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Directors must now navigate the 3D boardroom

18 April 2018 by Randall S Peterson and Anna Johnston

Directors must now navigate the 3D boardroom - Read more

Managing disruption, digitisation and diversity is core to good leadership

Observing boardroom behaviour is no cinematic experience.

Advising a chair requires you to step ahead of the latest factors shaping decision making, as shown in a new report by recruitment specialists Harvey Nash in collaboration with London Business School’s Leadership Institute, ‘Old Game, New Rules’, which sheds light on some of the key topics requiring careful consideration.

These three ‘D’s – disruption, digitisation and diversity – are some of the forces influencing global boardroom discussions.

‘Effective leadership is increasingly tough in a rapidly-shifting, ultra-competitive environment,’ says Professor Randall S Peterson. ‘To deliver corporate performance to increasingly exacting standards, great chairs need a trusted voice to guide them through a 3D boardroom.’

Disruptive forces

Disruption, it seems, is quickly becoming old hat: 41% of the 826 chairs and non-executives surveyed for the report believe their organisations were already being disrupted, compared to 31% of respondents in 2016. Academic Clayton Christensen coined the term disruption in 1997 when it was new.

Today, disruption is business as usual. Organisations worldwide are wrangling with the ultimate dilemma: extinguish disruptive threats or embrace disruptive trends? Of course, many organisations opt for a hybrid strategy of simultaneously exploiting and defending.

The capability of an organisation to correct and improve itself needs to be an evolutionary process. It is not the strongest who survive, but the most adaptable. One could argue that tech titans such as Facebook, Google and Amazon have it too easy given their size – that the internet has made survival easy.

“Today, disruption is business as usual”

But plenty of businesses we thought once invincible – Dell, HP, Kodak, Blockbuster – lost their edge or disappeared by failing to respond to disruption. As the boundaries between industries continue to blur, boards increasingly ask: ‘What business are we in?’

As Simon Jones, chair of Energy Market Intelligence, UK, noted in the report: ‘In the tech sector the market moves so rapidly that non-executives are increasingly hands-on in strategic thinking, picking up on risk, the value proposition and the defensibility of the offering.’

With disruptive forces at play, boardroom tactics need to adapt fast.

Digital agenda

According to the findings, the top specialist competency most in demand for non-executives over the next five years will be digital skills. The digital revolution is forcing businesses to change at warp-speed. The company secretary and non-executive roles are adapting to reflect changing corporate needs.

The rise of mobile has changed how we, as consumers and employees, behave. In 2016, mobile web usage overtook desktop for the first time, a milestone which threatens companies reliant on traditional PCs. Forrester, a research firm, expects online retail sales in the US to reach $480 billion (£347 billion) by 2019.

Digital technology and portable devices have created new markets and altered business models. They have changed the way firms ultimately compete. The businesses that fight off their digital disrupters will need to thrive in an era of exploration.

Corporate and creative experiments must also extend to the boardroom, starting with digital support, but also moving to things like artificial intelligence, to help us process all of the information at our fingertips.

Thoughtful diversity

When it comes to a board’s health, diversity is vital. Still, too many boards fall back on identifying talent and potential additions to the board through known networks, according to the survey results. Broadening the search can help build diversity into the board and drive higher performance.

To be clear, diversity is not just the differences we can see. Diversity of thought, rather, is a hygiene factor of a great board. ‘Diversity is required but insufficient to achieve greater innovation and financial performance – the diversity around the table needs to be engaged and encouraged,’ says Professor Peterson.

The stakes are high: ‘Boards with narrow diversity typically experience average returns, but diverse boards without effective leadership experience the reverse.’

Rigorous research on diversity shows that companies with broad diversity experience – in the top quartile for gender or racial and ethnic diversity, and importantly, combined with effective inclusion practices – are more likely to earn financial returns above their industry average.

Diverse perspectives increase a board’s objectivity and independence, too. Enron, Tyco, Lehman Brothers: we can all name these insidious examples of corporate governance gone wrong.

Boards that fail to engage in difficult conversations and chairs that nod all-too fervently with management pay a hefty price. Of the non-executives and chairs surveyed in the report, 82% were aware of the social, financial, and environmental impact of ineffective boards.

With the 3D stage set, governance professionals can help a chair lead from the front.

Hiring and retention

‘We need to enrich the depth and mix of talent of modern boards,’ says Professor Peterson. His research with Elisabeth Marx, teaching fellow and board expert at LBS, into FTSE 100 boards in the UK shows that 74% remain overwhelmingly male.

What is more, 43% are dominated by executives from top universities such as Oxbridge and the Ivy League. That elite group does not have all of the answers to today’s fast-changing boardroom.

