Organisational Change Management Volume 2

Role of Boards

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. The Board members need to recognise their correct role, ie performance and conformance. Directors' jobs are to ensure the long term success of the organisation by focusing on

- formulating the organisation's policy

- doing the strategic thinking for the organisation

- supervising management rather than trying to manage from the boardroom

- ensuring full accountability

(the first 2 are about performance and the last 2 about conformance)

Furthermore,

"...it is generally accepted that boards have principal responsibility for the appointment and removal of chief executives, approving the strategy, plans and budgets of corporations, for approving expenditure above designated limits and remuneration of senior executives and for a range of documents that a corporation is required to produce. Recent legislative changes have seen some boards focus their attention on new and non-traditional areas. For example, the exposure of directors in some states to personal criminal prosecution and liability (including possible jail sentences), in some cases involving breaches by corporations of occupational health and safety legislation, has seen boards adopt a much more hands-on approach in an area that......was viewed by many......as being an operational issue......they represent a defensive reaction to new regulatory requirements......good corporate governance, so we are encouraged to believe, is a proxy for a well-run corporation. This argument assumes that if all the processes are in place and working well, the corporation is in good shape..."

John Fast 2008

"...Boards...... are working overtime to comply with new reporting requirements. To keep pace, they're overemphasizing committee work instead of harnessing the intellectual power of the whole board to deal with complex matters. Instead of working collaboratively with management, they're creating or perpetuating dysfunctional relationships that cast directors as corporate police who enforce rules and trace managers' missteps, rather than guides who help managers choose the right path. Further, boards' long-standing focus on short-term results has intensified..."

Jay W Lorsch et al, 2008

On the other hand, with corporate governance there is

- no one best corporate governance index or benchmark

- compliance with some corporate governance metrics are expensive and do not necessarily add value

- there is no consistent relationship between governance indices and measures of corporate performance

. For Boards there is an almost unresolvable tension between driving a business forward (performance) and keeping it under prudent control (conformance). Furthermore,it has been suggested that the organisation's culture in a responsibility of the Board, ie

"...boards have a primary role in setting and maintaining the ethical standards governing interactions between corporations and their stakeholders..."

John Fast 2008

. Many directors need to learn the difference between directing and managing. Most directors confuse management with directions

"...most Boards aren't interested in the future, they do not have any systems of measuring the risks and probabilities of the future, so they tend to over-manage the business because that is where directors are normally promoted from, so they know a lot about that

......people who become directors......have as their preferred style of thinking what we call "soft facts"‐ an immediate sensing of what's happening right now. So when they are sitting around the board table, they are hyper political about what they do. Unfortunately, their second preferred higher-thinking style is logic and rationality. So they are absolutely brilliant at post-rationalising what they have just done to another..."

Bob Garrett as quoted by Helen Trinca, 2003

. Getting the right mix of personalities, skills, ability, expertise, etc on a Board is important, ie

"...in putting together a board you're assembling a team, so when you look to appoint the directors you look to see where the gaps in the skills, not just what we have now but we think we're going to need...... board renewal is not just about putting new faces around the table, it's keeping the skills set around the table relevant to the company's needs..."

Linda Nicholls as quoted by Patrick Durkin, 2015b

"...how directors relate to one another depends on the boardroom dynamics. Good chemistry requires a high degree of trust, candour and quality dialogue, both informal and formal. Board dinners, for example, provide offline interaction and are a good way to unearth governance problems. Independence can be overrated......the chairman's role as a leader can make or break the boardroom, but there's no need to split the role up from that of CEO......It doesn't necessarily lead to better financial returns......there is no link between board performance and whether or not the chairman and chief executive's role are split......performance-based boards will help curb bad decisions......A lot of energy should be put into the selection of board members, with attention paid to how they interact, skills and competencies, and a person's ability to have their noses in, but fingers out of, daily affairs. Competency-based assessment of boards might also assist more women to crack the boy's club mentality of boardrooms. The model boardroom......is drawn from a global talent pool and directors are employed on performance-based contracts..."

Richard Leblanc as quoted by Brad Hatch, 2006

. Ten typologies of directors are assembled into 2 categories: functional and dysfunctional

Functional

- conductor (possess good interpersonal skills and have a keen interest in corporate governance; have superior leadership skills and act as the hub of board activity)

- change agents (catalysts for bringing about key changes in organisational structure and operations)

- censensus builders (conciliate and resolve conflict through interpersonal and communication skills)

- counsellors (have a higher level of respect and credibility; they are strongly persuasive and have the ability to work one-on-one as coaches, connectors, mentors and negotiators)

- challengers (ask tough questions; know when to speak, what to say and how to say it; their questions prompt managers to rethink key decisions)

Dysfunctional

- caretaker (runs meetings ineffectively; cannot manage interpersonal conflict and dissent; has a poor working relationship with other stakeholders)

- controllers (dominate board process through skill, tact, humour or anger; particularly dangerous when working with other dysfunctional types)

