in Sydney for two days (30 November and 1 December) for private meetings with directors, boards and other leaders. If you would like to meet to explore good corporate governance; how to respond to emerging challenges in your business; or, the results of my latest research and the implications for more effective board practice, I'd be delighted to sit with you. Please get in touch to schedule a meeting.