Five Common Boardroom Mistakes Might Fail the Business for the Long Run

Directorship is about setting directions and inspiring progressive changes; when necessary, break down the old rules, and establish digital principles and distinct landscapes.

The purpose of the governing body, such as the board of directors, is to direct the organization in the right direction, monitor its performance, and set good policies. A highly effective board enables and directs management towards great business outcomes, and ensure the business is on the right track to reach well-defined business goals. However, the real boardroom dilemma is that driving the business forward is extremely difficult in today’s “VUCA” digital new normal. Here are five common boardroom mistakes might fail the business incidentally.

Fail to dig into the root cause of the crucial business problems: The corporate boards play the directorial role by scrutinizing both organizational vision and strategy to ensure business effectiveness, fueling the passion and guiding the top executive teams in the right direction. Boards oversee business strategy and fundamentally, the strategy is about diagnosing crucial business problems, making good choices, and taking actions for achieving well-defined business goals. The corporate board qualifies the areas of the organization by reviewing important business components such as key strategies, mission, vision, brand, and performance targets. The corporate boards bring the outlier’s view and often have the multidisciplinary understanding of crucial business problems, mainly at the strategic level. In fact, assessing and defining the problems is usually more important than solving them at the board level. Directors need to be able to guide senior management team through effective questioning, coaching, advising, defining and making the assessment of the critical business issues, as well as monitoring the process for business problem-solving accordingly. It is fundamental but critical to figure out what exactly the problem is. Trying to fix the wrong cause of a problem will waste time and resources, increase anxiety, and stifle changes. Besides applying critical thinking to assess the real issue, it’s also helpful for leveraging Systems Thinking to identify multiple, and perhaps interconnected problems, so later the business can figure out the holistic solution to fix them radically.

Ignore the early symptoms of dysfunctional management practices or enterprise risks: Contemporary corporate boards play significant roles in guiding businesses in the right direction. A digital-savvy board will have the advantage of scrutinizing both hard and soft business success factors, diagnose the early symptoms of dysfunctional management and business risks, and pulling enough resources and setting digital tones for driving changes. They are able to sense that the digital transformation is multifaceted and highly volatile, help the top management identify blind spots, clarify priorities, and avoid pitfalls on the way. The trick is to recognize negative trends early enough to change direction. Ignoring the early symptoms of dysfunctional management will cause devastating failure in the future. The board plays a crucial role in diagnosing the overall health of the business management by asking tough questions, such as: What are the contributing environmental factors and behaviors? What are the needed changes in behavior, process, communication, accessibility, engagement, or practice? Do you inspire open conversations about the work environment? Which core business competencies underpin the business strategy? Which products or services in which markets with what emphasis should the business work on? Which capabilities need to be developed or acquired to make that happen? Which processes need to be improved or transformed? What capacity for marketing, sales, manufacturing, and management, will you need? etc. BoDs do not manage risks but oversee risks. Developing forward-looking assessment framework, that is able to identify risks and catch attention at the board level in a manner that brings about the right conversation regarding risk management among the board members. The board must be comfortable that management is identifying and appropriately responding to risk, and that the board itself is apprised of the most significant risks facing the company.

Underestimate the importance of information and technology and innovation oversight: In the digital world with enormous transformations, more often, technology is the disruptive force or game changer. Underestimate the importance of information and technology at the board level would significantly limit the potential of the business. IT-friendly board should change the perspective to understand the power of information and the potential of technology. It's a clear signal that boards need a set of competencies within their ranks to demonstrate knowledge of business architecture and the business use of the nexus of digital technologies that are increasingly driving growth. Board Directors are particularly involved in overseeing and understanding of more traditional IT issues, such as the status of IT portfolio management and their companies’ annual IT budgets, as well as overseeing and understanding risks related to compromising customer data. Innovation happens at the intersection of market insight and technological know-how. Innovation is increasingly technology-dependent. Innovation is simply too critical to delegate to the management without the board oversight and guidance which helps in prioritizing the innovation as a key strategy.

Lack the in-depth understanding of diversity: Conventional wisdom defines diversity based on physical identities such as gender or race, but even you have the seemly diverse group of people, if they practice the same “inbox” thinking, without the cognitive difference, group thinking will still rule the day. Develop a truly heterogeneous board with the cognitive difference, diverse background, the variety of experience and fresh perspective, is important to fill leadership blindspots, bridge insight gaps, make sound judgments, and improve decision effectiveness. “Diversity of thoughts” should be the deciding factor for the board to embrace inclusiveness. ‘Thoughtful candor' at the board is offering a different way of thinking about a situation or problem that moves the conversation forward. The important issue is how the board accommodates diverse opinions and how they assess them and converge the diverse thought into wise decisions.  High-performance board directors are real "thought partners" with senior management as they bring up the fresh viewpoints, pinpoint crucial issues that the management perhaps ignores, and consider the long term goals beyond quarterly earnings. If boards set the leadership tone for embracing cognitive diversity and appreciate independent thinking, people at the different level of the organization will start to think, understand, learn and work together leading to better decisions and greater performance.

Blur the fine line between governance and management: Governance, which is over sighted by Board of Directors, is about the act of guiding, influencing and regulating the decisions and behaviors of the entire workforce, management included, to drive multi-dimensional and sustainable value-creation to the shareholders and customers. Governance is all about conformance and performance. It means to conform to laws/regulations etc, and performing well to achieve business goals. However, to lead effectively, Board Directors need to understand the difference between being a director and the operator of the business, to avoid conflict,  bureaucracy, or unnecessary management complexity. To avoid micromanagement, boards are more as problem-definer than the direct problem-solving because they often delegate the well-defined problems to management for solving them or implementing solutions to tailor varying circumstances. Corporate governance operates by the BoDs should delegate authority downward to a series of governance committees and boards with responsibility for investment, risk, compliance, finance, compensation, architecture, policy, etc. Effective governance facilitates the successful functioning of an organization while ensuring there are adequate controls in place to operate responsibly in accordance with its values but not to the extent of restricting the aspiration to achieve its vision through an ambitious mission.

Directorship is about setting directions and inspiring changes; when necessary, break down the old rules, and establish digital principles and new landscapes. Driving the business forward through the sea of changes and frequent disruptions is extremely difficult. This means looking into an unknown future and attempting to define the scene with its risks and opportunities. The challenge of managing change today is tough, and those firms that have highly effective board leadership and excellent management expertise can tackle challenges effortlessly, and leap forward confidently.

Posted in: Board Room,Digital Pitfalls,Lessons from Failures