The only man who makes no mistakes is the man who never does anything. – E. Roosevelt One of the keys to a successful board is a good understanding of the differentiated roles of the management and board. •Guidance and oversight vs. initiation and implementation •Ensuring systems vs. timely and open communication The tone at the top sets the corporate culture. •Not benefiting personally from the corporation’s activities / assets •No transactions with the corporation or its affiliates that is not in line with market prices. (Related party transactions) •Not assuming too much risk on behalf of the shareholders •No tendency for nepotism •….. Whenever everyone agrees with me, I always feel I must be wrong. — Oscar Wilde. •Critical Thinking Positive and constructive thinking is the key to emotional intelligence which promotes participation and sharing of ideas. •Each mistake is a learning opportunity •Creating an appropriate climate for learning is a critical leadership challenge •The ability to think positively and constructively can be learned The most important expectation from the board is ensuring compliance to ethical rules, beyond laws and regulations. •Corporate Social Responsibility •Fair Investigation •The Responsibility to Protect the Environment •Avoiding Misrepresentation in Public Disclosures •Effectiveness of Internal Controls •… Balanced information regarding the corporation must be shared with each member systematically and timely. Dimensions of Board Information •Context / Relevance •Satisfaction review •Benchmarking / Variance Analysis •Ample time to review and study Characteristics of Information •Only necessary and sufficient information •Comparisons •Current and presented in a timely fashion •Derived from best available sources •Simple and easy to understand •Clearly identified main assumptions Details of Information •Information required to support board decisions, particularly investment and strategic issues •Information about the industry trends, developments, and company’s positioning •Information that will allow a sound assessment of risks the corporation may face •Information necessary to assess the corporation’s performance •Legal and regulatory developments and compliance issues •Information related to developments at stakeholders, and relationships with them. •Information about the internal control systems •Key potentials within and outside the company about their competencies, experiences, and performance. •The development plan for key executives However, most of the board decisions are made for the future, therefore access to lead indicators is important. •No attention to lead indicators – Delay in realizing problems •Lead indicators such as perception, satisfaction, learning and innovation are harder to measure •Attention must be given to lead indicators just as the business results •Decline in customer satisfaction today - Decline in profits in the future •Decline in market share in a particular niche - Diminishing innovation capability of the company Examples of Lead Indicators •Customer complaints (Failing to learn from them, may cause bigger problems in the future) •Proportion of income coming from products/services introduce in the last few years •Performance at new markets •Increasing or decreasing profits and variance analyses with the past performance •Tendency of top management to silence people with opposing views. •Indication for overconfidence of the management and underestimating the competition Time stays long enough for anyone who will use it. – Leonardo Da Vinci Balanced information regarding the corporation must be shared with each member systematically and timely. •Context / Relevance •Satisfaction review •Benchmarking / Variance Analysis •Ample time to review and study However, most of the board decisions are made for the future, therefore access to lead indicators is important. •No attention to lead indicators – problems late realized •Lead indicators are relatively harder to measure •Attention must be given just as the business results The quality of the process by which the decisions are made is as important as the quality of information feeding into this process. •Is it important or urgent and require board decision. •Alternatives presented by the management are comprehensive and that their costs, benefits, risks, and impacts are well understood. •Identify the type of uncertainty and approach. Strategic thinking is the ability to differentiate on a consistent manner. As the boards are increasingly faced with choices about where to compete, managing the portfolio of businesses becomes critical. Reasons for having a portfolio of businesses •Change in conditions •Risk management •Capturing market opportunities •Capitalizing on key competencies •Scope economies •Asset specificity •Inefficiencies in capital markets •Capturing scale of economies •Changing or increasing the strategic focus Responsibilities of the Board •Monitor corporate transactions and closely follow others’ actions. •Mentally prepared for corporate transactions well in advance of a potential transaction •Watch the valuations and firing power (cash generation and debt or equity raising capability) of the companies, as well as potential competitors •Focus on relations with current and potential investors and creditors •Identify which new businesses to develop or enter Arguden
Posted on: Wed, 24 Dec 2014 01:08:11 +0000
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