Tags

  • Published on

    On high-performing boards: unlocking potential

    Accountability Corporate Governance Effectiveness Family Business Governance Leadership Monday Muse Performance Tough Questions
    Picture
    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.
  • Published on

    Keeping up appearances

    Accountability Corporate Governance Effectiveness Governance Monday Muse Research Sustainability
    Picture
    Today, on the third day of an intrepid journey through several Eastern European countries, we have been exploring Kraków Stare Miasto—the Old Town—searching for glimpses of how life was lived in the past. Back streets and less-trod paths, away from trinket stands and touts, are my happy place, for they offer opportunities to peer beyond facades and veneers. ​​
    This scene was one amongst several that caught my attention today. The seemingly decrepit building itself was far from remarkable—but then I noticed two signs—clues to what lay inside: a five-star hotel named after a Polish polymath, and a Michelin-starred restaurant. Who knew? 
    As I looked at the building and signage, a woman sauntered past, on the phone to an unknown soul and seemingly oblivious to her surroundings. My mind wandered. Who was she speaking with and about what? Was she a local or a visitor? What were her circumstances?
    The imagery and parallels with board work are stark. Statements written in board packs may seem complete and accurate, but they may not be. Often, there is more to the story than what is first ‘seen’ in the board pack. Depending on how eloquently the papers have been written, directors may find it easy to form opinions quickly—jump to conclusions, even. Directors should resist such urges! Boards have a duty of care to look beyond the facade, to gain a more complete understanding through discovery and debate, before deciding. Some boards do this well; some are well-intended but struggle; and yet others appear to be motivated by looking good (as evidenced by complying with various ‘best practice’ recommendations and corporate governance codes) than doing what it takes to operate as a high-performing unit.
    When the pretence of keeping up appearances is stripped away, how does  the board you serve on stack up?
    Wittgenstein cautioned people to reserve judgement, for what seems to be so may not actually be so.
  • Published on

    Preparing for board meetings: how?

    Accountability Artificial Intelligence Corporate Governance Decision Making Director Development Governance Value Creation
    Picture
    The ways board directors prepare for board meetings is changing. Gone are the days when most directors simply turn up for the meeting, open the supplied packs and rely on their instinct as they sit through presentations by management (read: work it out on the fly). Most directors these days are well-intentioned, having diligently read papers before the meeting (having received them via a portal tool, PDF stack or thick package of printed materials). Some of these directors augment their reading with additional enquiries, in an effort to fill in blanks or formulate suitable questions to ask during the meeting. Though a small coterie still rely on their instinct to listen carefully and discern in real-time (read: work it out on the fly, during the board meeting), the world is moving on, and rapidly so. The emergence of AI assistants is proving a boon for smart directors: they are embracing a new generation of tools to enhance their preparation—on the basis that better preparation is an antecedent of better decisions. 
    Preparation takes time, of course, and many directors say,  "It'd be fine if I had the time." My response is curt: "Given the duties you owe, and the importance of governing with impact, what else might be more important than preparing well?"
    In the spirit of collegial learning, how useful are Shekshnia and Yakubovich's insights, and how are you using AI to augment your board meeting preparations (if at all)? Please comment below.
  • Published on

    Are we prepared to govern AI?

