This article was published in the Governance – Issue 24, February 2015
Eddie Kilkelly explains why each member of the board must remain engaged and up-to-date even when operating at a strategic level if the board is to provide effective governance.
Effective boards share a number of characteristics that underpin high performance, collaboration and teamwork. Once the board has developed a vision for the future of the business and stated a clear and concise set of values that are easy to enact, it must take the crucial next step of developing people and their soft skills to deliver the vision while retaining clear governance over the organisation.
The goal is to combine the optimum mix of personalities and perspectives on the business, balancing knowledge and expertise among board members to create an effective board. All members must have a strong commitment to deliver the vision of the business. Most businesses, with just a couple of workshops, could develop a balanced plan with a shared vision and agreed corporate values – arguably this is the easy bit. Establishing trust and respect among the members of the board comes later and does not happen overnight.
Researchers have found that a combination of trust and oversight is key to high-performing teams – or boards. Researchers De Jong & Elfring confirmed this link, noting that leaders need to engage in managing interpersonal relationships and fostering trust among members. Creating a board with a good balance of skills is one thing; ensuring it operates effectively is quite another challenge. An effective board must have the emotional intelligence to engage well with the business to determine whether the vision is working.
There are four main questions that an effective board must continually ask. Is the plan working? Is the vision still the correct one or has the market changed? Do we have the right people and are they in the right roles? Is our business growing as well as it should? Even if the right building blocks are in place to have an effective board, to be effective the board must be constantly engaged and working well with people so that it can answer these four questions at any time to ensure good governance.
Avoiding temptation
Even an effective board can make mistakes and there are major temptations lying in wait. There is a temptation to boil all the performance metrics down to one number – margin. If the profit margin is good, it is easy to think everything is working well but margin, despite being important to the business and the shareholders, is rarely the best indicator of performance. In fact, a healthy margin can mask a lot of underachievement. The market might be buoyant so the company is growing its bottom line but in fact it might be underperforming in key areas.
Another temptation for the unwary is to overlay lots of controls, structures and levels of authority on to governance frameworks. There is a real risk of creating a straitjacket for the business that stifles innovation and becomes very expensive. If every time something goes wrong the organisation puts another control in place, before you know it nobody can move. There is a need to aim for a governance framework that strikes a balance and will enable both clear decision-making and flexible innovation.
Choose the right projects
In order to be effective and to deliver good governance it is vital that the board has a blueprint for the future of the business. This should set out clear strategic objectives and all of the projects should cascade from them. If businesses choose to pursue the right projects that fit with the strategy then there is less likely to be disagreement and people will understand why certain decisions are being made.
Strategic projects are usually agreed at a high level but most businesses also run a number of more informal, under the radar, projects that can impact the ability of the organisation to pursue its strategic direction. An effective board can corral these types of project more easily if there is a clear and shared vision. For example, if an organisation plans strategy to expand into China, yet someone wants to launch a campaign to target another non-core region then this new project can be challenged on clear grounds that are understandable to everyone. Tactical projects are fine provided they are agreed and do not distract from what is important.
Choose the right people
Businesses also need to have a clear set of unambiguous values and, from board level downwards, the right people to live these values. If organisational value statements are wordy or there are just too many values, then people will be unclear as to how they are supposed to behave. Simple value statements are best – ‘deliver fast and do a great job’ is hard to misinterpret. It then becomes very easy to see whether the values are being demonstrated.
If it is difficult to find evidence that employees are demonstrating these values then perhaps the business may have the right people in the wrong roles. It is vital to consider how to display business values in any succession plan for bringing new people into the business, particularly in boardlevel roles.
Ask the right questions
With the right projects and people in place, the board can then move on to think about acting in a different way, to develop a flexible governance model and to engage with people effectively so that they can innovate, make decisions and adapt.
Board members can find it challenging to operate at a strategic level while trying to engage with people running projects at a detailed level. However, it is not appropriate to abdicate responsibility for the detail of projects in every case. Similarly, micro-management is rarely an effective strategy for members of the board. Unfortunately, there is no silver bullet. For effective governance, individual board members need to ask themselves constantly ‘How much do I need to know and how much detail is appropriate?’ The answer will change on almost every occasion.
The key question is: ‘Am I satisfied with the information in front of me?’ It is desirable to foster a culture where board members will challenge the figures provided and statements made until they are reassured. This way they are in a position to answer any questions their board level peers may ask at a later date or even respond to challenging questions raised at the AGM.
There is a real risk that the boardroom becomes an ivory tower and board members fail to engage with the business and consequently do not know the answer to key questions. If the board finds itself having to bring in people to answer key questions then it is failing to support effective governance.
Emotional intelligence is key
With an effective board in place, growing the business becomes more about developing people. At this stage, focusing on emotional intelligence is critical. Emotional intelligence is a soft skill that business leaders can develop, improving their own skills when it comes to engaging with the team and identifying capabilities and personal strengths. This way the business is in a strong position to move people out of their comfort zone and develop the future capabilities that will drive innovation.
Emotional intelligence is also needed to help identify gaps at board level and dealing with any issues. If everyone on the board is objective, competitive, demanding and likes a challenge and there is no-one focused on ideas and innovation, then the board has a blind spot that could compromise effective governance. If there is no-one who is highly analytical, loves detail and wants to understand how everything works then, again, there is a weakness in the board. Succession plans should seek to plug those gaps, looking not just at knowledge and expertise but also at personality traits and perspectives.
Board members may have made it to the board based on technical track record or business success but once there the focus should switch to soft skills and emotional intelligence. Hard frameworks, bound by defined structures setting out who manages whom, objectives and KPIs measuring outcomes, are now superseded by a softer approach comprising networks (who do we engage with, who solves problems?), people (who is over performing and who is underperforming?) and asking the right questions to tease out the ‘unsaid’.
An effective board needs a balance of knowledge, a balance of personalities, commitment and shared values in order to engender respect. The key is to focus on engagement, delivering the business through people using soft skills.
Five parameters for an effective governance framework:
- A governance framework should contain guidelines and not rules. There needs to be flexibility without constraint.
- There should be visibility and transparency so that there is a clear view of progress and of decisions being made.
- Ownership needs to be defined so that it is clear who was involved in each decision.
- There should be a process that allows fast track decision making. Enabling an executive board to make a same-day decision on an urgent project approval.
- A governance framework should encourage innovation and allow people to think outside the box. Businesses want consistency and that is one reason they have governance in place but they also want innovation and it is not easy to have both – they have to work hard at it.
