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As little as 10% of private company boards have a clear agenda on strategy today. Our experience and recent study tell us this is not new in the governance landscape. Yet in the business landscape, strong winds of pressure keep blowing: globalisation, the digital economy, the mutation of customers, etc. Boards are thus foregoing a critical role in creating value: Strategy assembling. The reason for that is that boards are locked into a familiar pattern that is blocking them to fully play their role. In some cases, it may lead to insolvency.

Most boards in existence have actually been created in the last century, when the state of business pressure was not as high as today, and when business was mainly conducted with a continental mindset. Boards were often set up in relative haste, with the prime matter of distributing control on the board, dominating the initial steps. Not surprisingly board performance varied between a ‘rubberstamping’ version to a mixed bag of ‘cat and mouse’ practices. In most cases, board members have been happy to play the role of checkers of financial statements, or the protecting guardians of rules and regulations. Little time and few incentives were dedicated to reaching the strategic agenda. This is a common pattern, still persisting to this day. Yet a strategic board is not a superfluous option today. It is a powerful and necessary tool to respond to business changes and challenges.

Breaking that established pattern is about looking at three specific points of resistance and installing new practices: 1. The initial set-up; 2. Board evaluation; 3. Introducing the strategic agenda. The following comments are inspired by our study conclusions, recently posted on our website.

1. Nurturing a fledging board: Many entrepreneurs are plain hesitant to set-up a board of directors in the first place. They see plenty of bad boards and wonder why they should get into something that is not serving them and that is more likely to turn into a burden. The contract between transparency from management and true engagement from the board members is rarely consumed when the abiding rush in setting up a board is not resisted. When “control” issues dominate (and just think about the monster ‘shareholders’ agreements you have probably seen) both sides are doomed to be disappointed. Thoughtful planning and sequencing at the outset, before the board is created, is not wasted: The standards of the initial set-up will quickly determine the level of performance of the board, which plateaus early on.

2. Raising performance standards: The board soon learns to live with its practices, good and bad, and its installed routine. A poor set-up usually leads to the inclusion of some faulty processes, disruptive behaviours, and bad thinking permeating the board routine. It is the sad fate of a majority of boards. We have come across numerous boards that were qualified as “toxic”, “frustrating”, and a “waste of time”. The amazing thing is that board performance is relatively easy and inexpensive to correct. What is missing is the will and the incentives to undertake a performance review. Raising board standards is often a prerequisite to introducing the strategy agenda.

3. Introducing the strategic agenda: Not surprisingly, and given the current state of affairs on boards, there is also much resistance to introduce strategic concerns on the agenda: Overt resistance from management, and covert resistance from board members. Management sees a “golden cage” in strategic planning, while independent board members are often reluctant to “own” the corporate strategy. Too often the board is happy to settle for a weak SWOT analysis, or a stretched budget. A rigorous peek into the future is missed out. Again a proper roadmap can help clarify the roles for both management and board members at the time when the board contemplates the process of strategy assembling. We have written an article on the topic: “A time for boards to renew strategy”, which reviews in greater details what it takes to get on with the strategy agenda.

Small and large companies alike are caught into a locked pattern of managing the status quo. Technical changes are resisted, market changes are missed out, and cost cutting overtakes strategic insight. The recent examples of GM, Readers Digest and a score of others illustrate the consequences of not breaking the pattern at board level. New boards should beware.

André Du Sault.

Posted in Governance, Strategy & globalisation.

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