Future Boards- The Adaptive Board for Adaptive Times

Keynote Speech to Better Boards Conference

Brisbane Convention Centre
29 August 2017

 

 

What value did you add today?

What value does your board leave on the table at the end of a board meeting that was not brought into the room by management? Is it:

• A bountiful harvest
• A barren wasteland
• Perhaps a rich ecosystem in the low lands but a bit stark on the peaks?

A Moment of Truth in Human History 

Prior to, during and after the conference we have and will hear of the fascinating and terrifying challenges we all face. Challenges that require us to add value to survive and prosper.

In a replay of a video of last year’s conference Gavin Nicholson talked of the breadth and speed of disruption in the world and our sectors, disruption that is both of a technical and no technical nature. 

Professor Judith McLean talked about how we will need to challenge our thinking to work in today’s volatile, uncertain, complex and ambiguous (VUCA) world.

In an upcoming webinar entitled “The Board’s Role in Strategic Transformation” Michael Goldsworthy is speaking on how the move to the customer-driven, competitive marketplace is a radical departure from the known industry/sector context of boards and CEOs.

20th Century Tools for a 21st Century World

It is said that insanity is doing the same thing as we have always done and expecting to get a different result. We use 3-5 years strategic planning when the shelf life of business models are diminishing rapidly; our risk management approaches assume we can foresee all future risks; in trying to shape organisational culture we compete with rather than enrol the support of social media. It’s like using 20th Century Tools for a 21st Century World.

But it gets a whole lot worse when we turn our minds to what boards do themselves.  Imagine if:

• The management team offer their meeting calendars rather than KPIs as proof they had delivered results for the organisation.
• The CEO had to secure a majority of votes of up to 15 people in her executive team before she could make a decision on any issue.
• Staff stayed in the same role, working in the same team doing the same projects for nine years at a time, sometimes for decades.
• We recruited all staff based on technical competency alone but did not require them to speak English.
• Once they left the organisation, you never again spoke to a colleague, who you respected and cared about.
• Based on fears over confidentiality we never allowed the CEO to consult on tricky issues with peers and mentors outside the organisation.
• We refused to allow a team to rehearse for a major presentation to a funding body
• … and then discouraged them from celebrating at a social event after they had won the funding.
• We stopped staff from collaborating on projects online for fear of legal repercussions.
• We required all staff to send correspondence by carrier pigeon rather than email.
• We didn’t allow staff to be learn and grow?

Well that’s exactly what we do as boards. We:

• Have a board meeting calendar rather than board KPIs
• We require all decisions to be made by the full board irrespective of the materiality or relevancy
• We pigeon hole directors by their skills base or committee membership and then we let them stay on the board often well past their useful shelf life
• We have board skills matrices not director character profiles
• We let people leave the board without capturing their insights or enrolling them as alumni
• We rarely go outside the board membership to seek input into major decisions
• We go out onto the playing field of the board meeting without having held multiple training sessions before hand
• We say we are too busy or aren’t paid enough (or at all) to be able to get to know other board members or spend in depth quality time together 
• We steadfastly refuse to discuss board agenda items online for fear of lawyers and litigation
• We use clunky, highly controlled board paper technology tools that went out of fashion in the rest of the organisation with the advent of the smart phone
• And we resist or limit the time we spend to share lessons learnt, give each other direct feedback and think innovatively about how we do our job.

Perhaps it’s understandable that boards are lagging. Professor McLean noted yesterday in her key note to CEOs that in times of disruption “we change ideas and operations quite quickly but we are slow to come up with new ways of leading.”

But fear not. There are solutions at hand. First we must overcome our inner SSOD (slow, simplistic, ordered and disconnected) mind set and embrace our outer VUCA (volatile, uncertain, complex ambiguous) world. We must use volatility to speed up the slow metabolism of the board. We must welcome complexity and guard against the simplistic. We must choose ambiguity over order and let uncertainty drive us to greater connectivity. 

There are seven things:

1. Focus on value creation
2. Be driven by purpose 
3. Recruit for character
4. Dissolve the boundaries of the board 
5. Start match practice
6. Go digital 
7. Be mindful.

