Friday, July 13, 2012

What we're thinking - also at

We're glad you've visited. We hope it becomes worth your while to return from time to time. You may even want to bookmark as one of your favourites.

The Westlake Governance "Boardsrus" blog is about helping boards work more effectively - helping you to "FICKS" your board. (Come and talk to us if you don't understand what we're talking about here.)

  • We'll tell you what we think about some topical subjects,
  • We may ask your thoughts on something controversial,
  • We'll direct you to other sites that may be of interest,
  • And, from time to time, we may talk about something that is nothing to do with any of these.

There's an old governance paradox: When an organisation's working well, the CEO's the star; when it all turns pear-shaped -- "Welcome a-board!" We hope we and this blog will help to reduce the incidence of the latter.

We're keen to hear your thoughts too - whether or not you agree with us - so don't be shy about adding your comments.

We look forward to your joining us on this exploration.

Wednesday, July 11, 2012

A Cruel and Unusual Punishment?

Although he has been in the role unofficially for at least a month, Geni-i boss Chris Quin formally took over last week as Acting CEO of Telecom for a couple of months, between Paul Reynolds’ departure last Friday and Simon Moutter’s arrival on 1 September.

It’s not unusual to appoint a senior executive into the Acting CEO’s role. But this is the first time I can remember a board appointing someone known to have been a candidate for the role, and one who publicly acknowledged his “disappointment” at having missed out, when he sent a note to his employees on the announcement of Mr Moutter’s appointment.

I know nothing of the Board’s thinking on this, but this seems an unusual strategy: “Chris, here’s the prize you really wanted. Try the seat for a couple of months. Once you get comfortable and used to it, we’ll snatch it back from you.” 

On the other hand, there’s always a risk for a Board that values and wants to retain a senior executive who has failed to win the top job: importing an outsider for a short time, over the head of Chris and any other internal candidates who also missed out, might have been an even greater risk.

I have great respect for the Telecom Board, and its Chair Mark Verbiest ... which makes me wonder whether he doesn’t have a rather more devious plan: “Here, Chris, try the hot seat for a couple of months: by that time, I think you’ll realise you’re having much more fun where you are.”

Regardless of what the Board was thinking, let’s wish Chris well in his brief tenancy of the Corner Office at Telecom.

I chair the NZ Telecommunications Forum, the technical working body of the industry. This role does not involve direct interaction with either the board or executive leadership of any of the main telcos and the opinions in today's musing are based solely on my own observations after reading publicly available information.

The Chairman as 'Super-CEO'? Or not?

Earlier this month I ran into a friend who'd just been appointed the independent chairman in a medium sized business. As he went on about what he hoped to achieve, how he had a clear picture of what he wanted to do with the company, and so on, I sensed that he was falling into the classic role confusion between chair and chief executive - and was seeing his appointment as some type of super-CEO position, or in his words the ‘ultimate decision-maker’.

For those who've never been in the position, this is a common misconception. When you look at the role of chair for the first time, it can be tempting to think that you’ve finally made it. But this soon changes: one of the first things you learn is that it's not your job to run the company. As an independent member of the Board - even as the Chair - you don’t have any executive authority of your own. (I also know from experience how frustrating, and potentially undermining, it is for the CEO to work with a chairman who can't stay away from the place, or your office!)

I don’t want to disillusion any budding Board chairs, but the reality is that you’re not the boss: 
under good governance practice, you are ‘first among equals’, with any formal decisions still coming from the full Board; you’re the chair of the Board as long as you have the confidence of your fellow Board members. One of the most useful ways I heard it described, when I was first appointed chair of a small Board, was to remember that you chair the Board... NOT the Company.

While the CEO’s job is to run the company, yours is to run the Board so that it adds value and gives the CEO the best possible chance to succeed. A useful reality check on whether the Board is adding value is to ask at the end of any Board meeting, ‘Is the organization better off now than when we arrived this morning?’ If the answer is ‘No’ or even ‘I don’t know’, your response should be, ‘So, remind me why we met today.’

I was thinking about how to identify some of the practical attributes that make a successful Board chair, when I came across this short article from Harvard Business, called ‘Leading when you don’t have formal authority’. The article describes what an effective project manager or independent contractor needs, when he or she doesn’t have authority to give orders or conduct performance reviews of the people they work with, but whose performance will determine their success (they are attributes you'll see in almost every effective Board chair): 
  • Letting your enthusiasm be contagious;
  • Demonstrating excellence without wearing your ego on your sleeve;
  • Acting more as a coach than a captain.
These three valuable pointers need to become second nature if you're going to do the job well - and if you plan to stay true to them when times get tough in the boardroom.

