31-10-2014
1
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
31-10-2014
2
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
THE INTERACTIVE
BOARD
Control & Create Value
Sarsbanes-Oxley
Cadbury, EU-Gov.Stds.
Norw. Code of Practice
OECD Principles
The Value Adding Board extract, copyright Torben Ballegaad
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?
31-10-2014
3
The Value Adding Board extract, copyright Torben Ballegaad
Predictable
Local/Regional
Industry borders
Incremental
Past requirements
RITUALISTIC BOARD
WEAK CORPORATE
GOVERNANCE
The Value Adding Board extract, copyright Torben Ballegaad
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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The Value Adding Board extract, copyright Torben Ballegaad
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.”
The Value Adding Board extract, copyright Torben Ballegaad
RITUALISTIC BOARD
WEAK CORPORATE
GOVERNANCE
Synthesize meaning
Craft & impl. strategy
Balance Core & New
Recreate growth
The Ritualistic Board is insufficient
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5
The Value Adding Board extract, copyright Torben Ballegaad
Will more Rules & Regulations help?
Synthesize meaning
Craft & impl. strategy
Balance Core & New
Recreate growth
BOD
EMT
FORMALISTIC BOARD
COMPLIANCE DRIVEN
CORP. GOVERNANCE
RITUALISTIC BOARD
WEAK CORPORATE
GOVERNANCE
The Value Adding Board extract, copyright Torben Ballegaad
Synthesize meaning
Craft & impl. strategy
Balance Core & New
Recreate growth
BOD
FORMALISTIC BOARD
COMPLIANCE DRIVEN
CORP. GOVERNANCE
Will more Rules & Regulations help?
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
Synthesize meaning
Craft & impl. strategy
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
Will more Rules & Regulations help?
The Value Adding Board extract, copyright Torben Ballegaad
Synthesize meaning
Craft & impl. strategy
Balance Core & New
Recreate growth
BOD
EMT
FORMALISTIC BOARD
COMPLIANCE DRIVEN
CORP. GOVERNANCE
…More rules are of limited value to the EMT challenges
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
Synthesize meaning
Craft & impl. strategy
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
The Value Adding Board extract, copyright Torben Ballegaad
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
Tasks of Tomorrow’s Board
BOD
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
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?
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
The Value Adding Board extract, copyright Torben Ballegaad
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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The Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
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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The Value Adding Board extract, copyright Torben Ballegaad
… and change its perspective from backwards …
FuturePast
Opportunities
Problems
The Value Adding Board extract, copyright Torben Ballegaad
… to forwards, while maintaining proactive control
FuturePast
Opportunities
Problems
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The Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
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 Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
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 Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
The FIFTH focus area of the Agenda: HEALTH
House
keeping
Strategy
Execution
Health
Protocols and
Mgm report
1
2
3
4
5
Performance
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The Value Adding Board extract, copyright Torben Ballegaad
Multiple layers of Health Markers
The FIFTH focus area of the Agenda: HEALTH
House
keeping
Strategy
Execution
Health
Protocols and
Mgm report
1
2
3
4
5
Performance
The Value Adding Board extract, copyright Torben Ballegaad
The FIFTH focus area of the Agenda: HEALTH
House
keeping
Strategy
Execution
Health
Protocols and
Mgm report
1
2
3
4
5
Performance
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
The FIFTH focus area of the Agenda: HEALTH
House
keeping
Strategy
Execution
Health
Protocols and
Mgm report
1
2
3
4
5
Performance
The Value Adding Board extract, copyright Torben Ballegaad
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?
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
INTERACTIVE and
ENGAGED BOARD
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
Synthesize meaning
Craft & impl. strategy
Balance Core & New
Recreate growth
What skills and qualities are required ?
The Value Adding Board extract, copyright Torben Ballegaad
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
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
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The Value Adding Board extract, copyright Torben Ballegaad
Professionel qualities
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
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
… the Board must be tied together by cohesive personal qualities
A collection of competencies
is not enough
The Value Adding Board extract, copyright Torben Ballegaad
Professionel qualities
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
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
… the Board must be tied together by cohesive personal qualities
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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The Value Adding Board extract, copyright Torben Ballegaad
Professionel qualities
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
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
… the Board must be tied together by cohesive personal qualities
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
- Reflective, humble
- 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
- Reflective, humble
- 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
- Reflective, humble
- Clear and precise
- Sense of humour
- Energy, passion
- Controllable ego
- High integrity
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The Value Adding Board extract, copyright Torben Ballegaad
CEO
CHAIR
INTERACTIVE and
ENGAGED BOARD
Getting to an active, well functioning Board…
Chairman
CEO
PASSIVE and
REMOTE BOARD
The Value Adding Board extract, copyright Torben Ballegaad
… requires a decisive approach
• Systematic self-evaluation process
• Execution of the needed change
• Strong board leadership (chairman)
• Active owner connection
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The Value Adding Board extract, copyright Torben Ballegaad
“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
The Value Adding Board extract, copyright Torben Ballegaad
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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The Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
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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The Value Adding Board extract, copyright Torben Ballegaad
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?
Provide wise counsel
Drive forward focus
Strategic co-creation
Proactive control
The Value Adding Board extract, copyright Torben Ballegaad
The ‘journey’ started with sound and prudent CG Guidelines
ENHANCED, PRUDENT
GOVERNANCE
WEAK AND PASSIVE
GOVERNANCE
INTERACTIV
BUSINESS DRIVEN CG
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The Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
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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Denmark 2003, Nørby
- 28 sound guidelines
The Value Adding Board extract, copyright Torben Ballegaad
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
Denmark 2003, Nørby
- 28 sound guidelines
The Value Adding Board extract, copyright Torben Ballegaad
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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The Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
Low predictability
High complexity
Strategic urgency
Even more backwards
Compliance hysteria
Nano-second hype
… at a time where reality demands conscious strategic focus
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
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.
The Value Adding Board extract, copyright Torben Ballegaad
Low predictability
High complexity
Strategic urgency
Even more backwards
Compliance hysteria
Nano-second hype
Conclusion
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The Value Adding Board extract, copyright Torben Ballegaad
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
The Value Adding Board extract, copyright Torben Ballegaad
Synthesize meaning
Craft & impl. strategy
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
31-10-2014
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The Value Adding Board extract, copyright Torben Ballegaad
Synthesize meaning
Craft & impl. strategy
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]
The Value Adding Board extract, copyright Torben Ballegaad
Dansk Gyldendal, 2014