Kravene til Morgendagens Værdiskabende Styre...The Value Adding Board extract, copyright Torben Ballegaad The Board must adress 5focus areas in balance and sequence… Protocolsand

31-10-2014

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Kravene til Morgendagens

Værdiskabende Styre

NUES Forum Corporate Governance og Verdiskaping

30. oktober, 2014

Torben Ballegaard Sørensen

- set fra et Praktisk Perspektiv

The Value Adding Board extract, copyright Torben Ballegaad

Exec Mgm Team

and Business Reality

1

Two different approaches to Defining Board Work

Frame

BOD

EMT

2

Compliance Driven

Board Governance

Control & Avoid errors

Business Driven

Board Governance

Control & Create Value

Sarsbanes-Oxley

Cadbury, EU-Gov.Stds.

Norw. Code of Practice

OECD Principles

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2


Exec Mgm Team

and Business Reality

1

Two different approaches to Defining Board Work

Frame

BOD

EMT

2

Compliance Driven

Board Governance

Control & Avoid errors

THE INTERACTIVE

BOARD

Control & Create Value

Sarsbanes-Oxley

Cadbury, EU-Gov.Stds.

Norw. Code of Practice

OECD Principles


Four Questions

1. Why do we need Interactive Boards?

2. What are the focus areas of the Board?

3. Which are the qualities of the Board?

4. What are the challenges for the Board?

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Predictable

Local/Regional

Industry borders

Incremental

Past requirements

RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE


New requirements

Synthesize meaning

Craft & impl. strategy

Balance Core & New

Recreate growth

BOD

Globalized markets

Intertwined industr.

Disruptive technol’s

Impermanence

RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE

EMT

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Meyer, Yale, 2010

“9 out of 10 board members think

they do a great job. But only

2 out of 10 executives think they get

wise counsel; they find the

cooperation with their board

demotivating.”


RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE

Synthesize meaning


Balance Core & New

Recreate growth

The Ritualistic Board is insufficient

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Will more Rules & Regulations help?

Synthesize meaning


Balance Core & New

Recreate growth

BOD

EMT

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE

RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE


Synthesize meaning


Balance Core & New

Recreate growth

BOD

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE


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Synthesize meaning


Balance Core & New

Recreate growth

BOD

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE

Some regulators

seem more familiar

with the financial

and public sector

than the global

business realities



Synthesize meaning


Balance Core & New

Recreate growth

BOD

EMT

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE

…More rules are of limited value to the EMT challenges

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Synthesize meaning


Balance Core & New

Recreate growth

BOD

EMT

What we needed is: An Interactive Board…

INTERACTIVE BOARD

BUSINESS DRIVEN

CORP. GOVERNANCE

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE

RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE


Provide wise counsel

Drive forward focus

Strategic co-creation

Proactive control

Tasks of Tomorrow’s Board

BOD

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Four Questions






Drive forward focus


Proactive control


Traditional Agenda

The Board must

set its own Agenda

i.e. define its focus

and time allocation

The Agenda represents the backbone of the Board’s work

Tradition

Routine

Comfort

External demand

Governance

Protocols and

Mgm report

Detailed

review of

financial

report

Statutory

and approvals

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KPI follow-up

to inspire action

Financial status

Protocols and

Mgm report

Household items

and decision notes

From Traditional to Value Adding Agenda

- Delegate ‘administrative’

tasks to support system

- Effective KPI-follow-up,

focus on real operations

- Condensate housekeeping

to 1-page decision recomm.

- Pre-read, prepare, prioritize

- Clarify technical questions

Protocols and

Mgm report

Detailed

review of

financial

report

Statutory

and approvals

… leaving more ‘space’ for future-oriented business creation


Strategy

Execution

Health

Protocols and

Mgm report

From Traditional to Value Adding Agenda

… leaving more ‘space’ for future-oriented business creation

Protocols and

Mgm report

Detailed

review of

financial

report

Statutory

and approvals

Performance

House

keeping

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… and change its perspective from backwards …

FuturePast

Opportunities

Problems


… to forwards, while maintaining proactive control

FuturePast

Opportunities

Problems

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The Board must adress 5 focus areas in balance and sequence…

Protocols and

Mgm report

Detailed

review of

financial

report

Statutory

and approvals

House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance


From rain-dance to strategic engagement

The FIRST focus area of the Agenda: Strategi

2016 2020

REAL

POTEN-

TIALHouse

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance

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The SECOND focus area of the Agenda: Execution

Track progress on the 3-5 key strategic initiatives

House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance


Simple and operational. Inspire corrective action

The THIRD focus area of the Agenda: Performance

House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance

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The FIFTH focus area of the Agenda: HEALTH

House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance

“An organization can look strong on the

outside; but already be sick on the inside.”