As you can see, they're not the type of thing you'll typically read in a CEO's job description - although they are also not totally removed from some modern management thinking. The more I thought about it, the more I realised the article could
 have been written for my friend - yes, he now has a copy... and having chaired his first Board meeting he also understands how true (and timely) it is.

[First posted July 2009]

Tuesday, July 10, 2012

Evolution - the survival of those most responsive to change

As you will doubtless have remembered, April saw the 130th anniversary of the death of Charles Darwin, author of 'The Origin of Species'.  So often we misquote him by referring broadly to 'the survival of the fittest', but Darwin's thesis is far more encouraging than the cliche suggests:
  • 'It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change.'
Any of us can take heart from that: how strong we are, and how intelligent, were both decided to a large degree very early in our lives (personal trainers and pop psychologists notwithstanding). But how responsive we are to change is a conscious decision, which we can take at any time.

If you want a dramatic example, finish reading here, then watch this short video on Youtube. I honestly don't know whether it's genuine - there is some debate - but I've looked at it several times and it still looks good to me. Regardless, take it at face value and think about the instant decisions this pilot had to take when faced with a catastrophic change that, according to all precedents and accepted attitudes, should have given him about five seconds to live... and how responsive he was to this change.  

Now think about the changes you (and your business) face in this period of global turmoil. And whether you'd prefer his challenges or yours.  

Have a good, adaptable, week.

(Here's the link again. To keep this window open while you open the link, click on the link with the right-hand button on your mouse and select the options of New Window or New Tab.)

Springboard or Tramlines? How do you manage the Meeting Agenda?

I suppose we're all creatures of habit - even those of us who talk about and sometimes initiate change. But I've had a good experience recently that has made me really think about the order in which we deal with things at our Board meetings.

I've long advocated getting to the key decision items and strategic issues as early in the meeting as we can, so we can spend as much time as we need on these. (These big items are what we sometimes refer to as the 'gorillas in the room': however docile they may seem, you can't ignore them.)

But until now I've been a fan of working through the CEO's report ahead of these items. I've felt that the Board needs to be updated on what has happened since the report was written - probably up to a fortnight before the meeting, if the papers are well planned and reach the Board members a week or so before the meeting. 

Well, I've changed my mind. I've chaired three Board meetings in the last couple of months (in two separate organisations), where for various reasons we hit the strategic items almost immediately - right after the formalities and action points from last time. What a difference it made to the meeting: the whole Board was engaged and involved in the discussion from the start. We enjoyed some great thinking, including some big ideas from 'outside the square'. This week we even generated a spontaneous whiteboard session for half an hour, to capture some ideas that we haven't adequately explored before. Not quite the typical image of a traditional board discussion - I'm pleased to admit!

I've thought about why these meetings went so much better. It wasn't just that we gave ourselves enough time for the big items - I think we usually do that reasonably well - but the real difference is that we hadn't been drawn down into the operational issues, which is what probably happens once you get into the CEO's report. The Board members had arrived - well charged with caffeine in most cases (this may be relevant) - to talk about big issues, and nothing got in their way before we did just that.

And what did we lose by this? Well, if anything, we became even more efficient in our use of time. By the time we got to the CEO's report, we'd discussed most of the main items she'd written, so we spent only about ten minutes on some of the smaller, but important, matters in the report.

There is one assumption in all this: our Board members have to read their papers, and think about the issues, before our meeting. I'm lucky with the Boards I chair, but I know this failure to prepare is a 'sea anchor' that holds some boards back. We take our papers as read (... and understood and thought about) - we couldn't have an effective meeting otherwise: then we use the information from them as background - a springboard - for the type of discussion that effective Boards need to have around the table. 

The alternative - sadly quite common - type of meeting is where the Board works its way from page 1 to the end of the papers, without deviating, looking up or adding a creative (or original?) thought for the full three or four hours that they're together. Just like a tram-driver really, with the difference that the latter doesn't need to worry about steering the vehicle. 

Next, I'm thinking of keeping the minutes from the last meeting until near the end of the agenda too. Why not?

Is it all worth it? ... Well, yes

It's not quite life on Mars; but the search for hard evidence that good governance does indeed lead to improved organisation performance and better shareholder returns has been almost as elusive.

