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    The board's contribution to strategy and business performance: Some thoughts to ponder

    Accountability Governance Performance Strategy
    The topics of strategy in the boardroom and the influence that boards have (or not!) over firm performance have been in the minds and on the lips of many people in recent months. From high-quality articles on websites and respected magazines, to academic research papers, speeches at conferences and symposia and casual thoughts expressed in private, the conversation has ebbed and flowed.
    That these topics remain on the radar suggests that directors are starting to recognise that the board might have a role beyond approving strategy and monitoring performance. But what role? To assist the discussion, here are some thoughts published on Musings in the last twelve months:
    I hope this collection of links is of some use. Please contact me if you would like to pick up on any of the points made here or elsewhere.
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    Should the threshold for director elections be increased?

    Ethics Leadership Strategy
    Most of the elections and meeting resolutions that I have been involved in over the past 35 years have used 50% as the acceptance threshold. Gain the support of at least half of the decision-makers and the proposal is accepted or candidate appointed. While this is an easy threshold to understand (more people support the idea or person than don't), the possibility of a large pool (sometimes close to half) of people who are opposed means that the post-decision period can be filled with angst and opposition.
    I've long wondered whether a higher threshold might be appropriate, especially when voting for company directors and making major (read: strategic) decisions. In other words, big decisions need widespread support. If a director candidate or a proposal fails to gain the support of most of those with decision rights, then clearly the body is not in strong agreement. Two of the social enterprises that I have been involved with for many years work this way: one uses 66% and the other 75% as their decision threshold. Yes, sometimes it takes a little longer to get agreement, but the time-to-benefits is usually much less because people are more united. Overall, the approach has served the enterprises, and those they serve, well.
    The question of decision thresholds was raised in the business press recently. Seventy per cent was mooted as a possible threshold. Might such a proposal have legs? Would directors would be more likely to think and act in the best interests of the company? Candidates and those promoting various proposals would need to work harder to gain more widespread support, that's for sure. Decision timeframes would probably blow out; director candidates and strategy proposals might need to be more populist to garner the widespread support needed to breech the threshold; and, necessary but unpopular proposals might fail to attract the required levels of support thus putting unnecessary pressure on people, resources and possibly business viability.
    While these downsides might seem daunting, the idea of raising the decision threshold on major decisions (like director elections and the approval of strategy, for example) might be worth some consideration. After all, the more united a group can be, the more likely it is of achieving its goal and, therefore, realising the expected benefits. What do you think?
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    How to keep strategy alive in the boardroom

    Accountability Governance Performance Strategy
    A couple of weeks ago I had the privilege and pleasure of working with 20 company directors on the strategy day of the Institute of Directors' Company Directors Course. Several delegates had a particular interest in how to keep strategy 'alive' in the boardroom. In their experience, boards start with good intentions but they quickly return to what they know best, monitoring and controlling. They agreed that boards are responsible for company performance (which means boards need to make decisions about the future of the business), so boards need to take strategy seriously. But many don't, which suggests that an important questions remains unanswered. How can boards keep the important matter of strategy alive?
    I put the question to the group and we had a great discussion. After about 20 minutes of to-ing and fro-ing, the group seemed to settle on four main suggestions, as follows:
    • To tip the agenda on its head. Rather than discuss action items, the risk register and performance reports (typically the chief executive's report and the financial report) first, the group thought strategic items should be discussed first, particularly if some major items were expected to need considerable time and careful attention.
    • To ensure that reports were aligned directly with strategy. If the company was working to (say) four strategic priorities, then the chief executive's report should have a business performance overview followed by four sections, to demonstrate progress against each strategic imperative. The reports should also comment on the results actually being achieved vis-a-vis expected results.
    • To ensure that a major element of strategy (one of the strategic priorities, for example) was tabled at every second meeting (to allow space for annual reporting, budget cycles and other compliance oriented matters that also need attention at other meetings). The purpose of the agenda item is to debate progress, explore environmental and contextual matters pertaining to the strategic priority.
    • To create space for new information—particularly emerging trends and competitor news—and then to check whether the extant priorities were still valid and appropriate, or whether adjustments might be required.
    These are great suggestions, and they are consistent with my research and experience. They appear to have 'reach' as well, from smaller companies just starting out with boards, right up to publicly-list enterprises. What was most heartening though was the reality check that came at the end of the discussion: many of the delegates agreed that the 'urgent' can and often does get in the way of the 'important'. Consequently, business-as-usual (monitoring and compliance items) can supplant strategy. A strong and vibrant relationship between the chairman and chief executive was thought to be vital, to ensure that the agenda was appropriate; that the reporting was at the right level; and, that the chief executive had the resources to execute on that which they were expected to deliver upon. Notwithstanding such efforts, individual directors need to make a commitment—to themselves and each other—to keep the conversation focussed on strategy, for the sake of the future performance on the company.
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    Might the potential liabilities of cyber risk change the face of business as we know it?

