How to secure a Board Role - Understanding the Board context
To secure a seat on the Board, you need to convince them of your contribution. Apart from issues covered in my other articles, it is important to place the Board's role, and your potential contribution, into a wider context, and consider who are the stakeholders whose support the organisation needs to survive and thrive.
Edward Freeman is the father of stakeholder theory. In his classic book Strategic Management: a Stakeholder Approach, he pointed out that there are many other stakeholders to be considered apart from a company's shareholders or owners: employees, trade unions, government, local and national, the Internet and the environment. All have an impact and add to the complex context within which Boards operate.
In a fast-changing environment, making the right decisions is a significant challenge. In meeting this challenge the Board can be greatly assisted by having a structure for understanding how the unfolding events in the company's total context will impact on the company's objectives. In Managing Crises Before they Happen, Ian Mitroff created a valuable source of insight into the questions to ask to establish the relative health of an organisation. Particularly useful is the first step of a five step framework “Recognise the early warning signals that almost always precede a crisis”.
Although other groups can be and are identified, I will focus on the ones I have mentioned.
In law, shareholders are defined as the owners of a business - with ownership, of course, being a defining characteristic of capitalism. Shareholders have to be considered when making Board decisions, and they have a major influence in areas such as strategy, financing, Board appointments, remuneration structure, environmental policies and diversity. A recent example was when Unilever's Board proposed relocating to the Netherlands and was forced to change course after pressure was applied by shareholders who believed their dividends would suffer in the longer term.
Looked at in more detail however, the influence of shareholders may not be as significant as it appears. The picture is complex but this HBR article by Justin Fox and Jay W Lorsch concludes that shareholders are not as well placed to influence the Board as some decades ago; they do not provide the bulk of capital, are not adequately informed and overall have not been able to keep managers in check. So although shareholders can influence the decisions of a company, that influence often is a knee-jerk reaction rather than one integrated with the aims of all the stakeholders of the organisation.
How can directors make a difference to the way they relate to shareholders? In recent decades, the relationship between Boards and their shareholders have tended to be oppositional. Fox and Lorsch suggest that directors can make a difference to the current somewhat antagonistic relationship, by encouraging more interaction between Boards, managers and long-term shareholders, in order to build stronger relationships and more constructive dialogue. A potential Board member who has an understanding of how the Board has previously related to shareholders, may offer some inspiration by making constructive suggestions to the Board, even during the selection process.
Company employees interact with customers far more frequently than Board directors. Having their engagement and alignment with company values is closely linked with business results. In consequence, their engagement is critical.
Companies can make a big difference to employee engagement in a number of ways. Professor Dave Ulrich, a major thought leader in HR, talks about the need for not only supporting individuals to lead from who they are, but also, over time, building a culture that focuses on an organisation’s collective leadership. Rosabeth Moss Kanter tells the story of a major restructuring of South Korea's banking industry. When the Shinhan Bank set out to take over the Cho Hung Bank in the 90s, the Cho Hung Bank’s workers' reluctance about the merger was addressed by delaying the merger process, and implementing a programme providing information and face to face familiarity with the new institution in the form of ongoing projects over a period of three years, combined with a significant increase in remuneration to align the pay levels of the banks. The sensitive integration of the Shinhan Bank workers allowed both banks to significantly grow their customer base in the next 18 months. In contrast, the series of bank restructurings in the Netherlands in the second half of the 20th century was not as sensitively handled as regards the employees, with a negative impact on productivity, and delaying the effects of the mergers.
Asking questions about evidence of employee engagement, and an articulate understanding of your own contribution to its enhancement, is likely to be useful in an interview situation.
Customers matter for an obvious major reason: No customers - no business!
Customer loyalty is usually strongly affected by their experience, in particular by their experience of being sold the products or services of the company. So the company strategy behind the processes for providing the customers' sales experience, makes them want to return and keep returning. Jeff Bezos, the head of Amazon, is known for exhorting his employees to “wake up every morning terrified” that customers might not choose Amazon next time. In service of this ethos he encourages them to constantly improve the customer experience, even by making mistakes, and learning from them. Amazon’s high profitability and shareholder return may be directly related to this process.