Now at last a study of over 600 public companies in Britain, "Governance and Performance in Corporate Britain", conducted by the Association of British Insurers, has come up with some strong indicators:

  • Over a five-year period, the shares of companies considered well-governed delivered a return about 4.5% per annum higher than their industry peer group;

  • Well-governed companies showed a lower volatility in returns over time;
  • Poor governance was associated with 3-5% per annum under-performance and a smaller (but measurable) decline in the market value of assets;
  • And the evidence indicated that good governance leads to higher performance, rather than vice versa (and it was a causative relationship, not just a correlation).
The survey also came to the unsurprising conclusion that having more Non-Executive Directors on the Board (NEDs, directors who don't draw a salary for their day-job) led to improved performance. But the key here was balance: having too many NEDs was associated with lower profitability. This suggests that having a mix (the British practice) might be preferable to current New Zealand and Australian - and increasingly American - practice, where most or all the directors are drawn from outside.

So we finally have some evidence to support what many of us have long believed. It may start to counter those popular popular perceptions about boards and those who sit around the table - such as the old question: What's the difference between a director and a supermarket trolley? (Answer: a director may hold more food, but at least the trolley has a mind of its own).

Maybe this survey will be the terrestrial equivalent of finding water and organic chemicals on the Red Planet. I hope it will give directors even more reason to leap out of bed in the morning, looking forward to the Board meeting - and confident, in the words of the late Sir Peter Blake, that we will “make the boat go faster.”

I learned about succession from that

They say we learn best from our mistakes ... some people would say that explains why I never stop learning.

I was reminded the other day of one of the biggest boardroom mistakes of my career. If it's any comfort - which it wasn't to me - it was in an area that many boards fail to deal with well, board succession; or in this case choosing a successor for the Board Chair.

I had been Chair of a medium-sized non-profit organisation for about six years and we had agreed it was time for a change, for both the Board and me. First, breaking all my own rules (see my recent post 'How do we fill his boots now he's gone?'), I agreed to lead the succession process. Without realising it at the time, that alone probably restricted our search criteria to people I thought would be good for the role.

After defining the attributes we were after, we developed a list of possible targets. Our preferred choice, from what we knew of the people, was a just-retired highly-successful Chief Executive who we knew had a passion for our sector. Although several of us had met him a few times, none of us could say we really knew him. (Does anybody hear warning bells yet?) I was given the job of phoning him to ask if he'd be interested.

To my mild surprise, he told me this was his first approach to join a Board since his retirement and yes, he was flattered and delighted to be asked. Abbreviating a long story, we felt that we'd 'got our man', so we didn't approach any of the other candidates (I think that's still quite normal, especially with non-profit Boards, because I think there is an understandable reluctance to approach people for voluntary roles, only to say 'sorry' to them later).

Well, he joined, was elected Chair and I left the board. I've never believed in hanging around once you stop being the Chair: it's the governance equivalent of 'Dead Man Walking', when you don't want to be there and you know nobody else wants you around either.

From almost his first meeting, the appointment was a disaster. He started behaving as the 'super-CEO', over-ruling the employed CEO, getting involved in management details and barely including the rest of the Board in most decisions. Get the picture? Much to the Board's credit, they realised very quickly the damage this was causing and he was a very short-term Chair of that Board.

So what did we (or I) learn from all that?

First, there are very good reasons for checking references. We've seen several public examples of what happens when nobody did. Only a few months after these events, someone I knew quite well asked me quietly, but obviously in frustration, why I hadn't checked with him (yes, I know, there's a small thing about Privacy Law as well). He told me - too late of course - that the person in question was a superb CEO, but terrible to work with as a director, because he could never remove his CEO 'hat'. However big the reputation, we need to check whether it is relevant to the role we're considering: it's a big change in approach from being a CEO to joining a Board as a non-executive member (even as Chair), where effective decision-making comes from building consensus, and where we don't manage the business hands-on.

This example showed me that checking those references is vital, even for a voluntary, non-profit position, because the consequence of not doing so can be disastrous.

Secondly, should I have been involved in the process at all, considering it was my successor we were looking for? In an ideal world, I don't think so. Perhaps I was so keen to move on that I allowed (possibly even encouraged) some short cuts in the process. In retrospect, if I hadn't been involved, the rest of the Board might have been more rigorous in interviewing and checking references, rather than letting me influence the appointment too much. In my defence, none of the other Board members showed a lot of enthusiasm for putting in the time that was needed to find someone and make the appointment.

On the scale of how wrong things can go, this was possibly not too bad. But the lessons were clear, and more importantly they taught me that we've developed some good basic principles of how Boards should do things.

These principles have evolved through other people's mistakes: disregard them and people will be learning from yours!