 

Value is the New Black

Nothing we talk about should be done if it does not support you adding value to your organisations. Remember, governance is a means to an end not an end in itself. Desired board outcomes, not governance good practice, should drive the composition, behaviours, structures and processes of the board. Taking this approach leads to a level of innovation and adaptation that creates unique advantage for our organisations rather than the “me too” approach of “off the shelf” governance good practice. To do so would be a 21st Century approach.

Its Purpose and Role that Defines Us

In this moment of truth in human history where we return to the question of what it means to be human and what our purpose is in the world in the face of automation and Artificial Intelligence. Which of our institutional structures is capable enough, trusted enough and inspiring enough to guide us in answering that question – is government, are corporations, are activist, are our religions? Provocatively, I say it can be our boards. We can include and transcend the current legal state of boards as the embodiment of the “mind and will of the company” to become the guardians of human purpose. 

Empowered with all the faculties of incorporation the 21st Century director holds a flexible view of their board’s role. A view dependent on circumstance not theory. They focus on value, which can be delivered in many ways but at its core is through the decisions boards made and the things they pay attention to.  

In moving from SSOD to VUCA our boards need to act more like complex adaptive ecosystems than structured, closed machine systems. That means adopting a different approach to who is on and contributes to the board, the way we build team strength and the structure and tools we use, especially technology.

Some of you will be sceptical. Things are going alright (in some case exceedingly well) in our organisations. It’s unrealistic to think we can change everyone on NFP boards into this so called 21st Century director. The problems of our organisations are immediate, substantial, serious and complicated. They can’t be addressed with some sort of idealist new mind-set.

But let me tell you this. Someone, somewhere is thinking about how to change, how to disrupt or how to replace what you do and how you do it. You and your organisations can either be drivers of that process or a casualty of it.

The Specialist Generalist

The 21st century director certainly wants to lead the process. 

Wendy McCarthy, a leading Australian director, uses the term to describe them as the Specialist Generalist. (In a lead up article to the conference Raphael Goldsworthy uses the term Expert Generalist).

We currently self-perpetuate our boards with board recruitment focused on PLUs (people like us) or on particular technical specialists. The problem with PLUs is no diversity. No diversity means no value creation, not a significant level at any rate. The dilemma with specialists is that they can be narrowly focused, they may not be able to upskill others in their speciality and there can be complacency on the part of the other directors.

More importantly they frequently do not weave or wander. They may lack the skills and insight to weave or upload their specialty knowledge to the collective mind of the board (rather than just telling people this is the way it should be) and their mental frameworks may not allow them to easily wander – to analyse issues using a non-specialist frame of mind or be become curious about issues outside their own speciality.

Many of you who will have board skills matrices. Many of you will have defined the specialities you are looking for. But how many of us have defined what a specialist generalist might look like? Things like character (such as integrity), things like emotional intelligence (such as self-awareness, self-control, social awareness and relationship building), things like traits (such as resilience and reflection) and acumen (such as strategic thinking and the use of ground floor observation to gain a rooftop insight).  Here I can recommend Rafael’s article on the website that I mentioned earlier as a great primer on the Specialists Generalist director.

 

Taking specialist generalist approach opens the door wide to cognitive diversity – the holy grail of board composition. Specialist generalists can be found in many and varied places, across the generational, occupational, cultural and social divides. 

But how do we test for this. We need to get smarter at assessment (using psychological trait profiling, scenario and simulation based interviews, stronger network checking rather than reference checking.

But we can also link this to another issue around board capability and that is how boards utilise expertise.

Experts on committees is a standards tool but it provides a narrow opportunity for engagement. The non-voting associate director or “observership” programs are growing in the NFP sector and are a perfect opportunity to test for specialist generalist capability. 

Or we can “shrink to grow” – smaller boards with access to this sort of expertise as and when needed. (Elizabeth Jameson wrote a great paper on this for Better Boards last year). We could use Pop up Boards – panels of expertise – being brought in to strategic thinking sessions and retreats as needed – a bit like strategic friends of our organisation. Chair emeritus and director alumni programs to draw on the talent of former board members. 

