Improving Board Effectiveness

Objectives for the SessionBy the end of this session, you WILL be able to:Converse in board-level vocabulary, skills and behavioursUnderstand the role & responsibilities of a Board and its membersAppreciate the importance of Corporate Governance Express a wider perspective on Board systems and processes Develop awareness of contemporary board-level issuesBe able to suggest areas for board effectiveness improvements Understand change as a paradoxBe able to describe several methods of implementing changeBe aware of what can go wrong in the change process (organisational learning)Understand the roles of the change agentDevelop strategic analysis skills and the ability to make appropriate recommendations that address the strategic challenges facing a major organisation

1.THE ROLE OF THE BOARD AND DIRECTOR’S RIGHTS, DUTIES AND LIABILITIES ?

1a. The Role of the Board

Influences on Strategic Purpose

Ownership Choices ...impact purpose and strategy Private or Public ownership of equity Sale of all or part of an organisation Acquisition of another business Mutual ownership and partnerships

– Eg. Insurance and Building Societies – Law firms and accountancy practices

Privitisation of Public Sector bodies Re-nationalisation

The Governance Chain (Adapted David Pitt-Watson, Hermes)

Beneficiaries Beneficiaries

Trustees Trustees of Funds of Funds

Investment Investment ManagersManagers

Board Board

Executive Executive DirectorsDirectors

Senior Senior ExecutivesExecutives

ManagersManagers

Reports and Actions

Limited reports

Accounts, Analysts’ reports, company briefings, Buying/selling shares

Investment performance reports

Budgets/targets/KPI’s/,Qualitative reporting

Budgets/targets/KPI’s/,Qualitative reporting

Budgets, simplified targets, KPI’s, Operating reports

CORPORATE GOVERNANCECorporate Governance is concerned with the structures

and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation. “Stewardship”

Increasing important ….why?

1. Separation of ownership and management control of organisations – see governance chain

2. Corporate scandals – since late 1990’s and public outcry/debate – eg. boards & shareholders or govt bodies/funding bodies and public service providers

3. Increased accountability to wider stakeholder interests ie. CSR, “Corporate brain” and wider social interest

Different Governance Structures Governing bodies of organisations can be a collective of

Directors, Trustees, Governors etc. Main statutory responsibility is to ensure that an

organisation fulfils the wishes and purposes of the “primary” stakeholders

Stakeholders vary across Sectors (Public v Private) Cultures and Nations

This leads to differences in the way organisations operate, how the purpose of an organisation is shaped and how strategies are developed as well as ...

The role and composition of Boards Two generic governance models exist used

– Shareholder– Stakeholder

Different Governance Structures SHAREHOLDER MODEL Principle: Primary stakeholder are the Shareholders Purpose: Maximising shareholder value and wealth generation by the organisation;

brings benefits to other stakeholders too Western Anglo-Saxon approach – US/UK Structure: Single-tier board structure; Chair and CEO often split Composition: majority of Non-Executives – bringing independence and primary role of

oversight on behalf of shareholders as well as driving the organisation forward

STAKEHOLDER MODEL -BLOCK HOLDER SYSTEM OF GOVERNANCE Principle/Purpose: Wealth is created, captured and distributed by a variety of

stakeholders – may include shareholders but also banks, employees, unions German, Netherlands, France, other EU countries (“European”) Structure: Two-tier board system – supervisory board (Aufsichtsrat) and management

board (Vorstand) Composition: Supervisory Board where interested groups are represented including

shareholders, employees but also bankers, lawyers and investors – takes major strategic decisions eg. M&A.

Strategic planning and operational control are vested with the management board.

Pros/Cons of Governance Systems Party’s perspective

Shareholder Model Stakeholder Model

Benefits Investors Higher ReturnsReduced Risk by diversification of holdings

Closer monitoring of managementLonger term decision horizonsBlock holders monitor mgmt with greater inside knowledge

Benefits Economy Encourages growth & entrepreneurshipEncourages Inward investment

Deterrent to high-risk decisionsMore long-term orientation

Benefits Exec/Managers IndependenceObjective decision-making

Employee engagement /interest

Disadvantages Investors Monitoring many equities makes it difficult to monitor management

Returns may be lower given longer project payback

Disadvantages Economy Risk of short termism Reduced financing opportunities for growth and entrepreneurialism

Disadvantages Exec/Managers Greed and egosOwn agendas Excessive remuneration

Potential interferenceSlower decision-makingReduced independence

Board Classification – Unitary Boards Unitary System Management or other system in which authority is concentrated at a

single point.

Unitary Board Unitary boards include both executive and non-executive directors and

make decisions as a unified group.

Board of Directors Senior executives appointed by the shareholders to run a company. The

activities and responsibilities of the board of directors are regulated by the company’s articles of association. Directors may or may not themselves be shareholders.

