A fresh framework of corporate governance

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NancyFalls2By Nancy Falls – CEO of The Concinnity Company

 

 

 

 

 

Today’s organisations are operating in a world that is growing more complex and risky by the minute. The plethora of opportunities that go along with the blistering pace of change must be navigated extremely carefully.

The concept of good governance is that boards can contribute in powerful ways as they advise, support and challenge management teams tasked with delivering results.

Governing well is not easy. There can be tension between the board and management, between leadership and various stakeholders and even around the boardroom itself. Whether or not this tension is harnessed into constructive professional discourse depends on who is gathered around the table and, importantly, how they work together. When boards work well together, are cohesive with the management teams of their organisations and honour the visions of multiple, diverse stakeholders, governance can become a competitive advantage. When they don’t, corporate governance can be incredibly destructive.

New thinking about board composition and the appropriate agendas on the board docket have gone a long way towards improving the positive influence the boardroom can have on corporate performance. Increasingly, we are getting the right people around the table, a diverse blend of skills sets, perspectives and experiences well suited to what the company has to accomplish in the short and medium term. Likewise, the issues the board spends its time on are evolving to respond to the new dynamic in which our organisations operate, prime examples being strategy and risk management. But these special purpose players, refocused on new challenges, still need a framework, a playbook if you will, if they are to work well together. There seems to be a growing recognition that boards must work as teams, but many are struggling with how to get to grips with something they feel like they should do automatically.

The good news is that with a single word we can untangle the complex set of dynamics and qualities that enable true professional discourse around the boardroom table. That word is concinnity. The word illuminates a concept, a goal and can provide the basis for a clear framework for achieving the precious balance of unique individual contributions and collective thinking and leadership. The boardroom so ordered can steward their enterprises to their best performance outcomes, their most satisfactory stakeholder relationships and profound positive change.

Finding your way to a concinnity-focused boardroom and organisation is neither automatic nor easy. But it can be learned and cultivated with the help of intentionality and guidance. It is helpful to have a framework to go along with the word that can provide a rallying cry for action and a moniker for cultural bent. A framework can outline the imperatives necessary to avoid the most common mistakes people make as they try to lead and govern together.

There is a way of governing and leading together that emphasises harmony, ensures better CEO-board relations and produces better corporate performance. We call it the Corporate Concinnity Framework and it underlies all of the advisory work that we do. It takes the would-be power struggles that can exist around mission, strategy and execution and the differences that can result from the dynamic personalities and diverse skill sets within boards of directors and C-suites and turns them in to reasons to come together to make a powerful difference in realising success and driving positive change.

 

“When boards work well together, governance can be a competitive advantage; when they don’t, corporate governance can be incredibly destructive”

 

The Corporate Concinnity Framework’s emphasis on harmony is not to be confused with complacency, apathy or rubber-stamping of management’s agenda. It is just as easy for C-suites and boards to leave each other completely alone, making decisions without discussion, mutual understanding and consensus. True concinnity requires a level commitment to honesty and full engagement that not only powers performance, but also creates the stuff of personal legacies of significant contribution.

Well-crafted, governance can be a competitive advantage, but left to chance or seen as an administrative requirement as opposed to a strategic element, it can actually be a tremendous drag on performance. Forward-thinking organisations realise that they need to be deliberate to get governance right and that it will be well worth the effort. Most of the time it is necessary to engage someone who is in a position to see what leaders are not able to see themselves – process, people and systems that get in the way, or even lead to pitfalls.

The good news is this: the most common corporate governance mistakes are just that — common. They have their origins in failure to be deliberate in pursuing consensus, to work together in harmony and to approach corporate governance through concinnity.

The single most common governance mistake is a failure to clarify the roles and responsibilities between the CEO/C-suite and the board. The second is a failure to get the right people around the boardroom table, fully engaged and doing the right things. In other words, firstly, failing to draw the right line between the board and management and, secondly, failing to clarify the work of the board itself. The two go hand in hand.

In order to prevent these show-stopping pitfalls, it is critical for board members to understand what is in their job description and what is not. There should be a clear line of demarcation between what the board does and what management of the company does. This profoundly simple-sounding statement underlines the enormity of board-management conflict and equal amount of unproductive or insufficient board work. Good management teams always have a playbook. Boards needs one as well.

Imperative in building a framework for concinnity in corporate governance is to draw the right line between what board members do and what the CEO and management team do. It is helpful to remember that there is a difference between leadership and governance. Leadership is about management’s activities. Governance is about the board’s activities. Good governance requires not only having a bright line, but one well understood by all. Undoubtedly, the line between what management does and what the board does is different for different companies. But there is some degree of general agreement upon the basics. Here are six things that boards and CEOs must jointly agree are the fundamental duties of the board.

They are what I call the Irreducible Minimum when it comes to board responsibilities.