“Where diverse views are prized, it is inevitable that there will be heated exchanges”

‘Getting the right people around the boardroom table is a serious challenge,’ says Professor Peterson

‘You have to search outside your normal network. But appointing diverse talent is only the starting line for an inclusive board. Fostering a culture that’s truly inclusive, where people feel like they belong, must run deep. Therefore, retention and drawing the benefits of diversity is hard to achieve.’

Many organisations now have a plan to recruit a diverse workforce, but few consider retention. In-demand non-executives with digital skills already have the power to pick and choose the boards on which they serve.

Why should they choose yours?

Role models

‘Diversity is being invited to the party; inclusion is being asked to dance,’ Verna Myers, a diversity consultant, once said. Diversity without inclusion is bad for business.

All advisors have synergetic relationships with their chair – after all, you are grappling with the same challenges – so it is important to remind them that great leaders model inclusive behaviours. Guide them to hone leadership skills such as emotional intelligence, patience and diplomacy.

‘Diversity alone does not lead to inclusion,’ says Professor Peterson. ‘Without inclusion, attracting diverse talent, encouraging participation and fostering, innovation simply will not happen.’

Inclusive leaders make every effort to create an atmosphere where people listen when others speak and varied opinions are valued. It starts at the top.

‘People often compare themselves to their leaders. If they do not see immediate similarities, they can feel vulnerable and at risk.’ If executives feel they do not belong, they will not give their best.

No chair should underestimate the power of role modelling so remind them to exhibit the values they wish to encourage in their team.

‘Just as improving board outcomes takes time, remind your chair that it also takes time for people to feel confident about sharing their unique contributions. Creating an inclusive board is a multi-layer, multi-step process.’

Pen a contract

In 2002, Paul Myners CBE, who has been on the board of 12 FTSE 100 companies, wrote a template letter for new non-executive directors.

‘The board should question intelligently, debate constructively, challenge rigorously and decide dispassionately,’ it says. ‘The board should listen sensitively to the views of others inside and outside the board.’

Lord Myners made his board expectations clear by setting out behavioural terms and conditions. Invite your chair to consider what your organisation’s behavioural code is, and what is acceptable. Then, remind everyone on the board that they have committed to a set of values.

‘This contract is a proven way to help boards navigate contentious issues with the certainty that everyone subscribes to the same high standards,’ says Professor Peterson.

Rewarding performance in line with values is key, according to Christine de Largy, chair, UK Board Practice at Harvey Nash: ‘People will behave the way they are rewarded, so it is important that there is no disconnect between the behaviours being discussed and the way people are individually rewarded.’

Manage conflict

In ‘Originals’, a book on groupthink, Adam Grant of the University of Pennsylvania, said: ‘Argue like you are right and listen like you are wrong.’ Sadly few chairs know how to foster this among high-achievers.

Professor Peterson, who has studied conflict for more than 25 years, says: ‘In a 3D boardroom where diverse perspectives are prized, it is inevitable that there will be heated exchanges.’ If led well, however, a board can draw from the richness diversity brings.  

‘Great chairs consciously use supportive and non-threatening language. For instance, starting a sentence with “yes, and” as opposed to “no, but” is one subtle but powerful way to manage the positive flow of debate. By adopting positive, growth-oriented behaviours and language, leaders can help boards to cohere while continuing to accept and promote new, challenging ideas and opinions.’

“Argue like you are right and listen like you are wrong”

It may be down to the chair to ward off contrarian behaviour, but governance professionals can help them in offline discussions.

Ongoing research with Professor Peterson and Heidi Gardner, a distinguished fellow at the Center on the Legal Profession, Harvard Law School, suggests that conversations outside the boardroom are cherished by chairs and committee heads.

It is a great way to build relationships, air concerns and offer feedback. It does come with some risks that must be managed, but can be effective for enforcing norms of conduct in the boardroom.

Help them listen

A strong point of view is not a ball and chain. The best chairs value every board member’s perspective.

‘The most effective chairs spend more of their time listening, not talking,’ says Professor Peterson. Soft skills – supportive listening, empathy and emotional intelligence – are doubly important as traditional skills such as value creation, according to the LBS Leadership Institute–Harvey Nash report’s findings.

Traditional notions of leadership confound two wrong ideas. ‘First, we typically assume that a leader with a strong point of view actively excludes other perspectives. Second, we think that a leader who listens does not have their own point of view.’

Professor Peterson’s research gives a different story: having a point of view and being inclusive are two separate activities.

Leaders can have a preferred solution (outcome directive), while also gathering alternative views (process directive). ‘The best results happen when a leader is strong on process, regardless of whether they have a point of view.’ In other words, they should listen and learn above all else.

Chairs must create the conditions for success in a new 3D reality. As a unique advisor, who better to help them put on their glasses than you?

Randall S Peterson is professor of organisational behaviour and academic director of the Leadership Institute at London Business School; and Anna Johnston is a business writer based in London

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