Friday, August 26, 2016

“Digitizing Boardroom” Book Introduction Chapter 3: A Performance-Driven Board

Conformance is critical, but there’s no doubt that the board only fulfills its role to shareholders and the management team when it is focused on performance.

Corporate Performance Management has many descriptors and understanding in a multifaceted way. All performance is directly related to the decisions your people make every day - from executives to the frontline, across functional areas and geographical regions. Performances are not just numbers with metrics, they are numbers in context, results related to your GOALs. The BoDs play important roles in setting principles for improving performance management effectiveness and monitoring business performance smoothly. However, many directors think that the role of the director is conformance. The boardroom debate could be: Conformance vs. Performance, which is more important for the Corporate Board?

Both performance and conformance are important: Boards need to perform and conform at the same time. Because conformance without performance adds very little to the firm value, and performance without conformance is not genuine and sustainable. Compliance is the management discipline of designing and implementing effective steps to ensure that the company actually complies with the regulations relating to its operations. Conformance is about the bottom line of “Keep the Lights On,” and performance is about business growth and achievement. More specifically, the Board’s role, in large part, is to make good decisions that enhance the value creation for the organization, they need to focus on their own performance as well as the performance of the management team, and that performance is not limited to financial performance only, but also to the firm’s performance in creating value for employees and customers. Hence, conformance is critical, but there’s no doubt that the board only fulfills its role to shareholders and the management team when it is focused on performance.

Running a performance-driven Board in a proactive way: A proactive board is more engaged in overseeing the dynamic digital strategy execution continuum. The Board has to have a good understanding of the organization’s strategic direction and its strategic alternatives. The Board needs to be engaged at the most senior levels to help influence and shape the business of the future. The real BoDs dilemma is that driving the business forward is extremely difficult. This means looking into an unknown future and attempting to define the landscape with its risks and opportunities. It also means taking control of the softer issues such as setting policy, strategic thinking, setting risk appetite, etc. Boards need to make laser-focused performance driven agenda: At the majority of the time, the board agenda should be focused on the progress toward the goals, targets, schedules., etc. of the value maximization plan. Further, much of the process or deep discussions around the progress is the process that facilitates high-level management accountability.

The Board Time-Management capability: The boards have to spread their limited time on many important things, and they need to have superior time management skills. It is an almost universal finding that the Boards spend too much time on compliance or operational issues at the expense of the future. Most Boards perhaps find hard to focus on performance, because it deals with a lot of uncertainty and unknown. Ideally, some suggest Boards should spend 20% of their time in the past (compliance), 20% in the present (Operational and tactical), and 60% in the future (performance and potential) This is challenging, but the board effectiveness is dependent on how it can direct the business forward with adequate control and balance them just right.

Modern “Boardship” is both art and science, With the rapid changes and explosive information, the digital board needs to be performance-driven in a proactive way, business strategy, performance, human capital, culture changes are all frequent topics at the board room to practice digital leadership cohesively.


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