Friday, July 31, 2015

An Inquisitive Board: How to Ask the Tough Questions

The board's role is to pull management out of the trees to see the forest!

Generally speaking, Boards have a couple of main functions such as strategy oversight, governance practices, providing advice to executives, and resource provision, etc. So the Board should be knowledge enough to set broad strategic goals. They need to educate themselves by hearing different views about the organization, its environment, and strategic alternatives. Even the majority of BoDs are senior executives, they need to breakdown the “status quo,” present learning agility and show the inquisitiveness to ask the tough and right questions. The board represents the ownership and they really cannot do a good job if they don't have the courage and knowledge to question and challenge and set the broad strategic goals, culture tones, and the digital theme of boardroom itself. As an inquisitive BoD: How do you ask the tough questions?

From a governance perspective, are you investing in a GPS system to guide through or a defensive system to mitigate risks only? The question on how hard to push the accelerator (to reach strategic goals) depends entirely on the readiness of each organization’s braking system (governance and risk management readiness). The role of board members must always be to focus on the strategic initiatives of the organization amidst the mounting pressure of governance, regulatory compliance and risk management responsibilities. Some boards seem to relish in building the most capable defensive system instead of investing in a sophisticated GPS system to guide the organization down their chosen path. It will only be when the internal and external emphasis shifts from regulatory and compliance governance to identifying, reporting and developing the behavioural governance, team dynamics, director reviews, performance, selection, etc., of organizations that you will make a quantum move away from these repeated instances of governance failure.

With regard to the strategic thinking, keep asking what’s happening in your market and what’re your competitors doing., etc. The main role of a board is to oversee strategy with the executive management. A board should be engaged in by scrutinizing the strategy, the leadership of the board, along with senior management, can benefit from a 'Strengths, Weaknesses, Opportunities, and Threats' analysis if one has not been performed recently. That could be a way of focusing the board and management back on some of the strategic issues needing to be addressed to strengthen and grow the organization. There are few substitutes for looking honestly and objectively at the possibility that the business may not be as strong as you have assumed it is as well as what is happening in your market and what your competitors are doing. That's a conversation that can lead to good results for the business.

From risk management perspective, continue to question: what’re your downside risks and what’re your upside risks? Risk assessment is important and something a board, through its appropriate committee, should be aware of and work with management to plug holes and mitigate risk. One thing you might think about "risk" is the two types - downside risk or upside risk. The latter being the uncertainty about whether projects will succeed while the former may not have any positive gain but is simply loss prevention. In addition to financial risk management functions, talent-succession risk management functions are also an important responsibility for every Board of Directors. By categorizing the different type of risks, Board can pay more attention to the company's bottom line operation and top-line growth potential.

Ask deep questions about the “culture things”: Such as, what’s the current culture? What’s the culture wanted? Culture is the most invisible, but a powerful element in businesses. In sociology, the elements of culture are described as values, beliefs, behavior and rituals. If the company does not have culture readiness for change, willingness to be inventive, employees who feel leaders present a good case for change, and good communications, among other things, there is little hope for change. So strategy alone can't fix an inflexible or old model company. Culture is not easily changeable. It is embedded in the organization's DNA.The strategy has to be built around culture. If a strategy is absent, the culture will create one. By providing people with the corporate elements of a culture specific to the corporate aspirations, leadership both engages and empowers people so that everyone knows what needs to be achieved and has an organized ability to contribute. At the end of the day, engagement and empowerment are the desired outcomes from corporate culture and the elements that distinguish an effective leadership from a common management. Culture also defines what kind of people you hire. So if you hire non-risk takers, non-inventive, non-accountable etc. types of people it will be impossible to introduce a strategy which involves growth risk-taking, entrepreneurial behavior, accountability, etc. At boardroom, the further "problem" could be a cultural one as well, a strong culture of "positional management" where the Chief Executive could not be questioned and the directors simply did whatever they were told - even if it was wrong ! That's why external Independent Directors are critical to good governance. If well chosen, they are not afraid to ask whether the Emperor has his clothes on.

In order to “digitize” boardrooms, the BoDs need to show the inquisitiveness and ask tough questions from information technology perspective: Too many Boards are filled with pre-digital executives who not only have limited experience making technology decisions or assessments but whose eyes glaze over when the CIO comes into the room to provide an update. When IT is quite often a differentiating capability, how can Boards pay more attention to that area? The answer becomes self-evident, ensure there is at least one Board member fluent in “bilingual” to speak both business and IT dialects. In the digital world with enormous transformations, more often, technology is the disruptive force or game changer, companies with a digital strategy driven by the CIO at a board level can better weave digital into every fabric of business and bring different perspectives on governance and risk intelligence. An IT friendly board shall change the perspective to understand the power of information and the potential of technology.

The board's role is to pull management out of the trees to see the forest. To see the shape of the landscape to come and how it will address this. To ensure there is a strong context for establishing the tactical choices and the surprises that will invariably show up. This is an interesting lesson for board directors; to continue questioning on important issues where management's answers do not make sense. Requiring detailed answers does not constitute interfering with management - it is consistent with good governance principles processes, and practices.


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