    Accountability Artificial Intelligence Corporate Governance Ethics Guest Post Performance Sustainability Value Creation
    Picture
    Guest blog: Dr. Cletus Kadzirange (GBS Oxford University, United Kingdom)
    By now, almost everyone has heard that artificial intelligence is revolutionising the commercial world. In addition to creating customer insights and automating procedures, it offers advice on hiring, pricing, and medical diagnosis. Around board tables, the atmosphere is frequently positive—AI is quick, intelligent, and full of potential. 
    While boards are positive about possibilities, are they prepared to govern AI?
    This is a governance question, not a technological one. The most progressive boards are starting to realise that monitoring AI requires far more than a digital strategy, because AI has the potential to affect reputation, social license, compliance, ethics, brand, and more besides. Questions boards should consider centre on accountability, transparency and long-term risk management:
    • Who is at fault when AI fails? This is a question of accountability. Apple's credit card algorithm made headlines in 2021, when it was revealed it gave women much lower credit limits than men with comparable financial backgrounds. Apple blamed its banking partner, Goldman Sachs. Regardless of who is at fault, boards cannot afford to wash their hands. Instead, they need to lean in, consider who is responsible for the performance and outputs of the AI systems and satisfy themselves everything is OK. Before systems behave in unpredicted ways (and they will), boards should check escalation processes and remedial procedures. Accountability is not about assigning blame, but about having foresight, to not only minimise the possibility of unintended outcomes but also respond well. The best companies embed clear accountability lines and practices during the design and implementation of AI systems, to facilitate good governance responses downstream.
    • Is it possible to see inside the black box? This is a question of transparency. Understanding AI's conclusions can be a challenge, even for the people who designed and trained the system! However, businesses that cannot explain the workings of their AI systems are coming under great pressure from consumers and authorities who want greater openness. Consider COMPAS, the system used by US courts to determine recidivism risk when sentencing criminals. Investigative journals discovered the system was skewed against black defendants. When challenged, the corporation that built the system refused to reveal the inner workings, citing trade secrets. Predictably, public disapproval and general suspicion rose sharply. The lesson here is that transparency is a reputational issue as much as a technological one. Boards should ensure management understands how AI systems work, and that credible non-technical explanations are available if required.
    • Are we ready for the new wave of regulation? This is a question of long-term risk. Regulation of AI is advancing rapidly. The Artificial Intelligence Act, which was ratified by the EU in March 2024, established stringent requirements for high-risk systems. A Presidential Executive Order signed in October 2023 moved the US in a similar direction. Provisions such as these expose businesses that cannot exhibit moral AI practices to the risk of fines, legal action and, even, system usage prohibitions. Boards can get ahead of the regulatory curve by regularly reviewing their AI policies against current and proposed regulations, and by calling for reports to confirm that systems are fair in use. 
    AI is no longer a back-office technology. Already, it has emerged as an important enabler, influencing operational, strategic and reputational performance. Consequently, boards that ignore AI as someone else's problem may be blindsided. Boards need to ask questions to ensure AI literacy is adequate, risks have been well-assessed and that governance practices are fit-for-purpose. This is not a matter of dreading the unknown: it is about providing effective steerage and guidance.
    Has your board discussed AI governance in a genuine, systematic way yet? It not, it might be time to get started.
    About Dr. Cletus Kadzirange:
    Cletus is a pracademic in corporate governance and company law who consults, trains and writes on various aspects of corporate law, directors' duties and governance. His specific expertise lies in implementing forward-thinking governance frameworks and sustainable practices that foster long-term value and ethical stewardship.
  • Published on

    Navigating fog: The board as your compass

    Accountability Change Corporate Governance Decision Making Leadership Performance
    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. ​
  • Published on

    Who controls your board’s agenda? Who should?

    Accountability Corporate Governance Decision Making Effectiveness Governance Performance
    Picture
    I had a fascinating conversation yesterday, with an esteemed board chair I have known for some years. Our wide-ranging exchange saw us dip into several topics of mutual interest including family and my recent 'elevation' to grandfather-hood; an upcoming advisory engagement; the importance of ongoing education for directors, especially in relation to 'soft skills'; techniques to chair a board meeting well; and board agendae.
    During the flowing conversation, Robert (*) said he had recently chaired a meeting in which a couple recommendations within what he called the “QuarryGroup Report” (a board/governance assessment that I completed last year) were to the fore. 
    Referencing the recent meeting, Robert said the agenda was packed, and that management had put up many papers to support the agenda items and ensure directors were well informed on what it deemed pertinent matters. He added that the meeting agenda was too full for meaningful discussions, let alone informed decisions. When I asked how he handled the situation, he referenced the QuarryGroup report. He said three items stood out as having strategic implications for the business and decided that is where the board should spend its time. He spoke with several directors after the board pack was issued and, in board alone time immediately prior to the meeting, confirmed the three items would take precedence. Through this action, Robert asserted control over the board's meeting. Management had proposed an agenda and prepared papers based on what it had thought important, which is OK, but Robert and the board had a different perspective.​
    Some readers may wonder about Robert's actions. Is it reasonable for a board chair to propose ignoring items or altering an agenda? Surely, management understands the key issues that need attention better than the board?
    I suggest the guiding principle to inform a response is this: The role of the board is to govern (to steer, to guide, to pilot). And, if the board is to have any hope of providing effective steerage and guidance, directors need to understand their role, and they need to apply their minds to the major issues and opportunities that lie ahead and make decisions accordingly. For this, the board needs to drive the agenda and ask management to prepare reports accordingly. Research shows that if this does not happen, the likelihood of the board influencing the performance of the company is low.
    When I asked Robert how compliance reporting and historical performance was handled (the board's 'control' role), he calmly said, "That is what committees are for." I smiled, for I was in agreement.
    What are your thoughts on this? Does the principle described hear apply everywhere? 
    (*) name changed.