BackTime to redesign boards for the age of disruption
Boards can no longer afford to be passive. They must swing into a more engaged role
PremiumIL&FS. ICICI. Yes Bank. Boeing. Bayer. GE. Even as many boards the world over find themselves challenged by crisis, the discourse around revamping boards remains in the nature of band-aids. What’s needed, instead, is a whole new paradigm.
Military historians draw a vital distinction between peacetime and wartime armies, peacetime and wartime generals. This is a useful metaphor for corporate boards. In peacetime, when the environment is stable and the company is doing well, boards need not do much beyond ensuring compliance and appropriate disclosures, and providing advice to the management. In times of great change or turbulence, however, peacetime boards frequently find themselves overwhelmed—as we have seen repeatedly. Societal demand for greater transparency and accountability, whistleblowers, activist investors, leadership misdemeanours, promoter transitions and technology disruptions are coming together to create a near-perfect storm for many companies. Their boards must be designed to weather the storm, or they will surely capsize.
Boards can no longer afford to be passive; they must proactively swing into a more engaged role with the management and become active in critical areas such as strategy, risk, organization development and investor engagement–roles that traditionally are firmly in the realm of management. Specifically, boards need a rethink in at least four areas.
Composition
Traditionally, boards the world over have been disproportionately stocked with people who won’t rock the boat. Contemporary boards are working boards. They need to be compact and they need a very different mix. They need leaders, not bureaucrats: leaders who are independent in spirit and can ask the vital, difficult questions; who are active. They need directors who have expertise particularly in technology. They need a seasoned CEO or two who have led transformational change and dealt with crises and activists. Global diversity is essential in addition to gender diversity.
Strategy and risk
Strategy development under uncertainty is a process of discovery. Companies have to feel their way to the future and this means taking many little steps, trying experiments to see what works and scaling what does. This process of discovery and learning is fraught with risks and therefore risk management and strategy have to be closely coupled requiring a close collaborative relationship between the management and the board. The board has to understand both the risks posed by the new strategy as well as the risks to the success of the strategy. Asking whether the organization is taking too much or the wrong risks, not enough of the right risks, whether it should pursue alternative strategies is crucial. So, too, are seemingly simple decisions such as what metrics to use and targets to set.
Organization, talent and culture
Culture trumps strategy. Many of the very things that made the company successful in the past are now core rigidities and have to be dumped. New talent has to be brought in and integrated but invariably this sets up a clash of “old versus new". Boards have to question whether they have the right CEO to lead the transition. How well is the CEO managing talent and reshaping culture in support of the strategy? Do we have the right talent in key roles? The board must be aware and engaged in helping the CEO and management make the right choices.
Board leadership: the invisible hand
Stewardship of an organization in times like these places a premium on the leadership of the board chairman. The chairman is an orchestra conductor shaping the agenda, ensuring that the board is prioritizing its time and intellect on the vital few issues that really matter, guiding debates to good conclusions drawing from a wide range of talent and perspectives. The chairman must be thoughtful and questioning, but most vitally, wise and courageous. Companies give a lot of thought to hiring their CEO; they must give even greater thought to selecting the chairman.
Conclusion
The neck of the bottle is always at the top. it is therefore inconceivable for a company to navigate through turbulence without a paradigm shift about the role and functioning of the board.
Ravi Venkatesan is former chairman of Microsoft India, Bank of Baroda and Cummins India. He has also served on the boards of Infosys, AB Volvo and Thermax.
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