Wednesday, March 31, 2021

Abilities of BoDs to Handle the "Shade of Grey"

BoDs need to develop a shared view of crucial issues, promote a deeper understanding of core systems, advise the business management to build transformative competencies, and improve the organizational maturity.

The corporate board directors assume the dual role of guidance and governance steering, whilst leaving the day-to-day leadership/management processes and practices in the hands of the C-level executives and holding them accountable in achieving performance outcomes. 

Fundamentally, the corporate board’s responsibilities include taking control of the softer issues such as strategic thinking of GRC, making good policy, setting risk appetite, etc. In practice, can BoDs gain an in-depth understanding of the shade of grey, make a positive influence, and steer their organization towards the right direction in the “VUCA” new normal?

Understanding the” shade of gray” enables the BoDs to make decisions at strategic level: The emergence of potential opportunities for exploring digital transformation is likely to follow the nonlinear patterns. To survive and thrive amid blurred territories, constant changes and unprecedented uncertainty, corporate leaders such as corporate boards should present multidimensional intelligence to understand the “shade of gray” for making strategic decisions to adapt to the digital new normal, in terms of “right, wrong or marginally right or wrong,” reclaim the right balance of chaos and order, process and creativity, standardization and flexibility, etc.

In order to make sound judgment and advise, today’s corporate board directors are open minded and inclusive to capture varying perspectives, gain empathy from another point of view, more flexible to share the “right” things with others, be open to “wrongs,” not necessarily real wrong, perhaps the complementary viewpoint to co-paint a big picture of the world with full spectrum of colors on it. The key to digitize the boardroom and deal with the “shape of gray,” is to integrate the next generation of leaders, tap into their way of looking at the world, solve problems with very collaborative working styles.

The good policies set by the corporate board help business managers balance control and autonomy: Policies are set at the board level, and it’s the communication from the top. The policies help businesses thrive within the massive gray area of digital management when they are based on the purpose of what value the organization delivers to the customers and supported by appropriate systems, technologies and support to the people. We do need to not just develop positive policies but also align attitude and actions with them. The BoDs share collective insight upon key issues, with ability to address the critical differences between governance and policy issues, practice board rejuvenation processes etc, enable business management to balance control and autonomy.

Both businesses and the world become over-complex, hyper-connected, extremely uncertain and ambiguous than ever. Paradoxically, even the rules, which are made by humans come in for questioning, the governance rules include, but not limited to improving the functioning and transparency of the company, its business strategy, and management performance. Either setting good policies or making decisions at the board level, the effectiveness of strategic decision making has to weigh in multiple factors and needs to search for profound business insight.

Corporate BoDs sets the risk appetite of the organization, etc: Business is still fundamentally looking at risk in a negative context but more often than not, risks and opportunities co-exist in today’s business dynamic. The real BoDs dilemma is that driving the business forward is extremely difficult. In terms of risk avoidance and the risk-tolerance culture, there is grey area in between, the key is balance. There are two types of risks: negative (loss of value, money, and business) & positive (opportunity to make money, expand the business, and create value). There are planning risks, operation risks, innovation risks, expansion risks or reputation risks, etc. Some risks can be quantifiable; others can only be approximated. To improve organizational resilience, corporate boards need to oversee business risks, give enough autonomy to the business to make its own decisions on taking or avoiding risks.

Digital transformation represents a break from the past, with a high level of impact and complexity. Building a risk intelligent board requires multidimensional thinking, asking profound questions, taking a periodic risk assessment; weighing on risk and reward, identifying both business risks and opportunities, and focusing on governance effectiveness. It’s important to evaluate how robust the organization's risk assurance systems are. BoDs do not manage risks but oversee risks, adapting risk context at point of analysis to identify the upside can make a significant impact on unlocking business growth potential, and ensure that management has put in place an effective risk-management process and a set of the best and next practices.

BoDs as senior leaders, need to adjust their attitude to see the full spectrum of colors, understand the “shade of gray,” embrace the seemingly paradoxical point of views in order to practice leadership holistically. They need to develop a shared view of crucial issues, promote a deeper understanding of core systems, advise the business management to build transformative competency, and improve the organizational maturity.


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