Some people tower over their profession: Albert Einstein – physical sciences, Chuck Yeager – test flying, Florence Nightingale – nursing (and statistics – check her out). In corporate governance, few are as respected as Professor Bob Garratt, author of ‘The Fish Rots from the Head’. It’s an excellent metaphor to illustrate his discussion of board leadership, albeit, as a marine biologist once advised me, biologically incorrect.
Professor Garratt is one of the western world’s leading thinkers in directing and controlling companies. In a recent article from his 2017 book, ‘Stop the Rot: Reframing Governance for Directors and Politicians,’ he describes the four levels of board maturity that help identify how your board is adding value. I’ve looked at each of these below and have suggested how, as chair, you might respond depending on your own board’s maturity level.
First is what Professor Garratt describes as the Accidental Board. In these businesses, often family companies or employee-owned businesses, the directors have been registered, but the board is a formality and largely ignored, except for signing a couple of forms to accompany the annual financial return. This is a dangerous playground: they’re not even aware that directors assume serious responsibilities and obligations when they consent to act... as one senior director put it to me, ‘When you join a board, you hand over a blank cheque which is your reputation and you should aim for it never to be cashed.’
These boards don’t know what they don’t know. At the very least, get them some basic training in governance, and how it differs from what they’ve been doing. You wouldn’t let someone drive a car, boat or aeroplane without some instruction. Why let them out as your company’s governors (derived from the Latin for helmsman) without equivalent training?
At the second level is the Grudgingly Compliant Board. These directors understand that they have responsibilities, and personal exposure if they don’t comply. But they see governance as a handbrake on the business and won’t invest any more than the bare minimum of time or resource into it.
This sounds like several companies I know: they have a board, because they think they should; they hold as few board meetings as practicable, with an agenda that’s largely about ensuring they’ve ticked the legal boxes, reviewed last month’s financials, discussed a few operational matters and aimed at making today’s meeting shorter than the last. These boards don’t understand the value that directors can bring when they stand back from the business, test management’s thinking, and offer guidance and insight from a range of perspectives.
For these directors, the appointment of the board’s first independent director can provide the wake-up call. Alternatively, they may decide to seek outside advice or training when they, or a newcomer, sense that the board could deliver much more. For you as chair, this is your opportunity to stop the board from staring in the rear-view mirror and force it to look ahead to shape the company’s course.
When this leads to the Learning Board, the company’s top management and owners, as well as the directors, recognise that an effective board is a vital component of the leadership. The board grows from its limited role of overseeing and holding the CEO to account, and becomes an enabler and accelerator for the business – setting policies, looking ahead and working with management to formulate strategy and set challenging but achievable goals and objectives.
Here is your chance as chair to take your board ‘from good to great’ – to widen your board’s perspective from a narrow focus on maximising shareholder value. What must the business do, to ensure survival and success over the years ahead: how do you remain a good investment for your shareholders, an attractive employer of your people, a company your customers are proud to associate with, and a valuable member of society, making your small part of the world a better place?
At the highest level, we have what Professor Garratt describes as the Professional Board. I prefer the Leading Board –
- Providing effective direction, oversight and control;
- Holding board meetings whose main purpose is to help our chief executive succeed;
- Constantly reviewing the changing environment around us; and
- Identifying the opportunities ahead, while spotting the roadblocks in our way.
This Leading Board is willing to raise difficult issues, to hold challenging conversations, and to listen to views that may make us uncomfortable. This board evaluates its performance and the contribution of each director, on a regular annual or biennial cycle.
- When the world changes, why assume (if only implicitly) that the board we had last year is necessarily the one we need for next year?
- Does our current way of governing, with its associated ‘infrastructure’ of meeting preparation and support, add to or detract from the value we bring?
- How might we do it all better?
These are tough questions, but ones we must ask if our board is to continue adding value and providing the guidance and support our chief executive needs.
As chair, you have the opportunity (and responsibility) to ensure that your board’s composition, skills mix and practice are relevant to the challenges of the next few years, not simply a legacy of habit or history. As the late Jack Welch memorably summed it up: ‘If the rate of change on the outside exceeds the rate of change on the inside, the end is near.’
As chair, you can make sure that doesn’t happen.
But you need to act: first, acknowledge your board’s real maturity level (perhaps not what you’d like it to be).
Is it
- An Accidental Board?
- A Grudgingly Compliant Board?
- A Learning Board? Or
- A Leading Board?
Then decide what you need to do about it – today.
And if you’re not sure, call me.
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