Collins, 2010, ”How the Mighty Fall”

Multiple layers of Health Markers



House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance

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Multiple layers of Health Markers


House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance



House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance

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House

keeping

Strategy

Execution

Health

Protocols and

Mgm report

1

2

3

4

5

Performance


Four Questions






Drive forward focus


Proactive control

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INTERACTIVE and

ENGAGED BOARD


Drive forward focus


Proactive control

Synthesize meaning


Balance Core & New

Recreate growth

What skills and qualities are required ?


Professionel qualities

• Passport

• Age

• Lenght of service

• Style, temperament

• Gender

• Geographic vicinity

Line management experience

Hands-on P&L responsibility

Analytic and common sense

Industry or analog experience

‘Wisdom’ from real org. life

Independence and availability

Diversity

What are the Qualities of the Value Adding Board


Drive forward focus


Proactive control

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Diversity


Drive forward focus


Proactive control

… the Board must be tied together by cohesive personal qualities

A collection of competencies

is not enough









Diversity


Drive forward focus


Proactive control


Personal qualities

Share the aspiration

of how to be a team.

Dynamic spirit with

straight, crisp and

honest debate based

on diverse mindset

and basic ‘connection’ The Board must form a

strong and cohesive team

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Diversity


Drive forward focus


Proactive control


The Board must form a

strong and cohesive team

Personal qualities

- Empathy, high EQ

- Active listener

- Reflective, humble

- Clear and precise

- Sense of humour

- Energy, passion

- Controllable ego

- High integrity

0 5 10 20 30 40 50 60 70 years

Childhood

Education

Maturing

Functional

experience

Line management

experience

Board

experience

Personal qualities

… which requires genuine personal qualities and Board leadership

- Empathy, high EQ

- Active listener


- Clear and precise

- Sense of humour

- Energy, passion

- Controllable ego

- High integrity

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0 5 10 20 30 40 50 60 70 years

Functional

experience

Line management

experience

Functional exp

Leadership

experience

Line mgm

experience

Board exp

Childhood

Education

Maturing

Personal qualities

An ‘apprenticeship process’ cannot be compressed

Board

experience

- Lack of experience

- Generic articulation

- Empathy, high EQ

- Active listener


- Clear and precise

- Sense of humour

- Energy, passion

- Controllable ego

- High integrity

0 5 10 20 30 40 50 60 70 years

- Mentally retired

Personal qualities

Board members must stay ‘alive and kicking’.

- Lack of experience

- Generic articulation

- Power driven

- Arrogant, dominant

- Empathy, high EQ

- Active listener


- Clear and precise

- Sense of humour

- Energy, passion

- Controllable ego

- High integrity

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CEO

CHAIR

INTERACTIVE and

ENGAGED BOARD

Getting to an active, well functioning Board…

Chairman

CEO

PASSIVE and

REMOTE BOARD


… requires a decisive approach

• Systematic self-evaluation process

• Execution of the needed change

• Strong board leadership (chairman)

• Active owner connection

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“I can’t think of a single work group whose

performance gets assessed less rigorously

than corporate boards.”

Self-evaluation is an effective learning loop

Sonnenfeld, Harvard, 2002


Future

Landscape

&

Strategy

The Board’s self-evaluation process – ”how can we improve?”

BOD

EMT

Honest and constructive dialogue,

- not a mechanical exercise

CURRENT

PERFORM

REQUIREMENTS

FOR THE FUTURE

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Future

Landscape

&

Strategy

Define the needed

profiles and search

relevant candidates

The Board’s self-evaluation process – responsibility for action

Exit

A pre-determined

max period and/or

an honest feedback


Future

Landscape

&

Strategy

Right mix of talents

Cohesive team spirit

Diverse thinking styles

The Board’s self-evaluation process – continuity and renewal

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Four Questions






Drive forward focus


Proactive control


The ‘journey’ started with sound and prudent CG Guidelines

ENHANCED, PRUDENT

GOVERNANCE

WEAK AND PASSIVE

GOVERNANCE

INTERACTIV

BUSINESS DRIVEN CG

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Norwegian Code of

Practice for Corporate

Governance, 2004,..12

Strategy

Execution

Financial

performance

Health

Protocols and

Mgm report

Household

Major

scandals

Public and

political att.

