BELIEVE-ABLE BOARDS
PUTTING THE BELIEF BACK INTO BOARDS! AT GALLUS WE WORK WITH LOTS OF ORGANISATIONS AND LEADERS ACROSS A VARIETY OF SECTORS, AT VARYING STAGES OF DEVELOPMENT. WITHOUT FAIL, EVERY ORGANISATION WE WORK WITH SEES LEADERSHIP CAPABILITY AS ITS NUMBER ONE POTENTIAL ENABLER AND ITS NUMBER ONE RISK. GROWTH PLANS AND REPUTATIONS CAN BE MADE OR BROKEN ON THE BACK OF LEADERSHIP CAPABILITY YET ALL TOO OFTEN ITS EVALUATION AND DEVELOPMENT STOPS WHEN IT GETS TO THE MOST SENIOR LEADERS OF ALL – THE BOARD! The fast changing global environment, challenging economic conditions, increasingly scarce resources and a growing level of cynicism towards corporate organisations and their leaders have created a challenging stage. A stage upon which greater (and more globally cohesive) regulation, harsher penalties and, arguably most importantly, higher expectations in terms of behaviour and performance mean that there has never been a greater spotlight upon the Board and the individuals that make it up. In his review of the role and effectiveness of Non-Executive Directors (2003), Derek Higgs describes the Board as ‘COLLECTIVELY RESPONSIBLE FOR PROMOTING THE SUCCESS OF THE COMPANY BY LEADING AND DIRECTING THE COMPANY’S AFFAIRS.’ A rather important role in any context…. According to McKinsey ‘CEOS AND INVESTORS BELIEVE THAT GOOD GOVERNANCE AT THE LEVEL OF THE BOARD OF DIRECTORS ADDS 11% TO THE VALUE OF A COMPANY’ and that ‘UK INVESTORS ARE PREPARED TO PAY AN 18.9 % PREMIUM FOR WELL-GOVERNED COMPANIES.’ An impressive opportunity to add significant value….. Higgs also advised that ‘AT LEAST HALF THE MEMBERS OF THE BOARD EXCLUDING THE CHAIRMAN SHOULD BE INDEPENDENT EXECUTIVE DIRECTORS.’ An important point to note….
Further requirements were introduced in 2010: 1. To improve RISK MANAGEMENT, the company’s business model should be explained and the Board should be responsible for determining the nature and extent of the significant risks it is willing to take. 2. Any PERFORMANCE – RELATED PAY should be aligned to the long term interests of the company and its risk policies and systems. 3. To increase ACCOUNTABILITY, all Directors of FTSE 350 companies should be put forward for re-election every year. 4. To promote PROPER DEBATE in the boardroom, there are new principles on the leadership of the Chairman, the responsibility of the Non-Executive Directors (NEDs) to provide constructive challenge, and the time commitment expected of all Directors. Given the critical governance role of the Board and its contribution to the achievement of strategic objectives, the management of enterprise risk, and the generation of a strong brand and reputation, it’s perhaps surprising how little focus (even now, a decade on from the Higgs report and post financial crisis) is placed upon assessing and developing members of the Board and measuring and managing their performance, contribution and behaviours. CEOs and Executive Directors typically have rigorous quantitative measures and criteria for selection; this is not often the case however for Non-Executive Directors (NEDs) - a population that should constitute half of any Board. Despite the pain of the global financial crisis, the ‘lessons learned’ and the generation of copious guidelines, organisations still struggle to create Boards that generate confidence in those that are expected to follow them and that are BELIEVE-ABLE in the eyes of all stakeholders.
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GALLUS CONSULTING Believe-able Boards Believe-able Boards create SUSTAINABLE VALUE for the organisation. They are VALUE FOCUSED and consider the GENERA-
TION OF REVENUE NOW in balance with CREATING A SUCCESSFUL FUTURE for the organisation and PROTECTING THE ORGANISATION’S ASSETS AND REPUTATION.
A Believe-able Board demonstrates DIVERSITY in terms of its members and ways of thinking. It encourages and provokes DIALOGUE, and is CURIOUS AND TENACIOUS in the pursuit of SOLUTIONS and ultimately RESULTS.
A Believe-able Board focuses on PERFORMANCE and is ALIGNED in terms of the RESULTS it wants to achieve and the
BEHAVIOURS it wants to see. Measures and targets are aligned to the creation of SHAREHOLDER VALUE and can be achieved by capable senior executives.
A Believe-able Board is ACCOUNTABLE in terms of its DECISIONS and PERFORMANCE. It takes its role seriously and undertakes the necessary DUE DILIGENCE in advance of all debates and decisions.
