Enhance board effectiveness to acquire a competitive advantage
- The board can be a strategic asset for a company that focuses on a 4-Cs-formula of context, clarity, composition and conduct
The word ‘board’ traces its origin to the large table around which people would gather for important meetings, but of course now refers to the people who have been ‘elected to manage a company by its shareholders.’ Traditionally, boards have focused on compliance and regulatory adherence, and in recent times, on transparency and corporate governance. The focus of this article is on how boards can become a source of competitive advantage in today’s ‘VUCA’ environment of volatility, uncertainty, complexity and ambiguity. It is important at the outset to note that all boards are unique, and so while there are common themes, answers are specific to the company in question and its board context. While most of the discussion is related to boards of publicly traded companies, these themes are equally relevant to boards of privately held companies.
We believe that there are four ingredients that are critical for enhancing the effectiveness of a company’s board—the four Cs.
Contextual familiarity: To begin with, for a board member to add value to the company, it is crucial for the individual to have contextual familiarity with the business. A structured induction plan for board members, with the operating team taking them through the purpose, strategy and values of the company, is a critical building block. It is also important for the board to understand the firm’s performance relative to its competitors and interact with experts in the sector/industry. This exercise enables board members to acquire the right backdrop for company discussions and deliberations, and to use their experiences in the appropriate business context.
Clarity of role: The role of a board (beyond its fiduciary and compliance role) is typically described as owning the corporate strategy, monitoring risks, planning succession and guiding the management. The principle of a deliberate and limited overlap between the board and management needs to be clarified and agreed upon. One best practice we have observed is to actually create role descriptions, highlight areas of overlap, and then clarify and agree within the board and with the CEO and management team, a process that needs to be repeated annually.
There is a top 50 Indian company whose board has clarified that its role is not formulating the strategy, but critiquing it. Similarly, on succession planning, the board does this not only for the CEO, but for the top 10 positions of management talent as well as for board members. The next frontier for boards is how they could help a good CEO and/or operating team improve their managerial judgement. Selection of the right team, starting from the CEO, is probably the single most important role of the board. Imagine the fate of Apple had Steve Jobs not been asked back by the board, or that of Sears or Kmart had its board made some other choices.
Composition of the board: In parallel to role clarity, board composition is a lynchpin for its effectiveness. A diverse and relevant mix of skills, experiences and perspectives significantly enhances decision-making. Identifying clearly the capabilities and experiences that the company needs is a vital first step. The next step is to have a clear board-member value proposition, or BVP. Why should someone who has the required capability join this board? What’s in it for him or her ? One company realized about five years ago the increasing importance of digital adoption and e-commerce in its business and actively sought a board member who had led a digital-first operation. And an important reason for him to join was to learn about brick-and-mortar operations.
We believe that while individual board members are critical, one has to think of board composition as a whole; that is, as a team with individual complementary capabilities that can function effectively collectively.
Conduct of meetings: The nuts and bolts of board conduct play an important role in enhancing board effectiveness. How many days does the board meet? How is time spent in these meetings (topics, presentations versus discussion)? Apart from quantity, what is the quality of board discussions? These and several other questions are what a board’s chairperson has to think through and navigate to ensure the right outcomes. One of the chairmen we talked to said, “The two things I try for in the meeting are: a) the same voices are not heard every time; and b) the management team feels challenged and inspired, rather than criticized and beaten. Consequently, most of my work is thinking about how to run the meeting; the rest falls in place.”
Some effective practices include getting all the CXOs to attend the board meeting (allowing for board exposure to the management team and preventing any ‘loss in translation’), shorter presentations (or no presentations, like at Marico), board dockets with upfront clarity on what is needed from the board, a structured debrief by committees to the entire board, and periodic updates to the board on business performance (between meetings).
Today’s board is not just a regulatory requirement, but can be a strategic asset for the company. We believe that boards can truly increase their effectiveness if they discover their bespoke answers to the four themes outlined above, and then be a true source of competitive advantage.
These are the authors’ personal views.
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First Published:3 Sep 2023, 04:35 PM IST
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