High-per­form­ing boards driven by four pil­lars

Kuwait Times - - BUSINESS - By Nathalie Potvin

KUWAIT: Com­pany board per­for­mance is un­der the spot­light more than ever be­fore. Me­dia cov­er­age of re­cent gov­er­nance fail­ures high­light that the ef­fec­tive­ness of boards can at times be strongly tested, and this test may un­fold un­der the scru­tiny of share­hold­ers, cus­tomers, me­dia and the pub­lic.

While no com­pany wants to ever face such highly dis­rup­tive events, some­times even the small­est or­ga­ni­za­tion will need to tackle emerg­ing is­sues that re­quire strong lead­er­ship from the chair­man and his board.

Board mem­bers in the Gulf are be­com­ing more aware of the ne­ces­sity to en­hance their knowl­edge, skills and ca­pa­bil­i­ties in or­der to build bet­ter boards. This is ev­i­denced in a study car­ried out by the GCC Board Direc­tors In­sti­tute (BDI) ear­lier this year, where less than one-third of the board mem­bers sur­veyed be­lieve boards in the Gulf are ef­fec­tive.

But what makes an ef­fec­tive board? The In­sti­tute has con­ducted ex­ten­sive re­search into the facets of board per­for­mance, and has found that four spe­cific key ar­eas are con­ducive to highly ef­fec­tive boards.

First, the role of the chair­man is cru­cial in driv­ing board per­for­mance. Broadly speak­ing, the chair­man en­sures that the board per­forms ef­fec­tively and sup­ports the busi­ness and strat­egy of the com­pany. The char­ac­ter­is­tics of a good chair­man cen­tre on the abil­ity to work well with peo­ple, gain con­sen­sus, and be ‘brave’ enough to do what is right for the or­ga­ni­za­tion. A good chair­man has the re­spon­si­bil­ity to chal­lenge and sup­port man­age­ment, frame the dis­cus­sions in a man­ner that en­ables the board to ad­dress key is­sues and for­mu­late proper res­o­lu­tions. In times of cri­sis, a strong chair­man does not lose sight of the com­pany’s pur­pose and con­tin­ues to lead the board ef­fec­tively, deals with dis­rup­tive, un­fore­seen events and pro­tects the or­ga­ni­za­tion’s long-term in­ter­est above all else.

Sec­ond, suc­ces­sion plan­ning for se­nior man­age­ment roles is piv­otal for the longterm suc­cess of all com­pa­nies alike - whether they are pub­licly listed, state-owned, fam­ily owned or pri­vately held. Over 40% of BDI’s sur­vey re­spon­dents re­vealed that their or­ga­ni­za­tions did not have a suc­ces­sion plan in place. Highly ef­fec­tive boards de­velop and con­tin­u­ously re­vise the plan. To en­sure a suc­cess­ful tran­si­tion, im­ple­men­ta­tion of the suc­ces­sion plan can be­gin as early as three years prior to the tran­si­tion in ques­tion. In the most ef­fec­tive CEO re­place­ment plans, the CEO also plays a key role in se­lect­ing, groom­ing and on­board­ing his/her suc­ces­sor. On­go­ing suc­ces­sion plan­ning helps the board to re­main aligned on the de­vel­op­ment of the se­nior man­age­ment team and the spe­cific needs of the or­ga­ni­za­tion. A solid plan leads to a smooth tran­si­tion which con­trib­utes to sound gov­er­nance, mit­i­gates risk, and fos­ters the trust of share­hold­ers and stake­hold­ers.

The third pil­lar for high-per­form­ing boards is risk man­age­ment. Ac­cord­ing to the In­sti­tute’s sur­vey of GCC board mem­bers, 44 per­cent of re­spon­dents iden­ti­fied au­dit and risk man­age­ment as be­ing an area where they would like to see more ex­per­tise. In ad­di­tion, more than a third of re­spon­dents dis­agreed when asked if all their col­leagues had a clear un­der­stand­ing of the top five risks fac­ing their com­pany. A pa­per by PwC sum­ma­rizes the re­spon­si­bil­i­ties of a board in re­la­tion to risk well, and states that the board is re­spon­si­ble for un­der­stand­ing com­pany man­age­ment’s ap­proach to risk ap­petite and also for hav­ing sub­stan­tive dis­cus­sions about it as part of strat­egy and risk over­sight. Ac­cord­ing to PwC, it is this ac­tive in­volve­ment of the board in risk dis­cus­sions that is piv­otal to a com­pany’s ad­e­quate ap­proach to risk tak­ing and man­age­ment and which will en­sure a com­pany’s suc­cess in the long-run.

Strat­egy is the fourth driver of high-per­form­ing boards. Many or­ga­ni­za­tions spend time re­flect­ing on past-per­for­mance, when look­ing for­ward is es­sen­tial in driv­ing fu­ture growth. Over half of re­spon­dents in the BDI sur­vey agreed that all mem­bers of the board made a sig­nif­i­cant con­tri­bu­tion to strat­egy de­vel­op­ment and strat­egy-re­lated dis­cus­sions. Th­ese same dis­cus­sions en­sure that the board is fully en­gaged with the strat­egy of the com­pany, and al­low boards to play a role in un­der­stand­ing and shap­ing com­pany di­rec­tion in part­ner­ship with man­age­ment. Boards then must hold man­age­ment to ac­count in de­liv­er­ing on that strat­egy.

The board per­for­mance recipe counts sev­eral es­sen­tial in­gre­di­ents, but four are in­dis­pens­able to highly ef­fec­tive boards: role of the chair­man, suc­ces­sion plan­ning, risk man­age­ment and strat­egy. Ul­ti­mately they will en­able the com­pany to suc­cess­fully nav­i­gate emerg­ing is­sues, sus­tain or­ga­ni­za­tional per­for­mance and longevity, and over­come in­tense dif­fi­cul­ties, both in or out of the pub­lic spot­light.

• Nathalie Potvin is Ex­ec­u­tive Di­rec­tor, GCC Board Direc­tors In­sti­tute. The GCC Board Direc­tors In­sti­tute is hold­ing its an­nual Mas­ter­ing the Board­room pro­gram in Riyadh on 24-25 Novem­ber.

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