Why do some boards achieve their collective potential as strategic groups while others fall well short? Meena Thuraisingham, author of Identity, Power and Influence in the Boardroom, explains how non-execs can become more influential in their strategy-shaping responsibilities – and how boards can become more strategically active
The involvement of non-executive directors (Neds) in strategy can range from simply endorsing it at one end of the scale to actively shaping it at the other. This is because, while Neds might share a belief in their accountability for strategy, they may choose to exercise this accountability in different ways.
History is littered with examples of companies that persisted with a strategy when it was no longer working. Research published last year by Accenture showed that 41 per cent of the “consumer-centric” firms that had been on the S&P 500 in 2000 had since been acquired or gone out of business, suggesting that businesses are not transforming themselves as fast as the world is changing. Accountability for the failures may, in part, be attributed to their boards for not acting soon enough to alter their strategies or pivot their business models.
Challenging legacy thinking
Boards urgently need to play a more strategically active role, but the problems that large, well-established enterprises face in challenging the status quo cannot be underestimated. It requires fighting fundamental instincts and tendencies about the way that big companies work and how their performance is evaluated.
Large organisations with legacy structures and cultures often have trouble adapting their business models to rapid changes in their markets. In addition to all the emotional energy invested by the management team and board in the existing strategy, other factors may conspire to constrain the potential of a strategically active board. These include:
* A crowded agenda that leaves little room for an ongoing discussion of strategy. The average board spends 70 per cent of its time on reporting, budgeting and compliance matters, according to McKinsey.
* Management teams and boards trapped in a “once a year” rhythm, resulting in strategies that quickly lose relevance in a fast-changing marketplace.
* Neds’ concerns that crossing the red line and drifting into the management’s domain may have the unintended consequence of denuding the board’s oversight role.
* A consensus-driven board culture that may view the robust contention of ideas as non-collaborative or even disloyal.
* Neds’ varying reactions to a CEO viewed as unwilling to involve the board early enough on strategic matters and give it sufficient scope to shape a given strategy.
A strategically active board
So how can boards strengthen their impact on strategy? This is a relational exercise at its core. The very idea of a board is based on the belief that governing a company is beyond a single individual and that the collective capability of a group of highly experienced individuals is better suited to the task. The implicit assumption, then, is that the quality of working relationships on the board enables it to maximise its collective potential as a strategic group.
My research indicates that strategically active boards have four key characteristics:
* Directors who possess “board capital” required to bring greater cognitive and ideological diversity to the task of shaping strategy – which goes beyond sectoral and functional experience – and who are skilled at constructive dissent.
* Neds who operate as a group, with a shared view about their accountability for strategy and how to exercise it. Together they own the decision-making process, as well as the resulting decision, to avoid fragmenting the collective influence of the board.
* An intuitive chair who is skilled in facilitation. Alert to people’s unspoken concerns on the way to building a clear consensus, they can create the psychological safety required for all directors to feel that they can speak their minds.
* Boards for which the quality of debate is as important as good agenda management. They have relatively little procedural rigidity, which allows for open, emergent thinking and collective reflection.
Changing the current paradigm
For a board to thrive, it is not enough for its members to have a deep understanding of their company’s industry, a commitment to continually improve this knowledge or a focus on the lag and lead measures of success in the sector concerned.
To prosper individually and collectively, Neds must strike a fine balance between their propensity to influence and their propensity to be influenced. This balance is achieved only through the traits of courage and humility: the courage to take a lone stand when necessary and the humility to know that one doesn’t have all the answers.
That is to say that a board’s effectiveness relies on its members’ underlying propensities and traits in addition to experience and skills. These propensities are often deeply embedded and difficult to change.
A director can learn more skills and adopt new strategies to moderate their natural tendencies, of course. But it demands deeper reflection and a whole new awareness of those tendencies that make us less effective. This challenges the skill-based board paradigm, which has held sway for decades in director selection and board-renewal efforts, as being far too narrow an approach.
Above all, strategic renewal requires boards to shift their focus from skill to contribution, acknowledging the broader construct of board capital as a means of bringing greater cognitive and ideological diversity to the processes of influence and acknowledging the propensities required to use one’s board capital effectively.
It also requires directors to cultivate a taste for both harmony and discord, especially at a time when many companies face massive disruption to the strategies and business models that once made them successful.
MEENA THURAISINGHAM is the founder and principal of BoardQ, a niche advisory practice that guides boards and top teams in Australasia and the UK on effectiveness, development and renewal. She is a non-executive director at the George Institute for Global Health, a graduate member of the Australian Institute of Company Directors and a member of Australian Psychological Society. She is also an alumnus of London Business School and the University of Manchester.
She discusses the idea of “board capital” and offers further strategic guidance in Identity, Power and Influence in the Boardroom: Actionable strategies for developing high impact directors and boards, which is out now, published by Routledge.