A Believe-able Board is TRANSPARENT in its dealings and treats all stakeholders equally and with RESPECT. It ENCOURAGES
PEOPLE to share their ideas and raise concerns and does not use fear to intimidate people into doing things that may cause harm to the organisation.
A Believe-able Board demonstrates TRUST, SUPPORT and OPENNESS of dialogue. It CREATES SYNERGY but is not consumed by group think.
A Believe-able Board knows where its FUTURE is coming from and has SUCCESSION and DEVELOPMENT PLANS in place to ensure smooth and successful TRANSITIONS.
Most importantly of all, a Believe-able Board lives the values of the organisation and demonstrates the BEHAVIOURS it expects of others CONSISTENTLY in all of its activities, no matter how challenging the situation. LET’S BE HONEST - WE’VE ALL REACTED WITH HORROR AT THE MANY STORIES OF DISASTROUSLY UNETHICAL OR INAPPROPRIATE BEHAVIOURS AND ACTIONS OF INDIVIDUALS ON THE BOARDS OF MANY MAJOR ORGANISATIONS AND WE HAVE ALL SEEN A NUMBER OF ORGANISATIONS SUFFER IMMEASURABLE DAMAGE AS A DIRECT RESULT! To create a GOVERNANCE PROCESS and LEADERSHIP APPROACH that will be successful in the creation of SUSTAINABLE VALUE the Board must engage in a range of activities; each building on the other:
Embody Values
• Live the values of the organisation • Be ultimately Believe-able in the eyes of stakeholders (internal & external) in term of integrity, trust, ethics and well thought through actions
Focus Attention
• Agree roles on the board • De-lineate boundaries , accountabilities and responsibilities between respective roles on the board • Play to personal strengths and seek to fill Board knowledge/experience/capability gaps
Commit & Align
• Fully understand the strategic reality • Engage in sense-making activities - debate and explore • Agree and commit to a common strategic purpose and goals
Interrogate Argument
• Delve deeply into proposed solutions • Challenge assumptions and expose inadequate/in nacurate propositions
Influence Outcomes
• Guide senior leadership towards outcomes that deliver long-term sustainable value • Create synergies and alignment throughout the organisation to accelerate performance
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• Consider Board succession • Develop members of the Board to enable them to contribute at their highest possible level
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BELIEVE-ABLE BOARDS
This is all well and good, but given that a significant portion of the Board is made up of Non-Exec Directors, how can this be achieved?
A poisoned chalice? The Higgs report highlights that Non-Executive Directors (NEDs) have a major contribution to make in four critical areas:
CRITICAL AREA
ROLE OF NED
STRATEGY
NEDs should constructively challenge and contribute to the development of the strategy
PERFORMANCE
NEDs should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance
RISK
NEDs should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible
PEOPLE
NEDs are responsible for determining appropriate levels of remuneration of Executive Directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning
…….all significant activities that are critical to the continued success of an organisation. The Non-Executive Director (NED) role is critical in terms of INDEPENDENT SCRUTINY and CHALLENGE, however it is not without its problems. Many NEDs hold positions in more than one Company Board and/or may have outside business interests that create demands on their time. Many are semi-retired and have no desire to spend significant amounts of time in the organisation. Add to that many NEDs are paid a fee based upon the number of meetings they will attend, membership of Board committees, and appropriate expenses and a culture of limited engagement and attendance can develop. It is not uncommon for NEDs to spend little time on the ‘shopfloor’ of the organisation and to focus their efforts entirely on Board activities. NEDs are often sourced from a small pool of ‘seasoned’ and experienced NEDs who are perhaps known to the other Directors of the organisation personally or by reputation. Selection and assessment of suitability can be limited and is often restricted to an alignment of prior sector experience, demonstrable Board experience and association with other successful organisations. Often further assessment criteria are only introduced where external regulators insist upon them. Induction and further development of NEDs can be patchy and limited to the formal requirements of the code and any regulatory criteria. Some NEDs take their role very seriously and engage in additional activities to ensure that they can add significant value to the organisation; others however are content to attend Board meetings with minimal preparation and very limited engagement with the organisation outside of their formal meeting schedule. NEDS WHO ARE ABLE TO SUCCESSFULLY PERFORM AT THE HIGHEST LEVELS, UNDER PRESSURE AND ACROSS CONTEXTS; DEMONSTRATING SOUND JUDGEMENT, BALANCING RISK AND PERFORMANCE, STRUCTURED THINKING, DECISION MAKING AND GENUINE ETHICAL CONCERN SEEM TO BE IN LIMITED SUPPLY.
