It may be broad generalisation but I think too many New Zealand boards of directors struggle with separating out strategy from operations, and spend too much time reviewing the CEO’s report. Instead, take the report as read and ask questions on key points or deviations from plan.
Add together all the relatively unproductive time spent reviewing the CEO’s report and the all-consuming compliance aspect of board work and little wonder organisations lose their focus and strategic direction.
Strategy is about positioning an organisation for sustainable competitive advantage. It involves making rational choices about which industries to participate in, what services or products to offer, how to allocate scarce resources, and how to manage risk.
No sustainable value can be created for shareholders or other stakeholders without customer value. The primary function of the board, therefore, should be on creating value for shareholders, employees, partners, suppliers and the community.
My suggestion therefore, is that boards should spend disproportionate amount of time on developing superior strategy that delivers value to customers better than any rival, and over the longest possible time frame.
Directors should ask themselves three questions:
1. Where are we now? typical SWOT analysis.
2. Where do we go? The generation and exploration of strategic alternatives using “greenfields” approach.
3. How do we get there? gap analysis to find solutions in bridging the gaps; identifying the organisation’s core competencies needed to achieve the strategy; and identifying critical success factors associated with successfully implementing the chosen strategy.
Recent trends in the roles of CEO and board have seen:
• separation of the roles of chief executive and chairman.
• Customising the CEO role according to his/her strengths.
• CEOs being selected not just because of fiscal and functional skills but with more emphasis placed on leadership; judgement, intellectual and strategic experience and results; effective top-level communication to range of audiences, from the investment community to the shop floor; building or enhancing complex relationships; strength of character.
• Less CEOs moving on to become chairmen.
• de-emphasis on hiring the “celebrity” CEO and move to building strong management team.
• The board more involved in CEO succession strategies, with less discretion by the CEO to nominate successor.
• Board members being selected on skill-mix needs according to the lifecycle of the entity, and less from the peer network of “tapping people on the shoulder”.
Why the change?
The pace of organisational life has quickened and the acceleration is permanent.
Boards have responded to this change by recognising that running major organisation is less of one-person task than it was. The CEO has become something of an orchestra conductor, assembling, motivating and retaining the strongest possible leadership team.
And the skills of chairman need to complement those of the CEO and through openness and trust they need to move in unison toward common vision.
The relationship between the board or the chairman and CEO has not always been the most harmonious. The most common causes of friction include:
• Long-term versus short-term view. Partly driven by short-term institutional investor expectations, but also by boards failing to communicate, understand and commit to longer-term goals.
• Changing the “do it first, then fix it” entrepreneurial mindset to that of more deliberate planning and execution.
• Blurred responsibilities in relation to strategy and operations.
• Defensiveness usually by the CEO and “gatekeeper” screening of board information.
• Board chairmen not regularly communicating with other board members.
• Lack of board and board member induction or evaluation, leading to confusion or ineffectiveness.
• Not tying implementation success or performance directly to the organisation’s vision creating confusion between priorities and the allocation of capital or other resources.
• breakdown in trust between the CEO and the chairman or board. This trust is rarely rebuilt.
A successful board CEO partnership is defined in leadership quadrant:
1. Strategy
2. Operations
3. Personality fit
4. Capitalising on the signature strengths of board members, the chairman and CEO
1. Strategy
Start with board culture that is open to new ideas and adopts greenfields approach to business. Ask: if we were starting today would we do business the same way?
By planning stategically without constraint business opportunities are unlimited. Nothing is far-fetched in the ‘ideas’ stage of planning. Prepared by the management team through the CEO, the board debates and approves the strategy. To finalise the plan, resources both capital and people are determined based on the prioritised potential, financial return and risks.
The board remains accountable for how well the strategy delivers agreed objectives.
2. Operations
A true delegation holds the CEO accountable for strategy execution. The board should focus on deviations from the plan and any remedial action the CEO is taking. The objective is to overcome time wasted debating operational matters.
At the board level, responsibility remains on ensuring robust and effective risk management.
3. Personality
Though it is seldom used, personality profiling of board members and the CEO is the cornerstone of successful partnership.
4. Signature strengths
Too much time has, in the past, been devoted to performance evaluation systems that emphasise working with people to overcome their weaknesses. more logical approach is to identify individual signature strengths and tailor the position or board member role to capitalise on these.
A signature strength is usually aligned with an individual’s aptitude or interests and the better aligned the strengths and the responsibilities the more successful the relationship.
Apart from the usual board disciplines of finance, HR, audit and legal other valuable signature strengths include communicating with the markets; strategic thinking; longer-term fiscal direction; corporate partnership relationships; positioning, marketing and public relations.
The personality profile of board members and the CEO and understanding each other’s signature strengths builds confidence between people in each other’s skills and abilities.
Openness and trust
A long-term profitable future must have an effective partnership between the chairman and the CEO in particular.
This partnership is based on openness, trust and confidence. An inherent conflict can exist because CEO performance is evaluated by the board sometimes producing less than open dialogue.
The keys to successful and effective partnership between chair and CEO include:
• Personality profiling of both. This gives the CEO in particular the opportunity to change his or her style to achieve better personality fit, and have effective learning and communication styles with the chairman.
• Performance evaluation – ensuring that the evaluation is aligned with board and organisational objectives. Performance target measurement and systematic, precise performance appraisal. Deviations from plan are recognised during this process, and there is an agreement on corrective action.
• Frequent face-to-face meetings between the chairman and CEO.
• Ensuring career and personal satisfaction needs of the CEO are recognised and in sync with the organisation’s vision.
• Each person delivering on his or her promises. sure way to build trust.
• Openness of communication. If there is need for hidden motives, secret agendas or politics then the organisation already has serious problems.
• Having chairman who is prepared to lead and be coach to the CEO and delegate both the authority and responsibility in the implementation of the board’s decisions.
• Encouraging the CEO to stretch beyond his or her perceived cons
