Thursday, May 14, 2020

The Corporate Board’s “Balance” Practices

The new breed of BoD as the directorial role should be able to think outside the box, bring a fresh viewpoint to pinpoint the possible blind spots, and strike the right balance to improve leadership maturity.

The role of corporate board members should always focus on the strategic initiatives of the organization amidst the mounting pressure of governance, regulatory compliance and risk management responsibilities, enable and direct the management towards good outcomes, develop the best and next boardroom practices, and ensure the business is on the right track to reach well-defined business goals.

Here is a set of “balance practices” to improve the corporate board maturity.

Information & Intuition: Words like "information" or "data" have a variety of meanings such as colloquial, professional, and technical. Information and decision-making are intimately connected and interdependent. The corporate board’s role, in large part, is to make sound judgments or effective decisions that enhance the value creation for the organization. Often the current governance models can't enable NEDs to get enough information to hear the whole story. With the exponential growth of information, the challenge for the board leaders today is about discovering how and where to find valuable information, how to discern information they trust from information overflow; not just to absorb the information being fed by the management, but to pull out the information they need and also learn what to ignore.

For decision-making to be effective, the decision-maker must have proficient knowledge and sound judgment skills to make their decisions rich in information and significantly different from the available data. There is much to be done in terms of having appropriate competencies such as information savvy around the board table to deal with all aspects of decision effectiveness, governance responsibility, and leadership maturity.

Besides information, intuition has its place in decision-making. In fact, effective decision-making is based on the right balance of information and intuition. People have different ways of accessing their intuition and “knowing” when they have made a good decision. Intuition matters, but clarify your gut, pay more attention to the unconscious bias. Breaking the "problem down," rather than making one big "gut decision," can reveal inappropriate bias, and creates an audit trail. The board of directors as decision-makers can balance the updated information mixed with the right amount of guts skillfully, in order to make the right decisions at the right time to lead their business forward effortlessly.

Performance and Potential: In achieving the role of the performance monitor, the corporate board needs to focus on the performance of the management team as well as their own performance. The "performance” responsibility of BoDs should be focused on the maximization of the business capital allocation and improvement of the shareholder’s value, monitoring the progress toward the strategic goals, targets, schedules., etc, and enforcing high-level management accountability.

Ultimately, the corporate board takes the praise or the blame depending largely on their abilities to influence the business outcomes. High-performing boards also set goals for their own performance and regularly evaluate how they are performing as the board and where the board’s performance bottlenecks are, and make continuous improvement.

Potential is an investment for future performance. Performance enables business survival, but potential makes the business thriving and leaps the organization to the next level of the growth cycle. To unleash the full potential of the business, corporate board leadership needs to be future-oriented and further-looking, with a clear business vision and a broad range of business perspectives, accelerate performance, and unleash the collective potential in order to lead forward confidently.

Risk & Reward: In business, every day is a risk, but when a company embarks on a growth strategy, the risk curve will always be greater than business as usual approaches. One of the obvious issues raised by many significant business failures is the failure of governance. Those risks which exceed appropriate thresholds should come to the attention of the BoDs. The BoD has the responsibility for setting the risk appetite and risk framework for an enterprise on the advice of management where that function exists and is resourced appropriately. They need to ask tough questions and enforce GRC discipline of the business.

Every risk has opportunities in it, and every opportunity has risks in it. Risk & reward co-exist. To steer high-performance and high-innovative organizations, risk avoidance is not sufficient, the corporate board today needs to be risk-aware and risk-intelligent, identify both business risks and opportunities, and manage them accordingly. More specifically, their role is to identify and present potential strategic alternatives uncovered by disruptive technologies and marketing needs. Boards also oversee other broad areas like governance, investing, and enterprise architecture, etc. This will help them with foresight, build a roadmap or blueprint to radical business transformation.

Due to the “VUCA” characteristics -complexity, uncertainty, ambiguity, and velocity of the digital era, the directorship in any organization becomes more critical and challenging. The new breed of BoD as the directorial role should be able to think outside the box, bring a fresh viewpoint to pinpoint the possible blind spots, and strike the right balance to improve leadership maturity.


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