The Irreducible Minimum

  1. KNOW the company (as well as anyone outside of management): what it does, how it does it and the numbers that show it
  • What does it produce and sell in all of its lines of business; where does it sell and to whom; what are its key competitive differentiators?
  • What is the company’s strategy and what is the plan for getting there? What landmarks lie along the critical path? What climates, markets, competition and regulatory environments does it operate in?
  • What is the basic business model; what makes it profitable? What company financials1 demonstrate this as well as performance, both over time and relative to peers and competitors?
  1. HELP the company achieve its goals
  • Participate in the development of company strategy
  • Regularly evaluate progress on growth, profitability, mission expansion and other goals
  1. ENSURE that the company meets its obligations to all stakeholders
  2. PARTICIPATE in policymaking and oversight
  3. REVIEW and challenge management performance
  • Ask the hard questions
  • Know senior leadership
  1. CONTRIBUTE effectively and constructively to the work of the board
  • Be prepared for board meetings
  • Ask the right (hard) questions
  • Participate in board self-evaluation

These six responsibilities are the table stakes for directors’ entry into the game. Beyond them it is necessary for the board to engage in a dialogue with the CEO about what specific things lie on management’s side of the line and on the board’s. For example, exactly how is an individual board member to help the company achieve its goals or by what processes and procedures will the board contribute in these six ways?

Thinking?

Over time, the line between management and board roles can and should move, as companies and situations change. Boards must stay committed to continuous dialogue with the CEO to ensure clarity around roles and responsibilities over time. Constructive dialogue about this is important. If you do these things, you have taken the first step, the first imperative required to create harmony in putting together the pieces and parts of the governance game.

The second imperative involves creating harmony and functionality on the board itself. It avoids the pitfall of failing to get the right people focused, fully engaged and functioning as a team. Getting the right people means seeking what I call the ‘Goldilocks of Boards’. Like Goldilocks, you are looking for the best fit in terms of size, composition and structure. Just as good working relationships depend on establishing clarity on the roles and responsibilities of CEOs versus boards, it is critical to seat the right players around the boardroom table, to create a structure that will limit conflict without reducing honest dialogue and to agree on a focus and values that will create harmony.

It is easy to go overboard in one direction or another when trying to manage board size and membership. It is important to be thoughtful about and have dialogue around it. It is a mistake to assume you have it right, that everyone understands why your board is what and where it is, and agrees. Without having a conversation around the board and with the CEO, differences of opinion can fester and create conflict that gets in the way of teaming well.

Once the right size, composition and quality elements of the board have been determined, the playbook must bring clarity to the roles and responsibilities of the board itself, for the individual members and for the committees and chairs. Board rules should be articulated in writing and should be voted upon. All board members must know the rules like the backs of their hands – and when memory doesn’t serve, the playbook can. At a minimum, your board should have the following governance documents:

■    Bylaws

■    Rules of order

■    Mission statement

■    Policies

■    Corporate charter

■    Committee charters

■    List of governing bodies

In addition to these governance documents, the board interested in professional governance should have at least the following operating and process guideline documents:

■    Procedures

■    Roles and responsibilities

■    Multi-year meeting calendar

■    Meeting agendas

■    Minutes

■    Board dashboard

Once boards are clear on the size and expertise elements conducive to building concinnity in corporate governance, once they get the order and process down, there is another compositional and structural element that is powerful in getting boards to feel like teams. Boards must cultivate other attributes – the touchy-feely ones – that are so important to building a great board group. Being deliberate about adding directors with those touchy-feely qualities is important but so also is living into those ways of being as a group in working together.

There are several hard-to-measure but really important qualities you want to find around your boardroom table. Here are my top five touchy-feely attributes:

■    Trust

■    Respect

■    Passion for corporate performance

■    Generous listening

■    Playing by the roles and rules

Together, governing documents, rules, processes and procedures create the beginning of a framework upon which to build corporate concinnity in governance. A board that has clarity about its own role and responsibilities and knows what it should do and should not, can properly set boundaries with the CEO and the leadership team. Setting clear roles for the CEO vis-a-vis the board and building a board with good substance and form so that directors play well as a team ensures that the two sides of the leadership-governance divide are positioned to work together with the kind of clarity that will reduce conflict.

The most common governance mistakes can be avoided. By approaching governance in a different way, leadership teams can avoid common pitfalls that are rooted in the mishandling of differences between diverse players. By setting up a framework that actually pulls together the people and processes in an agreeable way, constructive debate and teamwork follow. The best governance embraces differences as reasons to learn and grow. In the process, performance, engagement, satisfaction and even lives improve.

 

 

About The Author:

Nancy Falls is CEO of The Concinnity Company, a firm that helps companies transform the way their boards and leadership teams work together, and author of CORPORATE CONCINNITY IN THE BOARDROOM: 10 Imperatives To Drive High Performing Companies (Greenleaf / 2015). With more than thirty years of experience in and around the C-suite and the boardroom, Falls is a leadership and governance expert who understands what it takes to drive authentic success.

For more information, please visit www.TheConcinnityCompany.com

 

FOOTNOTES: 1You should know what it takes to be profitable and financially sound. This includes the financials, in depth, even if you are not a finance jock