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    On high-performing boards: unlocking potential

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    Have you ever stopped to wonder why so many companies fail to realise the potential they aspire to?
    When I speak with directors, the desire to operate at high levels of performance is palpable. In my experience, most say they aspire to have a great impact. But when one looks more closely, a great many boards struggle to break the shackles of average: they are constrained by confusion over the role of the board, impaired by dysfunction within the boardroom, and/or expectations are misaligned.
    A recent survey (conducted by PwC) highlights the characteristics of high-performing boards:
    • strong and effective leadership from the chair
    • strategic vision and focus
    • proactive engagement
    • culture of trust and collaboration
    • pragmatism and responsiveness
    • focus on high-performance [mindset and teamwork]
    • awareness of stakeholder expectations
    • cool in a crisis
    This is quite a list! Yes, it is. But most of these characteristics are consistent with the findings from ground-breaking board research conducted over a decade ago. That research concluded that if the board is to have any impact beyond the boardroom (especially on firm performance), three things matter: 
    • capability (what directors 'bring')
    • activity (what the board does)
    • behaviour (how directors act and interact)
    Board structure and composition is relatively less important, to the point of being insignificant. This finding (now known as the Strategic Governance Framework, see this article for a summary) emerged from a peer-reviewed long-term observation study of boards going about their work—one of a small handful conducted to date. As with studies conducted by the late Jane Goodall, my study sought to get as close as possible to the subject of interest (the board) to observe them in their 'native' habitat. That meant direct observations, for the board only exists when the directors meet.
    Since that time, the Strategic Governance Framework has shown itself to be a useful mechanism to help ambitious boards move beyond orthodoxy and box-ticking, to realise organisational potential. But the embrace of such a mechanism is not without its challenges: it means stepping away from the perceived safety of 'best practice' recommendations—a daunting prospect of some. 
    Ultimately, boards must decide: is compliance with contemporary recommendations, codes and regulations sufficient to discharge duties owed, or is more required? For those who decide more is required, the Strategic Governance Framework ​may be worthy of consideration.
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    Navigating fog: The board as your compass

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    I had the very good fortune to be in Boston recently, a brief visit to respond to a couple of enquiries ahead of the main reason for visiting the US East Coast, which was a keynote contribution at the International Corporate Governance Network annual conference in New York. When told Thomas Doorley III, the founder and now emeritus chair of Sage Partners, of my travels, he was quick to suggest we should meet up.
    Tom is a generous man. We have known each other for nigh on a decade now. I always come away from our conversations feeling enriched having sat with him and listened. So, when he spoke of his new project, a podcast series entitled, "Navigating the fog of change", and asked if I would sit with him, an affirmative response came easily.
    Our conversation, which explored the role of boards in times of great change, including the critical 'compass' role, is now available on the Sage Partners' YouTube channel.
    I'd be gratified if you would listen in. It'll cost you 29 minutes, that's all! And, once you've listened, if you have questions or comments, please feel free to reply below, or get in touch with Tom or me. ​
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    Netflix: What went wrong?

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    Over the years since it was founded by Marc Randolph and Reed Hastings (in 1997), Netflix has been at the forefront of entertainment and innovation. Initially a rental service, the company introduced a streaming option in 2007 and, as they say, the rest is history.
    The company has also garnered attention for its innovative approach to corporate governance—one based on proximity more so than distance. I wrote about it several years ago. The approach, founded on governance by walking about and pragmatic reports, ensured directors were adequately informed to make smart decisions. 
    But that was then. Now, eight years on, things have changed somewhat.
    Jay Hoag, a venture capital investor, was voted off the board recently, after pressure was applied by Institutional Shareholder Services, a data analytics and proxy advisory firm. It turns out Hoag missed three quarters of the board and committee meetings he should have attended. Given the Netflix board usually meets quarterly, it follows that Hoag attended once per year. Quite how anyone can contribute well if they don't attend meetings, is beyond comprehension. 
    That shareholders have taken a stand on the matter is laudable. Well done ISS, for bringing Hoag's absenteeism to the attention of shareholders. But other questions remain:
    • What confidence can shareholders have if the board only meets quarterly, and in directors who  seemingly turn a blind eye to chronically absent colleagues?
    • What of accountability and board effectiveness? When was the last board/governance assessment completed, and was it any more than a cursory exercise?​​​
    If boards are to have any hope of governing with impact, all of the directors need to be appropriately engaged (capable and​ present). Ideally, the board should adopt a robust governance framework too, to expedite effective steerage and guidance. How does your board stack up in this regard?
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    On complexity, pathways and outcomes

