Tips from the top: Governing to create value

Minter Ellison Rudd Watts recently held a Corporate Governance Symposium for directors and executives in Auckland.

The panel – which comprised leading independent directors and chairs Chris Moller, Joan Withers, Sam Knowles, Mark Weldon, Ross George and Rob Everett, CEO of the FMA – debated key themes around the central question of:

How should boards best govern for value creation?

The following answers to this question were put forward during the evening.

1.    Spend more time on strategy

High-impact boards spend much more time on strategy than those that have less impact. Higher impact boards spend significantly more time on rigorous practices, assessing value drivers, resource allocation, portfolio synergies and diversification. However, the very highest performing boards also look inwardly, working to remove bias from decision making.

2.    Boards and management must operate as one team, although not as a cosy cabal

There is no substitute for a One Team approach. To create value, united leadership, trust and respect must exist, with everyone understanding what they are shooting for. Management and owners must have common goals, and the right tone from the top – it is easy to deal with issues if the goals are the same. It is also very healthy once a year to re-establish where the company wants to go to.

3.    Ask: what’s the deep nature of our business?

The best boards construct strategies that are aligned with the value drivers of the business. Once you decide if you are a capital-intensive or a growth business, then the board and management must be aligned on which numbers to watch. And beware the ‘curse of the fast company magazine’: focus on the right strategy. It is critical for organisations to decide how and where to compete to win, how it translates into opportunities and targets, sales planning, strategies and budgeting, and feed that into performance reporting.

4.    Understand the business, be invested in its success, and focus on value creation systems

A good director is very close to the business, knowing it and its people backwards, formally and informally, as well as its customers and competitors, to ensure they are very close to the issues. Also, by having a meaningful number of shares in the business, every decision has a direct personal upside or downside for directors. Directors also need to understand the value system and supporting processes in detail – apart from industry experience, do they need a sales or customer focused background? What about their knowledge of competitors, or cross industry experience? Diverse and relevant experience will build better value creation systems.

5.    Don’t let your CEO become the bottleneck for value creation

If you have a structure where all board decisions, directions and actions are funnelled through the CEO to the rest of the organisation, then there is a risk that communication may become distorted or muted. Likewise value creation that comes from the staff and executive can also be bottlenecked if this can only travel through the CEO to the board. Some of the best performing companies have devised open communication strategies between the board and executive.

Another symposium will be held in 2015.


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