High Impact Boards Accelerate a Business and Transcend Governance
I recently traveled around the world presenting at different conferences and audiences in Mexico, Singapore, China and Spain. Our message was simple and it highlighted many of our findings from highly successful boards around the world who have implemented a powerful paradigm shift in their board processes. We presented our data and the tactics that many high-performance boards are using to transition from a focus on good governance practices to elevating the focus of the board to a more strategic level. Based on the feedback we received we have definitely hit a nerve with this information and now we will share our insight with you.
There have been other recent studies conducted that are similar to ours. Many boards are trying to navigate through this “shift in focus” on their own. While this is a new topic of discussion among many, it is still very uncommon in practice. Many boards believe they have made this transition successfully because they are no longer solely focused on governance.
Our data expanded on this topic by highlighting that many boards still have much further to go. Just because a board is not solely focused on governance does not constitute a migration to what we call a #HighImpactBoard. At ABA we define boards that “transcend” their good governance mandate, #HighImpactBoards. What we will describe partly in this and the next post are the five reasons why this transition is so powerful for most companies. These concepts are easy to understand, and you can replicate these ideas in your board processes to enhance the shareholder value your High Impact Board is creating.
Furthermore, #HighImpactBoards are those which become strategic and competitive assets to their organizations while following its governance mandate. It seems as though there is general alignment in most companies that boards need to play a more substantial role in the strategy of an organization. There have been many surveys on this subject, and our data consistently demonstrates:
- The majority of Board Members want to create strategic value for the boards on which they serve.
- Most Executive Teams would like to leverage their boards to help accelerate the business.
- Shareholders are no longer satisfied with boards that focus on a “reports” based board model. They expect the Board to support the executive team’s ability to increase the value of their investment.
There is a general alignment among the Stakeholders (Shareholders, Board Members and Executive Team Members) in most companies around these new board expectations. The issue is that the current “traditional” board model often yields a different outcome than what these stakeholders want from their board process. This misalignment of outcomes and expectations leads to a general lack of understanding on how to meet these expectations. Our analysis of over 1200 boards from companies around the world demonstrates this fact. Only 16% of respondents (Board Members, Shareholders and Executive Team Members) would consider their boards “High Impact Boards” based on a subjective view of the strategic value that their boards generated for the business.
This data does not imply that boards are doing a bad job (although 42% might want to rethink their board processes), and many of them have comprehensive governance processes. What this data does demonstrate is that the traditional way that boards have operated may have worked for the expectations of the past, but this is no longer an optimal solution to accelerate business models in a complex and rapidly changing business environment.
There has been additional data collected recently that also reflects the importance of this paradigm shift from a board focused on proper governance. In May 2016 Harvard Business Review published an article called “Boards Aren’t the Right Way to Monitor Companies” by Steven Boivie, Michael Bednar, and Joel Andrus. The authors conducted and published a study with Co-Author Ruth Aguilera in the Academy of Management Annals. They analyzed nearly 300 research articles that examined the effectiveness of board monitoring, and they came to the conclusion that it is unreasonable to expect boards to be able to do an adequate job at ongoing monitoring. Their study concluded that there are significant barriers at the director, board, and firm level that prevent them from being effective “monitors”.
Benefits of Moving to a #HighImpactBoard
A common comment that we hear from many companies around the world is that their boards are performing “well” or even “pretty good.” The idea being that while the board may not be considered High Impact, it is also not dysfunctional or underperforming in any way so why make any changes? It would be illogical to think that a CEO and their team would only plan for “pretty good” performance and this would be acceptable for the shareholders. Similarly, most Stakeholders are expecting that their boards perform at a higher level than “pretty good”. We understand that a #HighImpactBoard is not for every organization, so if your Shareholders are not interested in achieving any of the outcomes of the following list, then this is a good indicator that this would not be helpful to your organization.
In making this transition companies can reap advantages far beyond a more efficient board process. We will highlight 5 of the top ones here.
Acceleration of Strategic Initiatives
The primary benefit that is often realized from a High Impact Board is an acceleration of the strategic direction of the company with the board’s help and advice. This acceleration creates the impact that all of the Stakeholders are hoping for from their boards. When boards are primarily focused on how they can help and support the Executive Team in achieving their goals, the result is an immediate impact on achieving those goals faster.
High Impact Boards play a proactive role in helping the Executive Team achieve their goals and objectives years earlier than traditional boards would. The result is a higher Gross or Net Profit percentage and higher revenues for the company. This often exceeds the expectations of the Executive Team and the Shareholders.
Higher Enterprise Value and Profitability
A secondary and very common benefit of High Impact Boards is their effect on the profitability of the organization. This is normally generated not only from helping to accelerate the company’s strategic initiatives, but it also comes from a focus on how the company can execute its goals more profitably. Leveraging the experience of Board Members that have specific expertise and backgrounds in identical or related fields can create a focus on the things that will make the company more profitable. ABA has been involved in board meetings where the board has recommended tactics that were implemented, ultimately increasing the net profits of the company. One of our clients has actually experienced their Net Profits increasing by 300%. This type of outcome can obviously have a considerable impact on the overall Enterprise value of the organization.
A benefit that is often overlooked and rarely realized is the competitive advantage that a High Impact Board can generate. We are not referencing the theory of the “reputational” benefit of putting a “big name” on your board. This is what we call a “celebrity board” and our data proves that this theory is unsound and flawed. A recent example of this is the #WellsFargoBoardFailure that has been so well documented.
Instead, we are talking about the “exclusive” information about your competitors that the board members can provide to your organization. Board Members that have direct experience in your industry should know how many of your competitors operate from a pricing, marketing and maybe even operations perspective. This information can be tremendously impactful for companies when they understand how to more effectively compete for business.
ABA has conducted board meetings where a board member has provided information on how our client’s competitor was positioning themselves and their pricing against them. In yet another instance a board member had knowledge that a competitor was having some real problems and was a prime acquisition target for our client.
These are only three examples of the many more we could list. We hope this initial overview of what a #HighImpactBoard is and the reasons you need a high impact board have brought some awareness to what can be achieved through a few changes in your current board situation. We want to reiterate that #HighImpactBoards are not for every organization and if your Shareholders are not looking for the type of impact that we have explained then this is a good indication that this would not be for your organization.
Assuming that a strategic initiative, increased profitability, and a competitive advantage is something you are interested in, we will highlight some other examples in our next post. We will also include an explanation of the following graph of the Key Attributes of a High Impact Board and how these compare to more Governance Focused Boards. Until next time…..