Strong Pedigree, Low Impact: why the wrong people are on boards.

“Well, the [CEO] is sitting there, he’s an authority figure. He’s doing asinine things, you look around the board, nobody else is objecting, social proof, it’s okay? Reciprocation tendency, he’s raising the directors fees every year, he’s flying you around in the corporate airplane to look at interesting plants, or whatever the hell they do, and you go and you really get extreme dysfunction as a corrective decision-making body in the typical American board of directors.”

Charles Munger, Vice-Chairman, Berkshire Hathaway

What Charles Munger doesn’t say is that this poor performance is generally delivered by people with highly successful corporate careers and demonstrably high capabilities. What's going on here?

Boards generally do not lack skills or experience; they lack social muscle and collective wisdom. 

And the poor performance shows. International academic studies continue to be inconclusive in drawing a causal link between board performance and organisation value creation. Worse still organisations themselves are not adapting to the world around them with less than 10 per cent of non-financial companies in the S&P 500 in 1983 still there in 2013. Yet in the face of such poor performance we keep the same type of directors in their seats.

The typical company director has extremely high specialist skills. Traditionally, corporate company directors are former CEOs, CFOs, professional services partners or investment bankers. More recently executives and experts are coming to boards from specialist areas such as governance, marketing, IT and digital strategy.

If we were building a second tier of management or an expert advisory panel this approach would be the right one. But we aren’t. We are building, as Lord Denning describes it, the “mind of the company”.

The Mind of the Company is a collective mind. It’s not a singular mind. Yet most directors come from a singular world. They built their individual knowledge, worked hard as an individual, built one-on-one relationships and made tough, individual, decisions. Now we ask them to work collectively. It goes against the grain of all that came before. 

Of course, some break the mould. A notable example in Australia was James Strong, former CEO of Qantas, come Chair of Woolworths and IAG, to name a few of his post-CEO board roles. Strong was a rarity though. Dig into his background and thinking and you find someone strongly geared towards facilitation, respect for the views of others and a belief in service. 

Boards, like the tribal creatures humans are, have defined the characteristics of the ideal director to be the ones that describe themselves. It is the reason why building cognitive diversity on boards had been an uphill battle. 

The oft mentioned excuse for lack of women on boards is the lack of a pipeline of female executives, as if that is the only place they could come from. There are no lack of highly competent female director candidates sitting in the not-for-profit world, government, consulting and community leadership roles. It's just that that is not where the current directors came from and “if you didn’t have the background I have how could you possibly be any good on a board”.  The same flawed standard is applied to people from different generations, cultural backgrounds and world views.

In itself, such self-referential logic shows how ill-suited many of the current crop of directors are to be part of the collaborative, challenging, collective mind of the company. 

A new breed of director is emerging and is desperately required for the organisations of the future. 

First and foremost, these directors see their moral obligation as to serve. There may be an element of financial and personal reward, but the overriding motivation is service. To serve is to be subservient to a higher cause than ourselves, in this case the purpose and intentions of the organisation. This provides a moral compass for dealing with many of the tricky issue that boards face and minimises the common internal board conflicts around self-interest.

The new era director, let’s call them the Agile Director, has skills for sure. They may be sector specific knowledge and networks, they may be technical (such as strategy, finance, risk, culture or governance), they may be a “specialist generalist” with questioning, analytical and problem-solving skills. But these are not enough. Like a prestige car without wheels, where all the beautiful componentry, doesn't get you anywhere if it doesn't have something that connects you to the road. So too, the skills of a director go nowhere if they are aren’t propelled by core service-driven character, capabilities and understanding.

Over the coming blogs we will explore many of these attributes but let’s start with characteristics.

The Agile director is purposeful. They seek to understand and shape the core reason of existence for the company and become guardians of purpose, telling the story of the company to others and using it to guide decision making. This naturally makes them highly accountable for the promises made by the organisation to stakeholders – current and future.

The Agile Director is obviously agile. They anticipate change and adapt when it arrives. It is not so much predictive as pattern sensing; sniffing the wind for a change in the air.

The Agile director is inclusive and collaborative. They don’t push away difference, discomfort or dissonance. They embrace it to build something better and to align the players – inside and outside the boardroom. They hunt in a pack, drawing on and contributing to the strengths of the team, not ranging lone-wolf like, to hunt alone.

The Agile Director is learning until their last breath.

This approach supports organisations to deliver results in a number of ways. 

A board of Agile Director results in the mind of the company instilling a sense of overarching purpose. A 2018 McKinsey&Company study sets out five trademarks of agile organisations of which a shared purpose and vision is the first agility practice.  

A purposeful approach motivates, aligns and harmonises endeavour throughout the organisation and supply chain. The agile board delivers offence accountability not defensive corporate-speak. By engaging stakeholders more fully, better partnership and results are achieved for all. Stakeholders become dedicated to the organisation.

The agile board supports capability building, for the present and the future. The board champions increased capability and capacity to deliver for customers and cause. Such boards support CEOs and organisations to adopt traits and characteristics that are required for a changing environment. 

The agile board takes calculated risks. It helps the organisation to gain an advantage that others miss.  

An organisation with an agile board has clear-eyed focus, not wavering in the face of challenge, collusion or criticism.

The agile board demands the organisation constantly learns.

So, what is the prescription for change? 

We are seeing some with shifts in increased sociological diversity of gender and age on boards. However, this is no guarantee of cognitive diversity. If drawn from the same past pools as male directors, the likelihood of collusion in thinking style is still high. 

We must rise above the simplistic debates of what directors look like and consider who they are as people. This requires a redefinition of excellence in directorship. It requires new ways of educating and appointing directors, new ways of supporting diverse talent into roles in and around the boardroom. It requires new styles of governance to accommodate difference. And it requires stakeholders to come to an understanding about how poorly served they have been and champion change.

This blog is for directors who want to serve, and organisations who want to benefit, from a new approach to governance. 

The Agile Director is a place to champion debates and enrol directors everywhere to seek a place at the table.