Believe-able NEDs In reality, to perform the NED role effectively a great deal of commitment is required demonstrated through a willingness to engage with the organisation beyond the formal meeting agenda and preparatory requirements! Our experience tells us that there are typical criteria that can be applied to identify individuals that are likely to perform successfully in a NED role. Our leadership dimensions can be applied to the NED role and provide a simple framework within which the criteria can be organised effectively…
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NEDs need to be Believe-able leaders too – the way in which they demonstrate believe-ability may be different to other leaders across the organisation but believe-ability is still central to their success!
LEARNING AGILITY is THE ENABLER that enables the development of the remaining dimensions
• Self-aware – know where they can add value and where others are better placed to do so
• Understand the perceptions others have of them and their role • Quick to pick up alternative business models and to identify parallels between organi- sations • Extensively networked both within and outside of the organisation
CONNECTED leaders VALUE PEOPLE AND RELATIONSHIPS and understand how to get RESULTS FROM ANY TEAM, IN ANY SITUATION, ANYWHERE!
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• Strong interpersonal skills and well-developed emotional intelligence capabilities • Builds strong relationships that can withstand disagreement and provide constructive challenge • Generates trust and engages people to outperform against expectations • Willing to debate difficult concepts and does not avoid contentious issues for fear of conflict; willing and able to raise uncomfortable issues
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GALLUS CONSULTING • Willing to immerse in the organisation to develop a solid understanding of the busi- ness model and the significant levers for change and performance
INFORMED leaders look for MERGING THEMES and are amongst THE FIRST TO RECOGNISE THEIR SIGNIFICANCE
• Excellent antennae; constantly scanning the market to better understand strategic context and options • Insatiable curiosity in pursuit of reality and exploration of potential solutions • Confident to scrutinise results and ideas with a view to improving them • Strong listener; notices what’s said and what’s left unsaid • Independent Thinker – able to reach conclusions and take decisions objectively in the interests of the organisation
INNOVATION and CREATIVITY are natural extensions of intellect and INTUITION for INSIGHTFUL leaders at the cutting edge
• Confident in their own opinion and when challenging Board peers, investors and other critical stakeholders in pursuit of excellence • Sound judgement in challenging circumstances; able to combine multiple strands of information, thinking and debate into a coherent narrative • Knows where to look and the questions to ask • Achieves for the organisation via influencing and negotiation
Outstanding leaders are FOCUSED. They CUT THROUGH COMPLEXITY and DO THE RIGHT THINGS WELL; always with their EYES ON THE FINAL OUTCOME
• Relishes ambiguity and is a master at guiding others through tough, complex and / or uncertain times • Doesn’t get distracted from the critical path by irrelevant or superfluous information
• Willing and able to make strategic, complex and high profile decisions • Able to understand and navigate their way through the political arena
VALUABLE leaders are COMMITTED to MAKING A DIFFERENCE and CREATING LONG TERM VALUE for the organisation in everything they do
• Sophisticated stakeholder at the most senior levels both internally and externally • Creates value; understands the ‘most material’ actions, impacts and consequences • Adopts an ‘organisation first’ and strategically aligned approach when considering options, contributing to debates and making decisions • Balances revenue now with creating the future of the organisation and protecting its assets and reputation • Consistently and visibly lives the values
BELIEVE-ABLE leaders demonstrate strength across all six dimensions and have the relevant TECHNICAL EXPERTISE to drive targeted inquiry, argument and debate. They consistently demonstrate the VALUES of the organisation and behave in ways that ENHANCE ITS REPUTATION
• Demonstrates integrity in everything they do • Generates high levels of trust through their behaviours, expertise and knowledge
Is your Board Believe-able? How much FOCUS and time does your organisation give to its most senior team? How does your organisation IDENTIFY potential NEDs and ASSESS suitability? What CRITERIA do you use to assess likely PERFORMANCE and CULTURAL FIT? How do new NEDs get INDUCTED into your organisation and how do you REWARD their contributions? How can you encourage them to ENGAGE more broadly and deeply and what support can you provide in terms of their further DEVELOPMENT? How do you develop effective Board BEHAVIOURS and ultimately EFFECTIVE GOVERNANCE for your organisation? And where will you find your NEDs of the future – what’s your SUCCESSION plan?
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BELIEVE-ABLE BOARDS
Use our indicators as a foundation to develop sound criteria for your organisation to support you in all of these areas! So how does your board stack up - is it believe-able?
Gallus build sustainable, high performance environments that everybody can believe in. With particular expertise in leadership capability and alignment, organisation design, business transformation and enterprise risk management, Gallus challenge assumptions, cultivate belief and drive positive change by making performance excellence systemic. An established business with Headquarters in Northampton, UK and offices in London, Manchester and Aberdeen, Gallus work with ambitious organisations across the world from a wide range of sectors. Find us at www.gallusconsulting.com or call +44(0)20 3751 6345.
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