The Fish Rots From The Head: The Crisis in our Boardrooms: Developing the Crucial Skills of the Competent Director

by Bob Garratt

It is the three socio-emotional aspects that create the context in which all other activities of the business function. They generate the crucial corporate energy needed to achieve the purpose.

The fundamental question for anyone becoming a statutory director of a business is: What is the purpose of your enterprise? This is then followed up by such questions as: Why is it here? What is its reason for being? What must it do to stay relevant? How can it stay within its ‘energy niches’ to achieve its purpose?

A mission is quite different. It is by definition achievable – to reach a certain target by a certain time with specific resources. Purposes are directoral and conceptual in nature. Missions are executive and tangible. Both are important in their place. But the place for missions is the executive world away from the boardroom.

But the board has to position the company in all the political environments – party political, national and regional political, environmental (the green and sustainability issues), economic (national and international), social, technological and trade (the PPESTT analysis) – and with slim resources set up systems for monitoring the trends and changes on a regular and rigorous basis.

Facing up to, and learning from, the political world is fundamental to organizational survival and the board is central, but not exclusive, to it. It is important to realize that many other parts of the organization – the internal and external stakeholders – must contribute.

The board, working with the owners, has to define a purpose to which all members of the organization can commit.

A wise board will derive it in consultation with its staff, customers, suppliers and shareholders.

The vision should be unattainable in the short and medium term, but sufficiently tantalizing for everyone to remain excited and energized by it to see it as a real long-term possibility, even in the worst of times.

Vision has a second important aspect. It reframes the context in which staff, shareholders and stakeholders see their work for today and for tomorrow. Once the core competencies are clarified, the board can help change the executives’ mindset so that they think of themselves as handling a portfolio of changing resources – knowledge, attitudes and skills – rather than just a collection of business units. They can then help the members of their company reframe their thinking about the changes in competitors and the outside world and so become more sensitive to their changing position in the competitive environment.

if the values on which an organization is built – typically excellence, honesty, quality, risk, innovation, creativity, reward, profit, competition, teamwork, probity – are not seen to be acted out by their creators, the board, they will mean nothing to the staff, customers or owners.

With the current pressures from many stakeholders for sustainability to become a core organizational value defining appropriate behaviours, rewards and sanctions will be a major future challenge for many businesses.

It is easy to start listing such values as customer satisfaction, quality excellence, honesty and so on, but do these reflect what your people actually do? How do you know? Are the values and behaviours tested regularly and independently? As a board member do you occasionally telephone your organization’s switchboard posing as a customer and try to buy your product or service? Have you tried to make a complaint and follow through what happens? Have you ever used your own helpline or tried to find simple information on your website? Have you looked up your corporation on Wikipedia, or searched websites that are against your corporation? Have you sat outside the factory on a Friday afternoon and inspected what is actually sent out to meet delivery targets? Have you worked on the night shift in the accident and emergency department of your hospital? Doing any of these can be an eye-opener for directors and may show that things are well out of line with the carefully crafted value statement which often hangs on the office walls.

When I worked with one telecommunications company, the board perception of values was so out of sync with the reality of operations that the chairman had to ensure that each board member, executive and independent, spent a day a week ‘up poles or down holes’, meeting the staff and customers, and getting to grips with the reality of their recently privatized organization. Only after this consultative process was it possible to create a value statement to which the staff subscribed.

the failure was not in understanding risk so much as in not comprehending that a market without morals is sure to implode, especially when driven from the boardroom by insatiable personal aggrandizement.

It is thus bizarre to talk of the ‘resilience of capitalism’ when it was the wholly unprecedented intervention of governments that prevented a partial collapse of the banking system becoming a total one.

Regulation can only ever provide a limited safety net. But if markets continue to be driven and ruled by ruthless maximization of profit fettered only by law (and then stretched to breaking point), nothing will save us from further disaster.

Creating an appropriate organizational culture is a fundamental building block of a healthy organization, and it is measurable – by parametric and non-parametric statistics, and other quantitative and qualitative methods, such as organizational capability surveys.

If retention and development of customers are keys to increased profitability, retention of key people, their experience and developing personal capabilities, is the best way of retaining customers, and it dramatically reduces the cost of sales.

As soon as you start someone will say, ‘Oh! We don’t do things like that around here.’ You have hit the first signs of the corporate culture. ‘How we do things around here’ is a powerful bond for those already in the organization. Some would call long-established organizational cultures ‘psychic prisons’. But what do you do next? Do you adapt to it, knowing that you may be doing something which you believe is then less effective for the organization, or do you try to demonstrate the superiority of your methods and try to change the culture? These are difficult decisions for incomers and can prejudice, unfairly, their acceptability to the existing staff, either in the short term or for a long time. Culture is a tough beast with a long history.

Man is an animal suspended in webs of signification he himself has spun. I take culture to be those webs, and the analysis of it to be therefore not an experimental science in search of law, but an interpretive one in search of meaning.

The board is the main spinner of the ‘webs of signification’.

even if most of the dinosaurs started to move slowly, all was not necessarily well elsewhere. There were other and often more subtle blocks to progress. They defined two other groups who were much trickier to handle. One was a small group of people who had a little understanding but lots of enthusiasm. They were rushing around the organization trying to force changes along their only partly understood lines, with little feeling for the purpose, vision and values, and especially behaviours, that the board intended. They got excited about ideas and then tried to impose them on others rather than helping those others to learn for themselves. Inevitably, these ‘dangerous enthusiasts’ were a problem to the organization and themselves because their enthusiasm was misplaced. They were not aligned.

