Thursday, April 30, 2015

The Digital Theme of Board Room: An Engaging Board

A heterogeneous board with cognitive difference outperforms organizations with homogeneous boards.

The corporate board is one of the most important governance bodies in modern organizations to oversight strategy, manage and accept the custodial responsibility of managing shareholders’ benefit. There is a lot that can and should be expanded upon regarding board selection and strategy. In a world with so many over-complex problems, directors are required to exercise influence over volatility, manage uncertainty, simplify complexity and resolve ambiguity in the 21st-century digital environment. So what’re the principles and practices to build an engaged board?

An engaged board has complementary expertise with a cognitive difference: The board is appointed to practicing governance discipline. In achieving this role, the board needs to be talented enough to vet strategy, work together as a group to speak in one voice, and delegate and monitor operational issues they decide not to manage. An engaged board is composed of the specialized generalist type of BoDs to complement each other’s expertise but work as a team. The greatest success is achieved on the engaging boards that added directors with a cognitive difference, diversified experience, and T-shape expertise. Shareholders need to have a way to measure the board's performance, which currently is virtually impossible to do for most shareholders. Over time, changes are made and more specialized generalist type directors are added to improve learning agility, to fill the blind spot, to mind the cognitive gap and to complement each other’s capability and skills. It is the difference in thinking and perspectives that diversified BoDs bring to group decisions; as well as how members of a somewhat homogeneous group modify their decision-making processes in the presence of an "outsider," that causes organizations with boards of more diversified BoDs to outperform organizations with homogeneous boards.

The increased sensitivity to liability in most cases leads to a truly engaged board. There is no one size fits all for building a highly engaging Board. What works for the boards in one industry might have serious negative implications for another. Although anecdotal, that increased sensitivity to perceived or actual liability does have some effect on how board members conducted themselves. In most cases, it is positive and led to a truly engaged and well-informed board. In a few cases, it led to paralysis on specific board motions, unnecessary legal and research fees and possibly missed opportunities. The role of the board is simply to see to it that the management of the company operates to accomplish its mission without jeopardizing the interest of employees, customers, other stakeholders and most of all the shareholders. Sometimes, the perception of a problem could occur even where none exists. That's why it's important to have complete and detailed minutes of board and committee meetings and make sure they are reviewed completely and corrected as needed. There's nothing worse than having an important discussion resulting in a significant decision and not having it properly or accurately memorialized. That opens the door for liability even though everything was done properly. It's also clear that good governance does not ensure success and success should not be the standard. The board spends time being involved with the development and monitoring of the organization's strategic plan. At a reasonably fundamental level, and at the risk of diverting the discussion, rules set boundaries and terms of engagement.

The central piece of any institution's enduring capacity and sustainable value creation is its purpose. Without purpose, companies’ Boards or management are living in hope with the moving parts operating in completely different directions and no control over their destiny. With purpose comes strong value systems, common beliefs, and shared objectives. Purpose creates a well aligned and central axis that strings together a firm's vision, business structure and execution excellence which goes on to create long-term value and define its brand. The primacy of any institution should not be a top focus on outcomes alone, but the process through which one ensures successful outcomes. And a measure of these outcomes needs to be seen through the lens of purpose. When designed around purpose, businesses create an enduring presence. This can only happen when Boards establish ground rules of governance and accountability - and this comes through the firm's purpose. Everything else is fleeting and will fail litmus tests repeatedly.

The boardroom culture is engendered by board leaders. It’s all about leadership from the top which sets the tone and governs boardroom behavior. More often, an engaged board will work more harmonized as a team to achieve governance effectiveness.


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