A company's ability to keep up with changes in technology is also key. Recent MIT Sloan research on AI (Artificial Intelligence) in businesses, suggested that faster uptake of AI induced organisations to facilitate constant learning, to push decision-making further down into the organisation, and to have a more flexible structure for implementing change.
Being armed with the findings of the latest research and knowledge of ‘on the ground’ developments, allows a more critical look at how vulnerable to disruption a company can be. Any potential Board member who can demonstrate an understanding, and innovative ways of tackling, the current industry challenges in the interaction with customers, is likely to enhance their attractiveness to the Board's selection committee.
Local communities, including creditors and suppliers
With the coming of the Internet, local communities are in a stronger position to influence brand reputation. Many local communities are connected digitally and it is easy to warn potential customers if a community member has been treated badly. Once the information is out there it can’t be taken back, even if there is no truth in it whatsoever. This Forbes article states that 82% of US customers consider CSR (Corporate Social Responsibility) projects when making buying decisions and 86% of millennials regard not living up to CSR promises, a quitting matter.
As a result, more thought is given to the interaction of businesses with their local environment. The same Forbes article lists the different ways companies can contribute to the local community, raising its visibility and building its business relationships. The speakers at the Global Peter Drucker Forum (#GPDF18) in November 2018, including such names as Charles Handy, Henry Mintzberg and Rosabeth Moss Kanter, reinforced from their own research, the value of engaging with the community to promote mutual sustainability. A high profile success story was Unilever’s Project Shakti, which trained 80,000 women across 18 states in India to develop an entrepreneurial mindset to make themselves financially independent. For Unilever the incremental turnover was estimated to be in the order of £80 million.
A demonstration of “out of the box thinking” leading to profitable results is likely to be a major asset to Boards that are beginning to realise that it is not so much whether their business will be disrupted but when.
Government, local and national
Government at both national and local level is becoming even more important to business, as the economic and environmental landscape changes. As the business environment has become more complex, with greater regulation, climate change, and the impact of technology, there is more pressure on both the public and the private sectors to ask themselves how they can collaborate with the other for mutual benefit. The Unilever project, mentioned above, is one successful example.
There is a trend towards governments recognising that business problems are now government problems. Banks are an obvious example, the British government’s bank rescue package in the 2008 banking crisis totalled some £500 billion.
In Britain the idea of a Public Private Partnership, as part of a wider government Private Finance Initiative (PFI) in 1992, was responded to favourably by many in the private sector. Although the initial idea was to provide mutual benefit to government and business, on the whole business has benefitted more. The policy has left a number of scandals in its wake - one being NHS hospitals where the cost to the government has been greater than borrowing the money elsewhere. This goes to show that the impact of government, and the relationship between business and government, is difficult to manage well.
A changing business environment, whilst posing many risks, also offers opportunities. This Deloitte Insights article points out the ways the relationship between government and business is changing, driven by new pressures. Rather than just focusing on infrastructure, there are now a number of new initiatives. These include: sponsoring competitions to find innovative solutions, researching an issue and building a platform to engage law makes and regulators, partnering with government to incubate ideas or forming 3 way partnerships of government business and the social sector to address a problem. An example of the latter is the The Global Alliance for Clean Cookstoves Project led by the United Nations, aiming to find a global solution to air polluting fuel.
Awareness of the ways in which business and communities have successfully worked together is a valuable source of information for a Board, as they will imagine that a Board candidate demonstrating knowledge and experience in this area may help them materially in future when problems occur, or in anticipating issues.
The Internet, the digital world, privacy, security
As a context for Board activity, "digital" is having an ever increasing impact. At the 10th Global Peter Drucker Forum on Innovation in 2018 a significant number of the speakers were insistent on the need to grasp the many opportunities to embrace technology if companies are to survive. The business landscape has changed so rapidly that a lot of the previous assumptions are no longer valid. Thought leader Adam Trisk, in @INC points out three major industries: cable, hotels and airlines, that are ripe for disruption. Old digital systems are holding large companies back owing to the lack of flexibility of their IT systems making it difficult to respond effectively to customer needs. Problems with legacy systems in British banking are somewhat notorious. The findings of a recent MIT Sloan Management Review and Deloitte University Press study reported that 56% of the business leaders they interviewed did not believe they were ready for the digital revolution.
