Boards - Part II
Part I appeared earlier this week. The full article can be found at my newsletter, Base of the Pyramid. If you would like to read more about business transformation, restructuring, turnaround and value creation from a middle market perspective, visit and subscribe.
How Boards Can Help
The overriding thesis of Base of the Pyramid is that business transformations are both difficult to execute and incredible drivers of value when successful. To that end, transformational leaders should always be on the lookout for allies, and a board can be a powerful ally in catalyzing a successful business transformation.
?
Financial oversight. In the context of a business transformation, the financial oversight role of a board becomes paramount. The challenge is to ensure understanding and alignment, and the form and substance of financial reporting can change considerably during a successful business transformation. This change in reporting can be due to issues with the legacy reporting format, and need to bring greater focus to certain areas, or simply a need to showcase the way that successful transformation efforts manifest across financial statements (as well as KPIs). Boards that understand and support the evolution of reporting while embracing their financial oversight role do a great deal to accelerate transformation efforts.
?
Strategic guidance. Business transformation implies a shift, sometimes a radical shift, in strategy. Under some ownership structures, notably private equity and venture capital, value accretive shifts in strategy are unremarkable and easy to support. However, under other ownership structures, notably family ownership and nonprofits, value accretive shifts in strategy are often met with highly emotional reactions that are divorced from the needs of the organization. When boards embrace their role in providing strategic guidance while acknowledging that the optimal strategy might be a new one, they position themselves to be value partners in driving transformation.
?
Hire/fire CEO. Often the greatest service a board can perform for an organization seeking transformational change is to assess incumbent leadership, in particular the CEO, and determine whether a change is necessary. Recognizing that incumbent leadership is not equal to the challenges facing them and forcing a change can catalyze exactly the change that a savvy board recognizes is needed.
How Boards Can Hurt
While boards can be enormously helpful allies in the project of fostering a business transformation, they can also be intransigent adversaries.
?
Financial oversight. A board that rejects changes to financial reporting, challenges an emphasis on different measures, and insists on second guessing leadership during a business transformation is not exercising its fiduciary duty so much as it is engaged in the (possibly unwitting) sabotage of an organization’s best opportunity for maximal value creation.
?
Strategic guidance. Over the years I have developed a short form test for the quality of a board as it relates to the issue of strategic guidance. A toxic board will reject any strategy in whose development it did not play a leading role. When boards insist on strategic authorship / development as opposed to guidance, particularly in the accelerated environment of a business transformation, they transition from partner to impediment.
?
Hire/fire CEO.An unwillingness to make leadership changes can strangle a nascent business transformation initiative in the cradle. Failing to take action and terminate a CEO or senior leadership member unable or unwilling to grapple with the scope of the challenges facing an organization can be a fatal mistake, not only to business transformation efforts, but to the organization as a whole.
Conclusion
Science writer Isaac Arthur has made the observation: “there is no such thing as an unarmed spaceship”. The point of this observation is that the energy output of a spaceship is such that, definitionally, it possesses offensive capabilities regardless of whether there is any intention to use them as such. In a similar vein, boards represent a stakeholder constituency with the power to halt or severely impede a business transformation or, conversely, to accelerate and foster one. Transformational leaders eager to maximize their effectiveness should give careful thought to how best to partner with their board to ensure that this powerful group becomes an ally in the value accretive project of a business transformation, rather than allowing it to become a bitter and reactionary adversary to change.
?
About the Author
David Johnson is the founder and managing partner of Abraxas Group, a boutique advisory firm focused on providing leadership and support services to companies in need of transformational change. He is an accomplished thought leader with multiple articles and speaking engagements on the topics of business transformation, change management, performance improvement, restructuring, turnaround, and value creation to his credit. David can be reached at: [email protected].
??