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    I have had the good fortune of time in South Africa this week, as a guest of GovernEx, a board advisory practice. To have been invited to interact with hundreds of directors, executives, academics and political leaders, to listen, learn, and offer insights has been invigorating.
    South Africa is a dynamic society. In the 31 years since nation-building was restarted (May 1994) much has changed. Black South Africans comprise over eighty per cent of the population; they now dominate the middle class. Efforts to build an inclusive society, whereby circa 63 million people can participate, have produced much fruit. But some cracks are visible: extremes (of wealth and poverty, in particular) remain; guidance introduced to enable and empower has become prescriptive over time; corruption is apparent in some quarters; and, in some cases, the pursuit of inclusion has delivered little more than a power shift, from whites to blacks. The situation is complex, of course, and hope springs eternal. But hope is hardly a strategy.
    South Africa’s political leaders have recognised the situation, and they are responding. The President, Cyril Ramaphosa, together with an entourage of business, community and sporting leaders, met with the President of the United States a few days ago. The G20 summit will be held in South Africa in late 2025. Business leaders have told me of their desire to move beyond various codes and constructs that have devolved to now impose more cost than benefit in many cases. Their question is telling: “Tick-box exercises for what benefit?”
    My sense is that great courage will be needed, if business leaders are to step beyond the pathways and structures that served the nation well in the early years but now seem to have become hindrances to further progress. Those I have spoken with this week are not without courage—and they have been excited to explore alternate pathways to secure better outcomes, amongst these the Strategic Governance Framework. The challenge now is one of deciding: whether and how to act.
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    On boardroom decision-making: How does your board measure up?

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    Boards are under pressure. Every time news of another corporate failure hits the news waves, attention is focussed on the board. Such attention is justified; ultimate responsibility for company performance lies with the board after all. That five out of six directors do not have a comprehensive understanding of the business of the business they are charged with governing suggests that boards deserve the scrutiny they get.
    Regulators have responded by instituting a raft of regulations—and directors' institutions and others have promulgated codes and ‘soft’ guidance too—in the hope of improving board practice. Activists have not been idle either, voting against those perceived to be ill-equipped to contribute well. To date, actions taken have had the opposite effect in many cases. The rising tide of regulations and codes, and activism, has seen many boards adopt a siege mentality. What is more, many boards struggle with the seemingly straightforward task of making smart decisions to ensure future business success. 
    Research published by Henley Business School nearly a decade ago showed fewer than one in three boards have sufficient cognition, cohesion, commitment and knowledge to reach a conclusion, much less make a smart decision. ​If the level of understanding of the business amongst directors is low, and the quality of the board's decision-making is weak, it is little wonder aspersions are being cast and board effectiveness is being questioned. Reputations are on the line, and rightly so. 
    Boards are by no means powerless, of course. My global research reveals a common pattern amongst the most effective boards: they are aspirational, and they ask great questions to inform their decision-making. Five questions, in particular, stand out:
    • What are we trying to achieve?
    • Are we doing what we planned?
    • How does this fit proposal with our agreed strategy?
    • What are the expected benefits and how will they be achieved?
    • Have we made good decisions today?
    If boards are to have any hope of governing with impact, directors need to understand the operating context (market and competitors), emerging trends and disruptions (situational awareness), and the business of the business. They also need probe and verify (that is, ask good questions and cross-check), to determine whether the decision under consideration is not only meritorious, but well-aligned with, and contributory to, the agreed corporate purpose and strategy. Anything less is a dereliction of duty, n’est-ce pas?
    How does you board measure up?
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    Taking notice, for context matters

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    I like exploring: old towns and villages, and the countryside; enjoying the landscape, clambering along trails and even into river beds to look more closely at flora and fauna. The pictures that form in my mind’s eye provide important context to understand the scene, and what may have gone before. Take the above image for example, a photograph I took a few weeks ago, having stepped off the path while walking towards a disused railway. This seemingly innocuous scene is of a fast flowing river, in a gorge. But more than that, it is just along from an abandoned gold mining settlement and an extraction plant (who knew?), and it has a name: the Ohinemuri River, this section is in the Karangahake Gorge.
    If the picture is studied more closely, details not apparent at first glance can be seen: plants in bloom, logs dumped from an earlier flood event, and an adjacent highway. Some details seem inconsequential, like the red blooming plant, others are far more significant (the river obviously floods from time to time, the gorge ‘hosts’ a major highway).
    Clearly, the act of looking ‘into’ the picture, not simply at it, reveals much. ​
    And so it is with board work: to look beyond what is written in board papers, to consider what is not written, the wider context within which the company operates, and still-weak signals that may portend trends and potential disrupters is crucial, if the board is to secure a more complete understanding and, ultimately, make more informed decisions. While some boards behave as if such things do not matter, effective boards know better. They are alert to both macro trends and issues (this recent report, from INSEAD, offers helpful insight), and more immediate matters such as sales figures, staff engagement and customer satisfaction trends.
    When was the last time you scanned the horizon to understand the wider context within which the company you serve operates, and how long has it been since the board thought deeply about the future, and the various risks and opportunities that might effect the company and its prospects?