Sunday, January 6, 2013

Which One Do You Have: Emotional Board or Effective Board

Applying deep insight and rubber stamping are such counter-propositions.

Governance in Greek means "to steer," and that is exactly what governance entities should do; they set the course and steer the organizational ship, keep it on the course, and off the rocks. As to Board performance and competence, the challenge facing organizations these days is related to increasing complexity and increasing rate of change and a BoD will need talent who can reflect and offer insight into such situations, also, the overall board effectiveness will depend on how it makes decisions as well as steers changes.

1. Effective Board

The ultimate 'governance' authority is the Board of Directors; all other governance 'authority' is derived from the authority delegated downward by the Board of Directors.  The business environment becomes so volatile and uncertain, governance is not the act of rubber stamping, and organizations need to evaluate its board effectiveness, continue to check whether your governance model out of date.

  • Multidimensional corporate governance: Four key dimensions of corporate governance are accountability, strategy, policy, and monitoring - understand accountability of environment - regulatory, shareholder, etc; develop business strategy (though in large enterprise, the BoD may not be responsible for "developing business strategy," it is responsible for authorizing and monitoring business strategy), develop business policies offering further constraint / guidance to implementation of strategy, monitor performance and implementation of strategy, manage risks across all domains of interest.
  • Risk intelligence: The BoD has the responsibility for setting the risk appetite and risk framework for an enterprise (on the advice of management where that function exists and is resourced appropriately). From there, those risks which exceed appropriate thresholds should come to the attention of the BoD. 
  • Applying deep insight and rubber stamping are such counter-propositions. All of these require thinking, requiring asking questions - the most powerful tool of a Director is the capacity to ask good questions. That is not the act of rubber stamping! Rubber stamping is of mindlessness - whereas what interested in BoD is mindfulness. Appreciates that the value of alternative perspectives and insights which say nothing of not trusting - simply looking from a different stance, and asking different questions. 
  • Inclusiveness: The Board is responsible for ensuring an appropriate mix of skills, knowledge, and experience are present or available for it to fulfill its function, and Boards who are looking for people who have cognitive difference or unique strength as part of the mix of Board skills, for business growth and embrace trends such as digitalization or globalization.
  • Step-wise Governance: Assess--approach--prioritization-strategy-risk-monitoring If a Board is to fulfill its fiduciary responsibilities to its stakeholders, it needs to be more than a rubber stamp. It might not be developing business strategy, but the Board needs to determine suitability, adequacy, viability, etc., in advance. Another way of describing BoDs responsibility is for attention to the long-term sustainability of the organization.

2.   Is Emotion Good or Bad in Board Room?

Emotions can be just as full of goodness and charity as it can be the harbinger of anger and revenge - intuitive reactions equally so. What advice would you give a Board with a Chair who is insisting on them making an emotional decision that isn't the best option for the organization? How would you ensure effective governance? How high performing Boards make great decisions and deal with not only emotions, legitimate or otherwise, but also politics, power, and ethics too.

  • Board dynamic: Every board decision is particular to the objectives, circumstances and - as seems in this case - board dynamics. If the company's mission, stakeholders, and strategy have been clearly established - then this emotional appeal can be tested against those and the stated values of the organization. There is good and bad judgment. Does it make sense? Can the person identify if there are insufficient "facts" to allow a conclusion to be formed? Are they willing to change their mind when faced with new and relevant facts? Does the person have a track record of getting it right most of the time?
  • The Cause-Effect of Decision Making: Try and tackle a particular decision might be very difficult. The decision is already taken. If the chair were forced to backpedal - what are the broader implications in terms of their ability to lead and be an effective decision maker? Does the decision carry critical likelihood/ consequence of risk? Why the chair acted this way? Is it a one-off, is it reflective of them or board culture, or organizational culture; what would have been the unemotional decision and how is it proved that the unemotional decision would have been the right one?
  • Board Maturity: Is emotional decision making also be indicative of the lack of organizational maturity, or reflect organizations still significantly influenced by founders in executive roles? Business is not run on emotion, if destructive emotion comes in then you have a recipe for disaster. If the Chair proposes an action that is against the best judgment of the other Directors, executive or not, then there is a severe imbalance on the board, rationalization and analysis need take place, and board maturity should be evaluated and improved. 
  • Emotional appeal is in some form morally acceptable: It should, of course, be free of any concern about conflict of interest; we can't simply put aside the "emotional factor." Many times, some good leaders are the ones that have a broad instinct to business and that act emotionally. The question is whether they can conciliate the needs of high-level standard practices with good communication skills. Emotional yes, but broader, meaning evolving all organization and not being an autocratic and egocentric leader. In this case, yes. But emotion shouldn’t put the business at too high risk.   
  • Constructive emotion could have a part to play in an organization’s decision-making process. Concern arises where emotional decisions are allowed to override other more appropriate considerations which are supported by hard facts, and which could, if not challenged, result in an organization taking a wrong direction with potentially serious consequences. Directors need to have maturity and discretion that can guide businesses wisely, and guide them not only with strict numbers but with constructive emotion.

3. How does Board Govern for change and innovation?

Well-run and governed organizations often fail to change or innovate and we are seeing the world where challenging change and innovation is a constant threat to established organizations. 

  • Entrepreneurialism: Entrepreneurialism is a constructive emotion that drives positive value creation in the organization and also about how organizations break mindsets that prevent risk happening and so potentially stifle real innovation and step. Focusing on the issue of an intuitive knowledge of the greater good versus emotional reactions to events that are based on shorter-term thinking (personal needs). Longer-term effects seem more intuitive while shorter-term impacts seem more emotional.
  • Balance: Yin & Yang balance need be considered in regards to making a strategic decision that delivers the real sustainable competitive advantage for an organization. Logic and Rationalism keep business on track, but standard businesses are not viable. Businesses must perform and perform well compared to their peers to be successful in the long run, and it takes some form of emotive connectedness by the board. If the board and the chair aren't emotional if they don't care about the business, then why should they be on the board in the first place? However, such emotion should be positive and controllable.
  • Inquisitiveness: Asking good and pertinent questions are critical for governing changes so the directors would have to be able to quickly assess any numbers and facts, they are given, against applicable benchmarks and detect relevant hints for further questioning or confirmation. To achieve that, BoDs need to catch the deep insight into how things work just by analyzing the aggregates (not necessary to dive into the details). There are numerous high profile 'disaster cases' that suggest a lack of such deep understanding at appropriate levels.
  • Key Focus Area: GRC, Business Strategy and IT Oversight are top three issues in boardroom agenda, technology becomes a business catalyst for innovation and digital transformation, and more and more boards realize such new perspective, may invite more executives with such capacity to contribute to BoD. As the reality and the challenge in governance is not a choice between a good and a bad decision, but between shades of good or bad. And both board and their decision making need also be more dynamic and leverage. 
Board management is both science and art, it takes scientific discipline based on logic & rationalization and artistic touch through emotion/inspiration in order to steer the enterprise ship in such a complex and ambiguous business dynamic.


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