And what about Dr Google? In a recent observership board program which I facilitated a Gen Y board meet on a separate day with the same papers and management team as the real (much older) board of a large community care organisation. What was the Gen Y response to the wickedest problem on the agenda – anonymise it and crowd source a solution online. Just think about that – apply the best minds or wisdom of the crowd to our most intractable problems.

And if we really want to think about what the future might look like a paper from Chicago University entitled “Boards are Us”, canvasses the rise of new professional services firms that provide organisations with a ready-made, highly skilled, specialist generalist tested, match fit board ready to go. Why go through all the hassle when you can outsource the board! But let’s assume we all keep our jobs for a bit longer before the machines and the outsourcers take over. 

The Match-Fit Team

There are many asymmetries between the board and management such as the asymmetry in what they know and what we know. But perhaps one of the starkest asymmetries is in the relative strengths of our teams. The management (or staff) team is fit. Strategically fit. They work with each other every day of the week. At board meetings they bound onto the field lithe and limber. Then the flabby board turns up. 

We are not flabby individually, we have done our own training – read the papers, thought about the challenges, explored the ideas. But as a team we come onto the field after a hiatus of a month, 6 weeks or three months and expect that somehow we are going to immediately coalesce into a high performance, goal scoring team.

How do we overcome this? There is no way around it, we have to spend more time getting match fit.

Let’s start with induction. We need to start early, buddy up, repeat often and scale up. The previously mentioned observership programs are by far the best induction. A one year, try before you buy, opportunity to do a deep dive on the organisation and build relationships. We should consider allocating induction buddies, we should treat induction as at least a year long program, with frequent refreshers on key topics for everyone and we need to be smarter at using video, gamification, virtual and augment reality to lock-in common induction material and insights so they can be repeated at low cost in future years.

Boards and directors need to invest in bi-lateral and multilateral engagement to build social muscle. We need to invest the time in meeting one on one with every other director and the staff who attend board meetings. We need to find out what makes them tick – their motivations, interests, preferences for information and decision making and their foibles. We need to appropriately disclosure to them the same about ourselves. It’s called the Johari window – we need to open up what we know about ourselves and others to an optimal point for collective endeavour. 

Vitally, we need to start training. Board meetings are limited forums for team development. Many if not most of you will hold in-camera sessions of the board. There are dangers to these but done well they are vital to building the board team. There is not one ASX200 company board that does not do this. But in and of themselves they are not enough. Imagine if Australia’s Women’s Netball team only talked together about the upcoming match half an hour before they were about to go on the court to play the Chinese. 

We need to think about extensive social muscle building activities whenever new people enter the board or when a reset is required in the way the board operates. At other times we need to program a regular informal activity to work as a group. 

There is nothing like a crisis to bond a team but absent creating one just for the fun of it, we can try simulations and scenario planning exercises. One board I know had a consultant devise and run a simulation for a high pressure, time critical forced merger to prepare the board for what was likely to happen to them, and had happened to others in the sector. It got them thinking through the issues, but just as importantly their team strength grew in leaps and bounds. 

I know what some of you are thinking. Who has the time? We are going to need to consider how we respect the important work of for purpose directors – whether that’s remuneration, support from a director’s employer, government tax breaks or some other form of return and recognition. We must value the NFP director role to an equivalent extent as the $100,000 plus average pay of an ASX200 non-executive director. Our work is often more critical for human purpose. 

The other team that needs work is the board- management partnership. I liken it to a dance. A dance between board and management. In the big ballroom dances of governance – strategy, risk and culture – there should be no solo moments out there on the dance floor. 

But how often have we seen the CEO sweeping into the room in all their finery, like John Travolta in Saturday Night Fever, wowing us with their moves on a light-up checkerboard dancefloor – their impressive strategic insights, their astute assessment of our risk profile or their heartfelt desire to set and shape positive a culture. We ogle, we swoon, we clap and cheer. Maybe we make a few off hand remarks about their outfit (don’t’ like those white flared pants!) but then we sign off with a 10 out of 10 score. 

