Monday, April 24, 2017

Exploring the Boardroom Fundamentals via Inquiries

Good boards advise and get all those fundamentals right.

The contemporary corporate board as the top leadership and directorial role plays a significant role in advising and monitoring the organizational management, overseeing the business strategy, guiding businesses toward the right direction and achieving expected business results. Due to the “VUCA” characteristics -complexity, uncertainty, ambiguity and velocity of the digital era, the directorship in any organization becomes more critical and challenging. However, many BoDs are undereducated about their role and responsibility while the business change is accelerated across the global scope and knowledge life cycle is shortened. How to explore the boardroom fundamental via the set of inquiries in order to improve its effectiveness and directorship maturity?

What is the ultimate purpose of the Board of Directors (BoD)? The purpose of the governing body, or board of directors, is to direct the organization in the right direction and monitor its performance. Corporate governance is to make sure that management is doing its job properly. According to the laws of the jurisdictions in which the organization is domiciled and in which it operates. This purpose is generally known as “corporate governance.”  While “corporate governance” can be modeled in general terms, and while certain aspects of corporate governance are heavily regulated in some jurisdictions. There is no standard model for corporate governance because the context for corporate governance includes a wide range of circumstances and capabilities which are subject to constant variability. So the governing body (BoD) must define the management’s job, which is embraced in the purpose, objectives, strategy, and policy of the organization, and must monitor the management’s performance and conformance in order to verify that what was specified is what is actually happening. So the governing body needs to develop a good sense of the appropriate scope of decisions, and what is pertinent to its role versus what is really the purview of management.  

How effectively do the boards engage with management on the company’s strategy? The Board's role is to pull management out of the trees to see the forest. They see the development of strategy as a collective effort between themselves and management, rather than a question of “us versus them.” Management generates and shares ideas that stimulate debate among directors who are there to make positive, valuable contributions to strategy development, to ensure there is a strong context for establishing the tactical choices when the surprises that will invariably show up. Great boards consist of independent directors who are “rowing together in the boat,” not just to provide a critique of the ideas they are presented with. The challenge also includes converting vision to clear marketing and executable management processes. This implies that Boards of the future will need to work much more closely and collaboratively. Given the short amount of time they spend together, this could be one of the biggest challenges.  Board is to fulfill its fiduciary responsibilities to its stakeholders, it needs to be more than a rubber stamp.

How to solve the paradox of management vs. governance in the boardroom? The paradox is “a situation, person, or thing that combines contradictory features or qualities.” Strategy management and business governance are complementary functions. Strategy manifests the ‘AS IS” & “TO BE’ state of the organization. The complementary point is: Strategic planning is part of the strategy development process that starts with strategic thinking, then goes to strategy formation and ends with strategic planning. In these processes, you often meet many paradoxes, such as logic vs. creativity in strategic thinking or revolution vs. evolution in strategic planning. That is why the strategic planning is usually left out of corporate governance, as you would not like to either have your future strategy constrained by the current corporate governance or the corporate governance weakened by too much creativity. Corporate governance could be part of strategic planning because if it isn't, strategic planning becomes a synonym for wishful thinking - corporate governance is where resources are allocated to turning the strategy into a reality.  Though there are other dimensions to corporate governance that aren't associated with strategy, just as there are dimensions of strategy that never have anything to do with corporate governance.

Is the Board of Directors directing management effectively and appropriately by establishing objectives and defining operational and management parameters limiting management authority? Ideally, no manager should govern their own function, each function should have a governance group. Corporate governance operates by the Boards of Directors delegating authority downward to a series of governance committees and boards with responsibility for investment, risk, compliance, finance, compensation, architecture, policy, etc. If the board is effective and efficient by results and by how well the organization is connecting all the right dots (people dots, awareness dots, policy dots, regulatory dots, lessons-learned dots, information dots, process and capability dots. etc.). Connecting all the right dots is critical because strong evidence from business studies revealed these organizations had handbooks, policies, incident reporting, annual/general training, threat assessment teams, but they failed to prevent preventable incidents because their organization was not equipped to connect all the right dots and their people were not equipped to do the right things and not equipped to do all the things their policies, obligations, and regulations say they should do.

Is the Board of Directors monitoring and evaluating management and operational performance to ensure efficient and effective progress toward objectives and compliance with operational and management parameters? Ultimately the board’s performance is reflected in the performance of the organization. However, there are shorter-term perspectives through which one can assess whether the board is effective. Because if the board is effective then so too should be the management and the activities of the organization. Going a little deeper though it is the effectiveness of the Board of Directors in delegating to the senior management team and holding them accountable that supports the management team in achieving outcomes. Digital boards need to focus more on: (a) an integral and increasingly important aspect of business strategy development; (b) an integral and increasingly important aspect of ongoing business viability; and(c) business capability development. They should monitor and evaluate management and operational performance to ensure efficient and effective progress toward objectives and compliance with operational management parameters.

Good boards advise and get all those fundamentals right. They take compliance lens to ensure nothing is broken; great boards set the digital principles, accelerate business performance, and improve organizational maturity. In a world of well-defined problems, directors are required to exercise leadership influence over volatility, manage uncertainty, simplify complexity, resolve ambiguity, and to direct the organization to the long-term prosperity.


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