    Governance Performance Societal Wellbeing Strategy
    Stephen Catlin, head of the largest Lloyd's insurer Catlin Group, delivered a stark message to the business and the insurance communities this week. He said that the potential liabilities following a cyber attack are too large for insurers to cover.
    Wow. Most company directors and executives have a general awareness of cyber risk: that attacks can have drastic impact on business. However, many directors and executives have probably felt that their insurances and risk plans have been sufficient. Until now perhaps. 
    What might Catlin's comments mean for business? Could the uber-connected world and the seemingly headlong thrust towards the Internet of Things have some nasty side-effects that we are only just becoming apparent? For example, if companies cannot secure adequate insurance cover (either outright or at a reasonable cost), might they be faced with the challenge of reviewing their business models? Progress rarely occurs without consequences. Perhaps some of the so-called old ways that many have rushed to consign to history—like walking into a store and buying groceries and other goods in person—might not be so bad after all. Is your board prepared to wrestle with this issue, or will it simply walk away?
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    Who should control your business, and who actually does?

    Accountability Governance Management Performance Strategy
    Have you ever pondered the question of who actually controls your business on a day-to-day basis? Many chief executives have told me that they do. They say they have a large hand in the strategy; the culture; and, the policies and procedures, and that these things determine what the business is and what it does. But do they? Does this view match the reality?
    I've long held the view that businesses should be controlled by just two things. The first is strategy, the expression of how the overall objective of the business is to be achieved and against which all effort is aligned. In most businesses, strategy is expressed in commercial terms, based on whatever purpose the shareholders have laid out. The second controlling influence is the customer, or it should be. Customers are crucial because they "feed" the top line, without which the business has no future.
    The challenge for boards and chief executives is to ensure that all of the resources at their disposal (people, systems, product and service portfolio, finances) are aligned in pursuit of the agreed strategy. The benefits of doing so are almost self-evident, so much so that you would think all businesses would operate in this manner. But sadly, many don't.
    If you will allow me to relate an actual experience—one that probably happens more often than most chief executives and company directors realise. Recently, having opened a managed funds account with a large provider, my wife and I found ourselves with the frustrating problem of being forced to change the password to gain access to the on-line system. Here's the exchange with the financial services advisor:
    Me: We have discovered an annoying “feature” of the ABC programme: the “forced change” on user passwords. To be forced to change your password every few months is jolly annoying, to the point of arrogance on the part of ABC company. We are not forced to change our password with the bank. We can see no justification to impose such a regime on a look-only user account. Can you please talk to your people and get this setting changed. 
    Advisor: This is a feature determined by the provider of the on-line platform; and it is across all client accounts. ABC company has been approached on this several times but their IT security people are unable to make exceptions at the individual customer level.
    Another client logs in only rarely and has the same frustration. I suggested that I diarise to generate the account summary at around the same time it’s being system-generated, and email it through. What do you think of that as a work-around? I agree it’s irritating; I log in several times a day so the password refresh isn’t the same issue for me, as it is when you’re logging in maybe only every few weeks or in response to a system-generated prompt.
    M: Thank you for chasing our question through to an answer. It’s disappointing when “IT security people” get to drive the business and the customer experience eh! Your suggested work around is fine with us, on the proviso that it does not cause you any untoward extra work or hassle. One report per quarter will be fine. Is that OK?
    A: Hi, that sounds fine.
    FYI, I had the same thought about who drives the business: we have new printers with card swipes to unlock the print queue, for “security” and cost savings purposes, and also “print anywhere” capability. OK, I suppose, up to a point; but some IT person decided that the tray for standard white copy paper will be tray 3 (second-lowest) not tray 1 (highest, as it’s always been – and easiest to reach down to), and locked it into the printer in a way we can’t alter the settings locally. Letterhead and continuation paper (used in much lower quantities) are in trays 1 and 2, not trays 2 and 3 which would make more practical sense. So we are all (apart from the IT person, who thinks this is very orderly but who never uses our printer) inconvenienced both in terms of having to reach down all the time to replenish tray 3, but also having to go through and reconfigure many standard documents that will otherwise print on the wrong paper. I imagine that when the next printer comes along, there will be a new IT person and we’ll now be squatting down to replenish tray 4!
    The message is stark: that faceless people in back rooms often have more influence over business performance and perception than what executives and boards realise. They make decisions that seem reasonable. However, most of these decisions are made in isolation, without reference to customer or strategy. The consequences of decisions that detract from the customer experience and are inconsistent with the corporate strategy can be quite damaging. If customers start walking away, where does that leave the business?
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    Corporate governance speaking tour: March 2015

    Conferences Governance Leadership Strategy
    My first scheduled trip to UK and Europe for 2015 is only a few weeks away now. The dates are 9 to 19 March. This trip includes speaking engagements, an annual conference and quite a few meetings; primarily on board and corporate governance topics. Here's a selection of the activities my programme:
    • Speaking at the "Inspiring Leaders Network" symposium in Leeds
    • Guest lecturer: Masters programme at Winchester University
    • Attending the ICSA annual conference in London
    • Meetings with a publisher, executives and researchers in London
    • Meetings with banking executives and academics in Zurich
    • Visit to Oxford (as a tourist!)
    The programme is nearly complete, but there is still some space for a few more meetings or a speaking engagement, in England or Europe. If you want to discuss some aspect of board practice or business strategy; learn about my latest research; or, if you would simply like to meet informally to discuss something else of interest to you, please contact me.