Now think John Travolta and Uma Thurman in Pulp Fiction. Flowing as one with the music, while distinct and separate in their personality, look and moves. In a good dance we may not know who is leading and who is supporting as this shifts and changes in the course of the dance. To the outsider it looks seamless to the dancers as they know who plays which role -mission and purpose, led by the board, supported by management; strategic goal setting lead by management, supported by the board. 

To be as good as, if not as beautiful as, John and Uma we must cultivate first respect for each other’s roles and our contribution while humbly accepting our failings. The elephant in the room is that many CEOs do not see the point of boards or do not feel theirs step up to the mark. Worse still, some CEO’s experience boards tripping them up on the dance floor. 

Taking a value-adding approach can assist with that – by defining in concrete terms our value contribution rather than motherhood charter statements about a board’s role. We need to be clear about which dances we are dancing, what the steps are and who leads which part; we need not step on each other’s toes. 

Which takes us finally to technology. Sure you’re sick of it. Digital this, cloud that. Augmented, schmorgmented. You might be feeling you just want to get off. Well go ahead, but you would also need to get off your boards. Technology is not the future. It’s the now. 

 

The Digital Board 

There are many structural and procedural innovations we could use to add the value our organisations so desperately need from their boards, limited only by our imagination and creativity. Most of what we could use is already out there being used in other spaces and places, often right under our noses in our own organisations. It’s just that boards somehow seem to have declared themselves digital no-go zones. 

And it is not about the technology. It’s what we can do with it that adds value. Technology, like governance, is a means to an end not an end in itself.

And do not think that technology is only for large well-resourced organisations. Indeed, the board of the smallest NFP I have ever been on is the biggest user of technology of all the boards I’ve ever been on.

So back to those carrier pigeons I mentioned before that we still make directors send things with. In education there is an acronym for the four ways to transform the teaching task using technology. It’s called the SAMR model – substitution, augmentation, modification and redefinition of a task through technology. I’ll explore each in turn, but most boards sit stubbornly at the substitution or augmentation end of the spectrum, if they are on the spectrum at all. 

Let’s focus on two of the stand out areas for digital transformation – the board’s oxygen and engine room. The board reporting system or intelligence system is like our oxygen. We need it to live, but get too much information and we become dizzy, too little we asphyxiate while board meetings are the engine room in which energy and value is generated.

I’m guessing most people in the room have substituted physical based board papers for online delivery through email, an intranet or an app, which you can annotate? Substitution. Tick.

I’m thinking a good number of you have probably taken the next step and augmented your papers by having a means by which you can search, by which management can provide a hyperlink to another source of information, where all the previous minutes and papers are available, or you can program an auto self-destruct of the board pack after meetings to remove troublesome paper trails. All good, but nothing interesting to see here. If you have not substituted or augmented yet then get yourself to the trade stands at the next break!

Then there is modification. Now we are cooking with gas! There is functionality that allows directors to interrogate data for themselves. A graph that is presented with one set of data – say on safety incidents for the month – can be clicked on to substitute incidents for another measure such as lost time injuries or to drill down into a department level analysis or multiple year trend analysis. Dangerous to give detailed data to a director I know – the CEOs are trembling in their seats – but remember we are talking about these tools being in the hands of forward looking 21st Century directors, not micromanaging 20th Century ones. 

We can use the low cost online collaboration tools to have a moderated Q&A on a board paper before a meeting and we can use a “phone a friend” option to bring an external adviser into the online conversation to provide us their perspective on the material.

Now what would redefinition look like? The block chain – a trendy term for a digital gold bar – something you can have trust in its stored value – can and is being used to directly interface with your data and enterprise systems that will allow the board to set up its own algorithms, and very soon machine learning programs, that will create and analyse board reports without being touched by management. This leaves them free to engage in a conversation, providing their insights and helping us shape a way forward. For a sobering analysis of the costs to organisations of resourcing the board, especially board reports, read Julie Garland-McLellan’s article in the conference magazine.

