How will your board rise to the challenge of unexpected challenges?
Much of our established management thinking is based on companies operating in a steady state environment, or one of incremental change. But businesses are increasingly facing extraordinary disruptions and there is growing pressure for greater accountability in how leaders address these issues.
Many boards are arguably not equipped to deal with extraordinary disruptions and are often found to be unaligned with their management team. Previous research has shown that as many as 30% of top management teams in the UK, 39% in the US, and 56% in the Australian Public Service recognise that fundamental divisions exist within their top teams when considering future planning and direction.
The latest research on the way that boards respond to extraordinary disruptions, conducted by global professional services firm Alvarez & Marsal in conjunction with Henley Business School, identified the following nine key findings. These findings have led to the development of practical guidance for leadership teams, by establishing a set of core disciplines to increase the chances of success.
1. There are four distinct types of extraordinary disruption
Transformational: planned, internal disruption such as turnaround or strategic transformation.
Reputational: unplanned and internal, such as fraud, misconduct, management conflict, product integrity and safety.
Hostile: unplanned, external disruption, e.g. credit crunch, hostile bids, cyber-attacks, active investors.
Creative: the organisation is itself the disruptor, e.g. start-ups disrupting established players.
2. Boards must be strong enough to ‘call out the issue’ at an early stage
Boards are often focused on the known risks and therefore need to allocate the time required to identify the ‘unknown unknowns’. They should be alert to blockers that impede the ability of board members to call out the issue, and establishing a board culture that encourages open communication is critical.
3. Disruptions require different approaches
When addressing extraordinary disruptions the chairman and/or CEO overwhelmingly take on even more critical leadership roles. Leadership styles are utilised by business leaders to address each type of disruption.
4. The four leadership qualities that must be in place
Leaders need particularly high levels of emotional resilience, exceptional communication skills, high levels of IQ, EQ (emotional quotient) and XQ (execution quotient), and integrity.
5. Leaders must maintain seven core disciplines
Combining these disciplines throughout an extraordinary disruption brings about a greater likelihood of success:
1. Ensure a constructive chairman–CEO relationship.
2. Articulate the purpose, take calculated risks and generate pace.
3. Be evidence-led.
4. Maintain strategic alignment and engagement between the board and management.
5. Get the right people in place.
6. Ensure effective stakeholder management (including political and social dimensions).
7. Use trusted, independent advisers.
6. Conventional governance prescriptions may not apply
While corporate governance codes are based on principles, their application can be prescriptive and designed for the incremental, rather than the extraordinary.
7. The CEO superman is in decline
During extraordinary disruption many leaders feel overwhelmed, emotionally challenged and sometimes unable to cope. Conventional leadership will not hold all the answers – more collaborative and contextually intelligent leaders are needed.
8. The role of the chairman becomes pivotal
The chairman of the board is often called upon to assume a stronger leadership role during extraordinary disruptions and has a critical role in maintaining strategic leadership and alignment.
9. A simple process framework for success
Successful boards follow a dynamic process in dealing with extraordinary disruption. We have presented this process in the framework below, divided into three stages; in reality these may occur concurrently.
Programme Director on Henley’s Board Directors’ Programme, Professor Andrew Kakabadse maintains that ‘so many board directors are ill-prepared and ill-equipped to face even regular challenges, so they find themselves completely out of their depth when major disruptions occur. The programme addresses many of the issues this research has raised, but the culture within organisations needs to change.’
To see the full report, click hereThe Board Directors' Programme