- conformist (don't perform but support status quo; avoid any serious discussion; can be well liked owing to past success or relationships)

- cheerleaders (enthusiastic amateurs who give unlimited praise to others but are unprepared; often ask inane questions)

- critics (continually criticise and complain in undiplomatic ways; appear manipulative, sneaky and lack constructive dissent)

Some more types of difficult directors
i) hobbyhorse jockeys (too focused on their own areas of expertise, seem to wear blinkers)
ii) in-over-heads (don't fully understand the challenges of the business)
iii) non-stop talkers (ego or insecurity results in directors talking too much and not moving the conversation forward)
iv) police (view their role as keeping management honest, rather than being supportive)
v) nodders (just go along with things and are prone to group think)
vi) hesitators (fail to speak up in a timely way)
vii) uncommitted (appear to be going through the motions)
viii) hand-grenade throwers (argumentative, hostile and obstructive)
ix) captives of compliance (rules and regulations dominate their approach)
x) egocentrics (build careers around their own egos)

. It has been suggested by John Fast (2008) that the effectiveness of the Board can be measured by the way the senior executives perform and the legacy they leave. With the declining length of term of senior executives (5 years) and/or bringing them from outside the organisation, their full impact may not be felt until long after they have left. Furthermore, the attitude of the senior executive to his/her Board will have an impact on things, like

- the flow of information between management and the directors so that the directors have the relevant information for good decision-making,

- the delegation of responsibilities from the Board to senior executives

The 2003 Higgs Review (Ann Hyland, 2015c) stated that a major part the board's role is to focus on strategy, rather than simply approving proposals that should be decided by management. The 2009 Walker Review on corporate governance in British banks and other financial institutions went even further by advocating the devil's advocate role of the board in the form of stress-testing management proposals. In its view, the board occupied a critical role in challenging strategic proposals put forward by senior management. Early challenges by the board on questionable strategies can avoid much shareholder pain later.
If the strategy is not working then there is a need to address the situation by changing senior management and/or the Board; as the latter endorsed the strategy, they are as accountable as senior management.

The length of time a person should be a member of the board and/or senior manager is debatable. Generally it is felt that a decade is a good time to be a member of the board and/or senior manager. Also, 3 years is generally enough time for a board to determine whether a CEO's strategy is working. On the other hand, tenure should be based on performance; one key indicator of performance for listed companies is the stock price. If it is low, there is considerable pressure to change.

Recent USA research (James D Westphal et al, 2007) shows that white males are favoured in board appointments when compared with women and ethnic minorities

. The importance of independent, non-executive directors is highlighted:

"...1. Brings a depth of experience to the board with some knowledge of the industry involved

2. Is a team player who leaves their ego at the door

3. Is an industry advisor, able to challenge as well as support

4. Is articulate in communication and a good listener

5. Is committed and prepared

6. Has a sharp mind and good judgment

7. Is visionary, creative and passionate about business

8. Can build strong relationships and act as ambassador

9. Is self-confident without being dogmatic

10. Is prepared to enrich their contributions through feedback..."

Don Argus as quoted by Patrick Durkin, 2010

How to get selected on a Board

"...1. Be patient - it takes time to build a good portfolio of boards.

2. Have realistic expectations because winning board seats is a competitive race

3. Accept board roles on companies that operate in industries you like

4. Remember you are building a board career. Board vacancies do not arise seasonally so invitations won't always arrive at the most suitable time

5. Be prepared to look at suggestions. These opportunities might not necessarily be to join a board, but they may place you in the running for other board roles that might crop up

6. Build up a mix of board types and structures - listed, large private, public unlisted, subsidiary of an overseas company, a government board, a not-for-profit organisation

7. Focus on what you can do for others and how you can be useful to an organisations..."

Irene Nativadad as quoted by Ann-Maree Moodie, 2010

. Once appointed to a board it is suggested that one

"...learns quickly by thoroughly preparing for board meetings, attending site visits and studying the industry, and especially the competitive companies......you should do politics with a small 'p': never surprise a CEO and ask a question you didn't raise in a committee......learn how to have allies; share an idea with another director. Don't be the only person carrying water for a specific suggestion that you want to make. Maybe it is not you who raises the question; maybe it's someone else. And when they see you as part of the team, then they will trust you more..."

Irene Nativadad as quoted by Ann-Maree Moodie, 2010

. Networking is an important part of being a board member. Understand the

"...huge value of having colleagues who know you, like you, respect you, understand how you think, know what work and experiences you have had and they will think of you when somebody asks for suggestions for board member..."

Kate Spargo as quoted by Ann-Maree Moodie, 2010

Generally males are better networkers than females.

(sources: Helen Trinca, 2003; Richard Leblanc, 2005; Brad Hatch, 2006b; James D Westphal et al, 2007; John Fast 2008; Patrick Durkin, 2010; Fiona Smith, 2010m; Ann-Maree Moodie, 2010)

 

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