Wednesday, August 5, 2015

A Courageous Board

"Group-think" and lack of courage to ask the tough, strategic questions is the chief weakness on Boards today.

Corporate Board is one of the most important corporate governance bodies in modern businesses. It's easy to overlook that at its core, governance is ultimately about the willingness to act. That willingness requires, among other things, courage. Sometimes, a lot of it. Courage to speak one's mind ranks at the top with the criteria for high-performance board members. How to build a courageous board though?

"Group-think" and lack of courage to ask the tough, strategic questions is the chief weakness on Boards today. Boards are getting better as the awareness grows of how important Board composition is. The more a Board represents or mirrors its stakeholders, the better served will be the organization. Corporate success leads to complacency and causes managements and boards to be asleep at the wheel. Nobody knows enough to be a director. All we can ask is that directors have an informing intellectual curiosity that they insist be addressed. This is the scale which should determine board composition rather than "gender, race, color or creed.” There is sensitivity around executive hubris but, if Boards of Directors do not ask the unaskable in time to prevent a crisis, who will?

To be courageous to listen to what you don’t want to hear and to have the guts to make tough decisions: None of us will ever know enough, and that is why humility is a critical component of trustworthiness. A board that is fractious can never make real progress; it is collegiality, respect, transparency, competence that allow a board to be effective. Being more representative of stakeholders the Board serves is one way to increase effectiveness. The ability to ask the tough questions, to listen with the courage to what you DON'T want to hear and to have the guts to make the hard decisions- it’s very important director selection criteria. There is nothing wrong with civilized candor. Pointing out that the "emperor has no clothes" usually is helpful. But the great directors and chairs shape corporate strategy. They meaningfully contribute to evaluating options against anticipated trends in the marketplace or of competitors. They thoroughly understand the business strategy, and indeed, they themselves may have shaped it. They can see trends, can identify competition. They can identify emerging and declining players and can specify exact reasons for their success, including that of the company or not. It's not enough to be independent if you can't do those things.

Courage comes with competence. Directors do not push back when they do not have competence, experience, and creativity. You need industrial knowledge to understand business, but you also need "outside the industry" thinking to stimulate creativity for solving the ‘old problems’ in a new way. There is a direct relationship between competence and courage. Put differently, there may be a willingness to act, but an inability to do so. The board simply does not know what to do. The vast majority of companies are caught up in their existing routine. They have blinkers on and do not think outside their industry or business to see threats and opportunities. Or if their strategic planners identify and bring forward such SWOT analysis, it often is ignored. The common mistakes made by board or executives include making business assumptions, but often don’t check if they are right, or others see things as they do. And much of it is due to lack of communication around assumptions, expectations, knowledge, and speculation.

It is the courage, trust, and confidence that allow the board to positively influence organizational performance through the executives. It's more about the boardroom culture engendered by board leaders. It’s all about leadership from the top which sets the tone and governs boardroom culture, behavior, and influence corporate culture and behavior as well.


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