No matter the board a director joins – public or private, profit or not for profit - they cannot avoid being involved in making critical calls in high pressure situations. Critical calls may include decisions that involve a change in strategic direction for the company, significant external threats to revenues, fending off a hostile takeover, a crisis of confidence among investors, a major governance breach and so on.
Directors are necessarily confronted with the reality that such high stakes decisions are often required to be made with incomplete and sometimes with conflicting information and when time is not on the side of the board. The board has to carefully evaluate whether it has enough information to move forward. If a call is made too soon, resources may be committed in the wrong direction. Waiting too long and the consequences could be disastrous. However, it is not only a board’s decision about the threshold for certainty it will be comfortable with. It is also about the broader context the company finds itself in, in particular the control it has of a fast evolving context, the organisation’s own tolerance for risk and it’s appetite for risk.
STEWARDSHIP AT THE HEART…
Most corporate crises, such as the one facing CBA and Wells Fargo have to do with a different type of risk. No matter how sophisticated a company’s risk systems and models are, they will not provide the predictive alerts a board requires because they are not able to model how people will behave. The best chance an organisation has to predict how people will behave is through leadership. The quality of board leadership ultimately shapes and determines how organisational and behavioural risks will be surfaced and managed.
Despite this, most boards have a tendency to focus on what is quantifiable and what is measured. Most boards find it easier to discuss things like liquidly, credit risk, market risks etc. Even in the context of strategy, return on capital or cost synergies etc. dominate conversations around the board table. Economic costs/benefits of any proposal the board considers are so much easier to quantify than its social costs/benefits. And these are damn sight easier and less embarrassing to discuss around the board table. A board challenging a CEO’s conviction of their rightness and blinding self-confidence on a given proposal, or contending their long held working assumptions or questioning the sub-optimal information flows from management (all of which are issues of leadership) are not the easiest things to do.
Following the global financial crisis, ignorance is now no longer sufficient defence for board members. But directors have a right to wonder “how can we be all-seeing, all-knowing about what is going on in the bowels of the organisation”. Yes, true you can't. However, if you spend more time having a conversation, as a board, about the governing mission of a board (and I am not referring here to the existence of a board charter or mandate which tend to reflect regulatory and compliance requirements), you make a good start.
This conversation goes to the heart of what your stewardship of the organisation means. It considers both the formal and (equally important) informal processes of accountability with which the board leads. Beyond board charters and mandates, the informal accountabilities of a board are codified in the norms and routines that shape board work, how these are observed when doing board work, and ultimately combined with the formal accountabilities, reflects the character of the board. That is to say, the processes of accountability are not simply structural in nature but social - socially accomplished through expectations, norms and relationships. Therefore, deeper more meaningful board level conversations about their role, relationships, contribution and purpose are critical because the genesis of most organisational risks starts there.
Then there is a conversation that develops from that. If as stewards, we collectively want to leave this organisation in better shape than we found it, what sort of board must we be/not be, how will we characterise who we are. What are the values we will demonstrate in how we execute this governing mission, how will our courage of voice be heard over the exuberance and over-confidence of management proposals and so on.
In making the character of the board clear to the CEO, the board sets both the explicit and implicit expectations they have for how the CEO should in turn lead the organisation. This is not what happens today. CEOs determine the organisation’s values and present them to the board for endorsement and in this regard the board does not become a transmitter of values but simply a receiver of values. Boards, have to become active participants in this process of defining what the organisation will stand for, not just bystanders or endorsers of a process left to management.
The moral leadership required to govern demands more than just inviting experts to speak or even ‘train’ on ethical leadership and judgments between right and wrong. It calls for generative/transformative change in the way boards think about themselves, their work and their purpose. Boards need to consider themselves as catalysts for change. If not, who else will?
The following is an excerpt from the introduction to the latest book by Dr. Meena Thuraisingham to be published by Routledge by the end of this year. The book focuses on the critical calls boards have to make that most reveal a board’s true character…