Thursday, March 28, 2019

The Strategic Evaluation of Corporate Board

Strategic evaluation is important because the Board of Directors are required to exercise influence over volatility, manage uncertainty, simplify complexity and resolve ambiguity to lead confidently.

Leadership is all about change and directorship is about steering the business in the right direction. The matter of fact is that rapid changes sweeping the business are hugely disruptive and there is nowhere to hide. The corporate board just has to step into the "VUCA" digital new normal, share their vision, exemplify digital leadership effectiveness, develop strategic perspectives, and walk the talk in driving the business transformation relentlessly. To improve leadership maturity, here are three aspects of the strategic evaluation of the corporate board.

The strategic board composition and refreshment: In the past, recruiting new board members was collegial. Now recognizing that diversity of thought and perspective comes from the diversity of experiences, forward-thinking boards are seeking colleagues from a variety of backgrounds, creating agile boards better equipped to steer their organization in the right direction. In practice, there is a lot that can and should be expanded upon regarding board selection and strategy. The best fit for the board depends on the Board’s current makeup, culture, and which “gap” needs to be filled. If they practice the same “inbox” thinking, without the cognitive difference, group thinking will still rule the day. Digital BoDs need to be multidimensional thinkers who can reflect and offer diversified insight into varying situations and complex business issues, to see things from a different angle, and come out with multifaceted perspectives and balanced viewpoints. Not only do today’s BoDs need to have sufficient knowledge to understand the digital business ecosystem, but also they should have the collective insight to present today and foresee the future. The digital board composition and refreshment are all about digital fitness. The board is responsible for ensuring an appropriate mix of thought processes, capabilities, skills, knowledge, and experience are present or available for it to fulfill its fiduciary functions and improve governance effectiveness. So the board composition needs to embrace cognitive differences, functional differences, and other experience/capability differences. The important issue is how the board accommodates diverse opinions and how they assess them and converge the diverse thought into wise decisions for improving governance maturity. Diversification is a component and in some cases a very good initiation of multidimensional business value creation.

The multi-faceted governance process: Governance is a sophisticated multi-faceted process that if well executed, will lead to better decisions. Corporate governance is not about maximization, but about optimization. Governance is all about conformance and performance. It means to conform to regulation and performing well to achieve business goals. Governance is the framework, and risk management is the mechanism. The board can enhance its oversight capabilities by developing a strong governance model with well-defined mechanisms and interactions through which governance is put into action. Thus, governance and risk management go hand-in-hand. They really cannot exist exclusive of each other. The boards play crucial roles in taking oversight of assessment and appropriation by matching priorities and resources, gauging conditions and choices; and taking oversight of accountability by scoring activities and net results. 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 and seamless strategy execution.

The dual-mode of the board performance evaluation: 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. Good governance must create excellent performance, especially for long-term business growth. In achieving this role, the board needs to be talented enough to vet strategy, work together as a group to speak in one voice, and delegate and monitor business performance they decide not to manage. More specifically, the "performance" oriented board agenda should be focused on the maximization of business performance and potential, business capital allocation, and shareholders’ value. That performance is not limited to financial performance, but also to the firm's performance in creating value for employees and customers. However, the current model is still skewed by too much emphasis on compliance. The companies which have great performance must also have both good governance structure and behavior competencies. Make a fair assessment and get objective perspectives on business performance, gain an in-depth understanding of what’s blocking achievements, targets. As far as evaluating the performance of the board, many boards are evaluating their performance at both the collective and individual levels. Individually, even the majority of BoDs are senior executives, they need to break down the “status quo,” and present learning agility. Competent BoDs present dynamic leadership, strategic thinking, persuasiveness, and mentorship, etc. Collectively, the digital board with a blend of expertise and capabilities can improve the board leadership effectiveness significantly.

In a world with so many over-complex problems, strategic evaluation is important because the Board of Directors are required to exercise influence over volatility, manage uncertainty, simplify complexity and resolve ambiguity in the 21st-century digital environment, in order to lead change and drive digital transformation seamlessly.


Post a Comment