Governance is too often focused on compliance, but good governance results from a board’s ability to make the best decisions possible on behalf of the organization and its stakeholders, given the best information available. Boards do not run the company, but they set the tone and should be helping the CEO navigate the future.
The National Association of Corporate Directors (NACD) in the U,S. believes that future boards must address Purpose as “Principle One”. In short, Purpose addresses the “Why” a company operates, a different approach than the traditional way of defining a company in terms of “What” It does. Purpose asks the company to define why it exits and the needs it fulfils, not what it makes.
NACD recognizes that companies defined by their purpose inspire their employees and attract customers, leading to greater profitability. They create value for stakeholders because they are focused on value creation, not simply profitability.
This change of focus is critical because most stakeholders do not believe that they are being well served by companies. Here are some startling statistics: 45% of US employees would not wish their jobs on the worst enemies; nearly 60% of customers believe that customer service has declined because companies only care about profits and not customer service, and 60% of citizens in the US and Canada stated that capitalism does more harm than good.
While the board does not run the company, there is a need for change, as the NACD and other director organizations worldwide have recognized. There has been a plethora of corporate crises and/or malfeasance. Some 70% of corporate crises have resulted from internal, not external risks. This leaves people asking, “where was the board?”
I work with boards. The vast majority of directors want to do a good job. However, they have not been educated in how to be a better director. Most governance programs focus on the “things” that directors must be concerned about, primarily from a legal and financial perspective. These, I would argue, are “surface issues”. The real issue is the character of each director. That is, whether they are or know how to be purposeful leaders who can help their organizations become purposeful, a la the NACD.
The first step in creating purposeful directors is to have a board culture that encourages each director to ask questions and debate information. This is not the case on most boards. Most seek consensus or support for the CEO rather than inquiry and debate– “constructive contention”, that leads to good decision-making.
In a panel discussion, I had last May in London with Oonagh Harper, Non-Executive Director of KPMG, we agreed that to make good decisions, directors must have good information on strategy, culture, and risk. However, as Ms. Harper noted, many directors are wary of asking questions, do not know the questions to ask, and too often acquiesce to others on the board or to the CEO. This leads to an ineffective and often dysfunctional board. I would suggest that training focused on Purposeful Leadership of each director will change that and make boards more effective.
It boils down to a formula: Purposeful Directors Create a Purposeful Board and a Purposeful Company. This, then, would fulfil the new expectations of directors detailed by the NACD.
Elliot Schreiber, Ph.D. is considered one of the most experienced and knowledgeable experts in reputation and risk, stakeholder engagement and effective board governance. He is the author (2022) of “The Yin and Yang of Reputation Management: Eight Principles for Strategic Stakeholder Value Creation and Risk Management”; and the co-author (2013) of “Achieving the Execution Edge: 20 Essential Questions Corporate Directors Need to Get Answered About Strategy Execution.” Elliot also serves on Bonar Institute’s Advisory Board.