However, as I have already said, an unpredictable market place also offers great opportunities - if organisations can remain flexible in their thinking and adapt quickly enough. AJ Agrawal in a recent Forbes article stresses the importance of being able to think differently. He suggests the ever-increasing importance of technology in almost all businesses invites a design approach, where the digital environment makes it possible to identify what can be done to generate customer value and market opportunities. If solutions to these problems can be found, a company can respond more quickly to the need to be guided by customer experience.
In some countries there are small consultants like Ortelius in Sweden, who have developed an impressive platform called Inorigo, helping companies to more formally understand and track their complete context, including relevant events in all stakeholder areas.
This blog article by American Intellera suggests focusing on Strategic, Organisational and Operational agility -- thus driving greater efficiency, and with it, the employees’ ability to identify, integrate and achieve the transformations required by the environment. Asking questions about how each of these issues can be addressed, may help a Board candidate stand out.
If the Board continues to be unwilling to address all issues in the real world "out there", it may help to push for some kind of turnaround intervention from an experienced facilitator outside the organisation who can help members focus on a joint vision and work effectively together to design a strategy to achieve it.
The cultural flexibility now being called for has to begin in the Boardroom. The willingness to respond creatively to the questions thrown up by change is a constant challenge. Established Boards can easily become paralysed by political differences and lack of engagement. A few well founded comments opening up new avenues to immediate challenges may well receive a positive reaction.
To survive, companies must be aware of the business environment in general. Economic, social, technological political/legal and global factors can all affect business results. The financial crash of 2008, had global consequences because the people responsible for making the decisions did not understand BDO risk. Today, more than ten years on, several pundits are warning that a similar crash is imminent. It is not possible to be aware of every threat or opportunity; but it can be expected and striven towards, to consider relevant areas to explore, manage and possibly even reduce risk. One of the more difficult stakeholder areas to gauge and deal with is the environment - as in environmental issues, ecology and green movements.
When discussing environmental risk and how to address it, Boards can easily be sidetracked by uncorroborated information. There may be a received wisdom that has been amplified by a range of media, that is factually incorrect. A Holocaust denier, or President Donald Trump denying global warming, demonstrate how false information can spread, significantly affecting people’s lives. A Board must be prepared to thoroughly check any information that may affect future strategy. They can invite expert advice upon which to base decisions, or give a specialist Board member a platform to suggest a new strategic direction based on their own knowledge. The Bangladesh Bank wanted to know if there was a market for rural banks in India and got into partnership with Muhammad Yunus to set up Grameen Bank to provide credit and banking services to the rural poor, based on Yunus’ research. In recognition of the success of this effort, Yunus received the Nobel Peace Prize, together with the bank.
A good way of getting a Board’s attention is to gain a deeper understanding of the organisation's relationship to the current environment in an area that interests you or where you have specialist knowledge. You may be in a position to suggest alternative ways of responding to business challenges, thereby demonstrating your value.
When attempting to secure a Board role, an understanding of the context within which a Board operates allows a better understanding of how to plan for a sustainable future. Knowing who the stakeholders are and considering their impact on a given company, can produce a more nuanced and complete perspective.
Stakeholder theory is somewhat controversial and not always popular. A few countries only recognise shareholders and some only legally recognise some stakeholders. In this article, I have tried to simplify the picture by briefly considering some of the groups that can have an impact on Board decisions, and on the results of a private company.
In a VUCA environment, where disruption is ever more present, being aware of how stakeholders can have an impact on a company’s direction is a significant contribution. Directors or Board candidates who can demonstrate their ability to deal with one or more of the difficult or ‘esoteric’ stakeholder groups, are likely to attract the Board’s attention, and are more likely to be offered, in the end, a Board position.