Board Classification– Two-Tier Boards Two-Tier Board System of West German origin devised to extend employee participation

in the running of companies. A management board is responsible for the day-to-day senior management but is responsible to a supervisory board which includes employee or trade union representatives.

Supervisory Board (Aufsichtsraf) Upper part of the two-tier board structure in German industrial firms, being

responsible for appointing the lower tier Management Board (Vorstand). Workers have a right to representation on the Supervisory Board under the co-determination law.

Supervisory Board (Netherlands) From July 1973 workers had a right to have members on the Supervisory

Board of companies which have a capital of Euro 16M and have >100 employees. Jan ‘13 choice dualist or monalistic board

Governance Structures in transition

Trend: Convergence toward a shareholder model of governance ...Why?

i. Mutual advantage and alignment of shareholders & wider stakeholder groups

ii. Increasing role of institutional investors acting on behalf of mass shareholders

iii. Increasing globalisation &cross-border M&A

Governance systems across countries

Until 90’s Airlines and banks nationalisedNow restrictions on foreign equity relaxed and some public sector disinvested and IPO’sFamily companies –growth and shareholder model boards with Independent NED’s & Exec’s at 30-50%

Institutional & foreign investors gaining influence but owner concentration common Deregulation & liberalisation occurringLong-term growth and security are key above short term profits – internal directors on single tier boards

2-tier system mainly for >500 employeesBanks interest in Mittelstand – some challenge re global competitiveness and employee involvement – speed & cost

State & Quasi-state interests dominate2-tier boards; supervisory boards of >33% employees ; Operating Boards run the orgn.- now independent NED’s

Family-owned, Foundations or Holding Co’sInstitutional investment increased rapidly EU entry and foreign investment risen but still block/stakeholder model is prominent

Please describe?

Independent Unitary Board with CEO/President commonAdopting more UK with More Executives on board and split Chair/CEO role

Balanced board with NED’s slightly more than Exec’s Chair /CEO role split and SID Like other countries pressure to improve diversity

IoD Governance Cycle

How Governing Bodies/Boards Influence Strategy

Board have the ultimate responsibility for success or failure of an organisation and the benefits received by the shareholders/stakeholders so must be concerned with strategy

Two generic choices:-1. Strategic management delegated to management so Board adopts ...

i. “Stewardship role” receiving & and approving plans and decisions ii. Board must also ensure that the purpose and strategies are not ‘captured’ by

management and expense of other stakeholders.

2. Engage with Management in strategic management process. - Requires awareness of practical problems of time and knowledge of

(particularly) the NED’s

NB: Clarity on “Matters reserved for the Board”

How Governing Bodies/Boards Influence Strategy...

To act in the interests of their shareholders and beneficiaries, there aresome common recommended considerations:- Operate independently of the management – NED role is heightened Board must be competent to scrutinise the activities of managers

Collective experience, Board training and the information at its disposal are crucial Directors must have the time to do their job properly.

Limitations on number of directorships are important consideration The behaviour of boards & their members is the most significant factor

irrelevant of what structural arrangements are put in place Respect, Trust, ‘Constructive friction’ between board members, fluidity of roles,

individual as well as collective responsibility, and the evaluation of individual director and collective board performance

Board Accountability The Board is accountable to it’s Stakeholders:-

– The Customers – both external and internal– The Shareholders – The employees and families – Business Partners/Suppliers– The wider business community

What do Boards do?1. Define Strategic Purpose 2. Determine and Communicate to all stakeholders the rationale for the

organisation and vision to take it forward 3. Set out the organisations mission 4. Determine the organisations objectives consistent with the vision and in a

way that can form strategy 5. Identify and accommodate the organisations culture 6. Highlight organisational values 7. Set the organisational and ethical boundaries around those activities to be

undertaken

Responsibility for 1. Creating environment and climate to gain commitment to the strategic plan 2. Managing conflicts and uncertainties that arise from trying to anticipate

uncertain futures and encourage creativity to arise out of the tension 3. Delegate the Implementation of strategy to the Executive Management

What do Boards do - specifically? Governance – Strategy, Oversight, Stewardship Performance review Conformance review Business strategy

– Discontinuous thinking, Scenario Planning, Backwards from Perfect, Positive Imaging

Key issues or challenges M&A; alliances; partnerships Other major investments Senior appointments & succession planning

Board Responsibilities Delivery of the Annual Income Target and Budget for the year To apportion Income Target and Budget between the various

Business Units and Divisions To set other strategic criteria for Success To ensure that the organisation retains its Licence to Operate To deliver and live the Values of the organisation To deliver efficiently and effective use of resources To allocate headcount, financial and other resources Monitoring the organisations current performance and secure

the company’s future Set short and long term objectives (strategy) and monitor

performance against agreed targets

Board (Group) rolesExecutive Directors CEO Finance Director Marketing Director Operations Director Company Secretary?Non-executive Directors Chair Non-Executive Director Senior Independent Director Board Advisors