… the Guidelines were initiated on the back of well known scandals

ENHANCED, PRUDENT

GOVERNANCE

Denmark 2003, Nørby

- 28 sound guidelines


Backwards focus

Compliance focus

Strategy

Execution

Financial

performance

Health

Protocols and

Mgm report

Household

Major

scandals

Inadequate

Fin.Sect CG

Financial

crisis

Public and

political att.

… and were reinforced in the shadow of the Financial Crisis

ENHANCED COMPLIANCE

DETAILED GOVERNANCE

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More Backwards

More Compliance

Major

scandals

Inadequate

Fin.Sect CG

Financial

crisis

Self-reinforcing

‘regime of rules’

Public and

political att.

Strategy

Execution

Financial

performance

Health

Protocols and

Mgm report

Household

… leading to a tsunami of self-reinforcing Rules regime

Emphasis on strong

unified COMPLIANCE




More Backwards

More Compliance

MORE COMPLIANCE

MORE REACTIVE

Major

scandals

Inadequate

Fin.Sect CG

Financial

crisis

Public and

political att.

Strategy

Execution

Financial

Reporting

Fomal check

Health

Protocols and

Mgm report

Process

Compliance

Procedures

Household

… leading to a tsunami of self-reinforcing Rules regime

Self-reinforcing

‘regime of rules’

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Analysts PressStockmarket

Strategy

Execution

Financial

Reporting

Guidance

Fomal check

Health

Protocols and

Mgm report

Process &

Procedures

Compliance

Household

Major

scandals

Financial

crisis

Public and

political att.

Simultaneuosly, stock listed companies experience increased hype

MORE COMPLIANCE

MORE REACTIVE

Even more backwards

Compliance hysteria

Nano-second hype


Low predictability

High complexity

Strategic urgency

Even more backwards

Compliance hysteria

Nano-second hype

… at a time where reality demands conscious strategic focus

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Low predictability

High complexity

Strategic urgency

Even more backwards

Compliance hysteria

Nano-second hype

… at a time where reality demands conscious strategic focus

”When I work on public boards, I find myself

thinking mostly about how to avoid errors”

”When I work on privately owned boards,

I constantly think about how to create value.”

Birger Magnus, chairman.

Ex-CEO of Schibsted.


Low predictability

High complexity

Strategic urgency

Even more backwards

Compliance hysteria

Nano-second hype

Conclusion

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WEAK AND PASSIVE

GOVERNANCE

INTERACTIV

BUSINESS DRIVEN CG

Strategy

Execution

Financial

performance

Health

Protocols and

Mgm report

Household

1

2

3

4

5

FORMALISTIC

REACTIVE GOVERN.

The Value Adding Board decides on a balanced Agenda and Focus

Systematic

self-evaluation

Board renewal

Add new energy

Take control over

the Agenda

Create passion,

and interaction

Filter for relevancy

in ”guideline tsunami”

Protect the EMT against

excessive external hype

Comply, but protect

common business sense

Focus on real value

creation; not stock

market perception


Synthesize meaning


Balance Core & New

Recreate growth

RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE

1st generation Board

2nd generation Board

3rd generation EMT

The new business reality demands a new generation of Boards

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Synthesize meaning


Balance Core & New

Recreate growth

FORMALISTIC BOARD

COMPLIANCE DRIVEN

CORP. GOVERNANCE

INTERACTIVE BOARD

BUSINESS DRIVEN

CORP. GOVERNANCE

3rd generation Board

RITUALISTIC BOARD

WEAK CORPORATE

GOVERNANCE

The new business reality demands a new generation of Boards

Once being a Board

member was considered

a nice way to ease into

retirement. Now it brings

a lot of responsibility and

requires a rigorous and

professional approach.

Heidricks & Struggles

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Thank [email protected]


Dansk Gyldendal, 2014

Documents

Kravene til Morgendagens Værdiskabende Styre...The Value Adding Board extract, copyright Torben Ballegaad The Board must adress 5focus areas in balance and sequence… Protocolsand