The task for the board and the action learning teams was to be the helmsmen – to steer the changes through the opposing rocks of dangerous enthusiasm and malicious obedience towards the ideal state.

So, paradoxically, centralized control is both increasingly difficult and necessary. A clear, central purpose, with thought-through and lived vision and values and developed decision-making within this framework can lead to a constructive aligned culture if the directors show leadership and confidence.

‘God gave me two eyes, two ears, and one mouth – and I’m sure that is the ratio he meant me to use them.’

Ross Ashby’s Law of Requisite Variety21 – for any system to survive it needs sufficient difference within it to cope with environmental change. We need to value those differences; we clone our work groups at the peril of the whole organization’s survival.

Because most board members come from managerial and professional backgrounds, they focus their thinking on the operational present and the short-term future. Their thinking processes have evolved over time away from scanning for the hard facts (what can be measured) towards intuiting from the soft facts (what can be sensed for instant benefit). They rely on their ability to sense what is happening and relate that to their successful past actions.

Their initial response has to be a quick damage-limitation and assessment exercise. Then the more daunting task is to think about what the changes mean. Learning boards go much further than damage limitation. They think continuously about, and then actively design, their future.

They need to stop behaving as if the only real work is in taking action. Directoral work is essentially reflective and literally thoughtful.

It can be a revelation for new board members to discover just how much time can be created once they stop intervening in the managerial world at the first hint of a crisis.

The board’s task is to be sensitized to future possibilities, not to predict them.

‘Hearing the baby’s cry’ is an analogy that boards with which I have worked have found useful.28 They argue that, for example, parents are so sensitized to their own child that despite all sorts of loud background noise they are capable of hearing their baby cry at any time. How sensitive is your board to hearing your strategic cry? For some action-orientated, binary and convergent-thinking boards such analyses are rare.

Strategy is about the broad delivery of the enterprise’s purpose. To achieve this businesses require at least three distinct strategies: business, financial and people development.

Strategic thinking is the director’s role. Planning is an exclusively executive role.

future strategic thinking must encompass the concept of the triple bottom line approach. This demands annual externally audited reporting on: the financial position the impact of the business on the physical environment the impact of the business on the communities within which it operates.

Many directors do not like this and want to stick strictly to business issues, meaning financial issues and outputs. But that world is disappearing quickly and the future range of strategic-thinking competences will inevitably have to cover the triple bottom line approach as it seems to be an unstoppable political imperative.

At ground level a board needs to start at, and return regularly to, an agreed benchmark. This is the function of the SWOT analysis (see Figure 16). SWOTs – an analysis of the strengths, weaknesses, opportunities and threats – are the cornerstone of the board’s strategic thinking, especially of its debates.

the board must create a discipline to return regularly and rigorously to define its SWOTs as both the internal and external environments are changing continuously. It is a crucial part of the annual cycle of a board and needs rigorous testing at least quarterly. Without this the board will drift directionless and start to micromanage the executives. If this happens, the corporate head has started to rot.

For the opportunities and threats sides of the SWOT, the PPESTT analysis – the external worlds of political, physical, economic, social, technological and trade environments – is an equally useful thinking tool.

It is important that the board is ruthlessly honest about the inputs and the results, even if it turns up inevitable gaps through its competitor intelligence system, and especially if the results show that the business is no different from any other. This is vital information. If customers cannot distinguish between your business and any other they will simply buy on price. You have then been commoditized – the biggest corporate sin of all.

I have been influenced strongly in my thinking by another Porter idea – the five forces model (see Figure 18).36 Here the board investigates rigorously, with the help of its people, including its many stakeholders, the major forces creating that changing environment.

Regularly updating your SWOT, say at six-monthly intervals, in line with the first three steps of strategic thinking, is a powerful development process for your portfolio of strategic-thinking skills.

it takes around 18 months for a board to be comfortable enough with these basic strategic-thinking processes to confidently try anything more fancy.

Most directors evaluate possibilities much too early, narrowing their sights and losing most of their opportunities.

If, after selection and training, they still feel the same, then do let them go back, but they must also leave the board. At this level we are looking for people committed to direction-giving and capable of riding the winds of uncertainty. We are trying here to use at least three of the Chinese philosopher and strategist Sun Tzu’s thoughts on strategy37 to achieve these higher states of strategic thinking: The supreme act of warfare is to subdue the enemy without fighting … use strategy to bend others without coming into conflict. He who can look into the future and discern conditions that are not yet manifest will invariably win. He who only sees the obvious wins battles with difficulty; he who looks below the surface of things wins with ease.

strategy is a means to an end, not the end itself. If the contexts change, then so must the strategy.

scenarios are not about predicting the future. Twenty-twenty hindsight is a wonderful thing. You can look back and laugh at the assumptions, or you can be surprised at how prescient many of them were. But the point is that the board and the executives had worked through both scenarios, and more, and when unexpected and fundamental changes – such as the rise of easyJet and the Asian economic crisis – occurred they had agreed at least their basic approach to, and contingency strategies for, any such combination of events.

despite all the rhetoric about strategy, there are only five basic strategic decisions to be considered in combination in relation to products, services and markets: advance retreat hold your ground make alliances withdraw totally.

What we are trying to avoid here is the rush into planning projects and budgets at the expense of strategic thought – which is a global problem.

if the board chairman does not handle the supervision of management by the directors carefully, this can become the black hole into which all the board’s energies are sucked, never to reappear.