Many directors are often clueless about their organization’s organization’s strategic activities.
A few years back, a woman lost control of her BMW and careened off the Florida Turnpike around 5 a.m. The car landed in the middle of a canal in the pitch dark. The woman had only a few minutes before the car’s electrical accessories would begin to fail, and not much more time before the car would sink.
Frantically, she dialed 911 on her cell phone. Emergency operators shouted at her to tell them her location. She couldn’t, because she didn’t know where she was. Yet, rather than focus on getting her out of the car (“Ma’am, can you swim? Can you get your windows down and climb out? How far are you from shore? Activate your emergency flashers and alarm so we can see and hear you. Do you see any alligators?”), they persisted in trying to determine her location. The car sank and the woman drowned – with her rear window completely rolled down.
This story serves as a metaphor for the way many board directors seem to be viewing their responsibilities these days. They are focusing exclusively – even obsessively – on knowing their organization’s “location,” or financial status, rather than focussing on those questions that are seminal to one of their most important governance responsibilities – assessing both the quality of their organization’s strategy (in particular those areas over which the CEO and Board have strategic discretion) and the administrative arrangements used to assure its implementation. Questions such as: what is the strategy? Is it the right strategy? Is the strategy working? If the strategy is not working, can it be fixed? If the strategy cannot be fixed, what’s the new strategy?
So, why do boards act this way?
I’ve observed, served on, and advised numerous boards over the years, and those experiences have taught me that there are a number of curious reasons for this state of affairs. The first is that, despite directors’ responsibility to constructively engage with the CEO on strategy, they often allow themselves to remain uninformed about both the appropriateness of the “strategic recommendations” their CEOs propose and the methods used to implement them. And second, directors typically lack a shared understanding of the strategy concept itself.
For proof of the second element, look no further than the content of most board meeting agendas. If the agenda can be considered one of the tangible expressions of directors’ priorities, then the strategy of most organizations appears to be irrelevant. In a cursory examination of board meeting agendas, I found that the typical one included items such as: financial results to date; capital spending; committee reports and recommendations; staff/functional reports; special presentations; major staff appointments/ terminations; old and new business; and special resolutions/ by- laws/policies. Rarely did I see regularly see the phrases: “strategy update and emerging risks”; “values assessment and proposed solutions”, and “issues in strategy-organizational alignment”
Yet, the formulation and execution of a quality strategy is at the heart of ensuring an organization’s long-term success and survival. Without a clearly articulated strategy, one that is understood, accepted and continuously reinforced throughout the organization, an organization won’t have the essential stakeholder commitment it needs to forge strongly ahead Employees especially will lack the sense of mission and engagement needed to implement the strategy in a concerted, cohesive manner. The result? Chaos and confusion as employees and other stakeholders work at cross-purposes to one another. Accordingly, when things go awry, boards who have failed to competently assess and advise their CEOs on both the appropriateness of their organization’s strategy and the methods to achieve it within the constraints of its budget and accountability agreement, cannot in good conscience put all the blame on the CEO.
The fact that strategy gets so little on-going attention from boards is actually not that surprising, in large part because there’s often a lack of understanding and interpretation of the term itself, never mind its individual components. Adding to the chaos is the fact that the independent directors appointed to organization boards typically come from a variety of organizations and backgrounds. Consequently, while they may use the same words, they often attach many different meanings to them.
To help address these concerns, I have recently written a monograph called “20 Essential Questions that Corporate Directors Should Ask About Strategy” (See: http://corporatemissionsinc.com/best-sellers). It contains a framework which boards should adopt for describing/defining the strategy of their organization and a methodology to help directors evaluate its quality. It has appeared on the Books for Business Top 10 Best Sellers list for over 10 years!!
There’s another reason, however, why boards may give so little attention to their strategy. CEOs simply do not want their boards involved in such discussions. Indeed, many CEOs view boards that get involved in their organization’s strategy as interfering in their managerial responsibilities.
The problem is further compounded with the appointment of board members who generally lack the “industry knowledge” necessary to challenge the appropriateness of their organization’s strategic plans. Finally, CEOs who want to distract their boards from discussing the tough strategic issues usually cram the agenda with items designed to dull the mind (copious slides, graphs and charts), dazzle the senses (“And now, Fred is going to give us a virtual reality presentation of the new manufacturing facility. Everybody got their 3-D glasses on?”) or induce commitment and loyalty – all within a strict three- to four-hour time limit.
It’s time for boards to stop allowing their CEOs to use them this way. That’s not an easy prospect; it requires board members to have the internal fortitude (aka “courage”) and personal ethics to refuse to be bullied or bribed into submission.
Astute CEOs, on the other hand, use their boards as a fresh set of eyes in plotting their organization’s strategy and assessing the organizational arrangements to facilitate its achievement. They know and accept the commonsense wisdom that every leader can benefit from receiving the input of multiple perspectives. Such a CEO, though, must have faith in the competence of his or her board.
What can be done?
In conclusion, the way to build better boards is by having better informed directors. So here’s the big, uncomfortable question for Caribbean directors: to what extent does your board have the competence, curiosity and courage required to give effective oversight of your organization’s strategy and the way it is being implemented? If you think that there is room for improvement in the way your board carries out this critical governance oversight function, you might want to suggest that they consider going to one of the corporate governance training programs currently available in the region – like the extraordinarily unique 3 day Chartered Director Program (“C. Dir.”) currently being offered by The Caribbean Governance Training Institute. Over 500 Caribbean directors have attended this program to date (including all the Governors of the ECCB and the entire Government of Saint Lucia!) By attending programs like this one, stakeholders would then know that their interests are being represented not just by individuals with successful track records in business, but also by men and women who have the governance qualifications – and the certification – necessary for effective board leadership and oversight of their organization’s strategic activities.After all, it’s not education which is expensive, but rather ignorance. ¤
By: Dr. Chris Bart, FCPA, F.CIoD
Chairman, The Caribbean Governance Training Institute & Chairman, Caribbean Institute of Directors