What about the engine room, our meetings, the inner sanctum of board performance? Substitution? We are all doing it – a mixture of teleconference, video conference or skype meetings to address compliance and operating matters or deal with urgent issues. Holoportation (hologram images of remote participants) is now here. Some of you might be from or involved with or know Silverchain – the largest community based health care provider in Australia – they are working with Microsoft to deliver health services using holoportation (think Darth Vader in Star Wars menacingly projecting his image to his subordinates – but oh so much more lifelike). 

Augmentation is being undertaken by boards who recognise that while directors cannot be engaged full time in the organisation they can none the less be continuously engaged. This can be done using technology to interact and discuss issues between meetings online in moderated forums (either at a specified time or asynchronous – when I have time. This balances out the high intensity of board meetings where we try to get everything done at once with resulting director and management post meeting fatigue. 

Face to face human interaction is the premium offering we have as directors, where we create value greater than the sum of the parts. Why would we spend this precious time talking about compliance and performance results let alone the minutes and action points? Worthy things, but not warranting our top shelf attention. Online discussions also have the benefit of encouraging management to engage early on major issues by being able to flag them online without having to bring the fully developed papers we may expect at a board meeting.

Modification? For all the talk of human replacement by machine learning there is still one thing we have over the machines – judgement. A recent MIT Slone paper mapped out the decision making journey from data collection, to analysis, to predication, to judgement. Technology is already better than humans at the first two and AI will soon be better at the third but the scientists say that the human brain and collective decision making are still light years ahead in judgement. So let’s do what we do well. Let’s think about a regulatory regime where the algorithms might be better entrusted to unbiasedly manage compliance and we can focus on performance. Just a thought!

But last but not least maybe we are just redundant! Last year saw the first successful DAO. A digitally autonomous organisation (think driverless cars, now think board less companies). An entity (not incorporated anywhere) using the block chain raised $130 million dollars in one week, with the so called “constitution” of the “company” being a computer program of rules agreed by the so called “shareholders” who had no shares just a token a form of crypto currency. It was an investment company – so that’s a bit easier to do that for disability services – with investment mandates built into the block chain, agreeing “dividend” polices and all necessary decision in a form of online voting. 

Maybe just a one-off? Who knows? But please don’t be complacent about what the world may hold for us, not in the next couple of decades, but the next couple of years.

Board capability, team and structural innovation. These three go together. Without innovation boards fall behind. Without the 21st Century director there is no appetite for innovation. Without a team the innovation has no soil in which to flourish. 

PART III:

Return to the Present Moment 

Is this all overwhelming? Confronting? Annoying? Fascinating? Pedestrian? Where to start?

Return for a moment to just being present. 

Start where you are. 

Identify where value could be added

Then get out a blank sheet of paper. If you were to redesign boards to get the task done, to add the value what would it look like? It doesn’t mean walking away from the fiduciary duties, but putting them in their place – in the background rather than the foreground, to become the operating system rather than the user interface.

Search out those who do what you want to do best. Ask a millennial, ask someone from another profession or walk of life how they would achieve this task. Research, get connected outside your usual circles and ask lots of questions of everyone you meet.

Choose something small but consequential (safe to fail). If it works amplify it. If it doesn’t, dampen it (know how to do both before you start).

It’s not that you have to become the coolest board on the block. It’s not that you need to sweep away the historical trappings of the board, but to redefine the intent with which you do these things – to add value as the guardians of human purpose in an age that is so in need of your guidance. 

Thank you.

Andrew Donovan, Principal, Thoughtpost Governance
www.thoughtpost.com.au
andrewdonovan@thoughtpost.com.au

 

REFERENCES

Adaptive Directorship: Creating Organisations that Flourish in Unpredictable Environments

A New Revolution: Breaking Down the Governance Bastille?

Gavin Nicholson on disruption

Board’s Role in Strategic Transformation

Can Artificial Intelligence Replace Executive Decision Making?

Artificial Intelligence (example of start-ups for service deliver and board reporting)