Chair’s Role Talent

– Create great things out of individual talents– Bring out the best in talent around the Board table,

directors and meetings– Right mix of talent

Time – utilise to greatest possible effectTone – open, transparent and productive Trust – amongst directors & board/ mgmtTension – Board/CEO & CEO/team

Roles of Board Members Chairman – to lead Board meetings Independent advisors/NED’s/Outside Directors Executive members – full voting members HRD – advise Board on HR and other related matters FD- advise Board on financial performance & other matters Secretariat

– to take, prepare, and distribute Board Minutes and Action Points. – to advise the Board on procedure and Governance. – to arrange the dates and venues for meetings. – ensure the Board gets clear reports and in good time

Directors must make demands clear and insist they are met Directors need to know what is going on around them and

the company Directors should have views on major industry and economic

changes and their impact on the company strategy

The Role of the Executive Team

The role of the Executive Team is to design, develop and implement strategic plans for their organisation in a cost-effective and time-efficient manner.

The Chief Executive and the Executive Team are also responsible for the day-to-day operation of the organisation, including managing staff and developing business plans in collaboration with the Board for the future of the organisation.

In essence, the Board grants the Chief Executive the authority to run the organisation.

The Role of the Chief Executive

The Chief Executive is accountable to the Chairman of the Board and reports to the Board on a regular basis.

The Chief Executive’s role is a leadership role for an organisation and often fulfils a motivational aspect. The Chief Executive leads the organisation and develops its culture.

TescoTesco plcplc Board Structure Board Structure

ChairChairNEDNED

CEOCEO ExEx ExEx ExEx ExEx ExEx

CSCS

DeputyDeputyChairChair NEDNED NEDNED NEDNED NEDNED

Executive CommitteeExecutive CommitteeMeets once a weekMeets once a week

ExEx ExEx

Audit CommitteeAudit CommitteeMeets a minimum of three times a year Meets a minimum of three times a year

Remuneration CommitteeRemuneration CommitteeMeets a minimum of three times a year Meets a minimum of three times a year

Nomination CommitteeNomination CommitteeMeets as required Meets as required

Terry LeahyTerry LeahyCEOCEO

David Reid David Reid ChairChair

Balance Balance of Powerof Power

1.B. DIRECTOR’S RIGHTS, DUTIES AND LIABILITIES ON A BOARD

1. The Role of the Board and the Director’s Rights, Duties and Liabilities

Director Responsibilities & Powers ResponsibilitiesDetermining the company’s strategic objectives and policies Monitoring progress towards achieving the objectives and policiesAppointing senior managementAccounting for the organisation’s activities to relevant parties eg. shareholders

Powers

Directors are responsible for the management of the company and may exercise all of the powers of the company.

Extent of this authority may be constrained by either i. The Articles of Association ii. The relevant Legal Act(s) in the jurisdiction operating eg. Company Act in UK

Directors must act collectively as a board to bind the company.

Articles usually entitle the board to delegate powers to individual directors as considered appropriate. In practice individual directors normally carry out many of the company’s activities.

Director Duties STATUTORY DUTIES Be aware personally subject to statutory duties in capacity as a Director of a company

Additionally, the company is a separate legal entity and subject to statutory controls that the directors are responsible to ensure they are complied with

In UK the Companies Act 2006 codified 7 general duties:-1. To act within powers in accordance with the company’s constitution and to use those

powers only for the purposes for which they were conferred 2. To promote the success of the company for the benefit of its members 3. To exercise independent judgement4. To exercise reasonable care, skill and diligence 5. To avoid conflicts of interest 6. Not to accept benefits from third parties 7. To declare an interest in a proposed transaction or arrangement

These statutory duties cannot be seen in isolation and directors also have a fiduciary duty to act in good faith to the company alone

UK directors are also subject to other regulation and legislation including the acts covered in the Director’s Liabilities section.

Director Duties UK Law Commission suggested the following:-1.General Legal /Statutory Duties 2.Loyalty – in good faith and company interest3.Obedience – comply with articles and law 4.No secret profits – disclosure is key 5. Independence 6.Conflict of Interest7.Care, Skill & Diligence – reasonable & experience 8. Interests of Employees and other Stakeholders9.Fairness

Director Duty of Care and Skill Directors are expected .... to show degree of care and skill which might reasonably be expected from

persons of their knowledge and experience (minimum Objective test) - Not bound to give continuous attention nor attend meetings - Not expected to have professional qualifications and expertise in every

area of the Board’s dutiesMay in the absence of grounds for suspicion, trust a company official or

employee to perform duties which have been properly delegated

Two general principles1. A director need not exhibit a greater degree of care and skill than may be

reasonably expected from a person of his/her knowledge and experience (can be “subjective”)

2. A director is entitled in the absence of grounds for suspicion, to rely on fellow directors and officers of the company and need not devote his/her full attention to the business - reliance on expertise v’s careless disregard of director’s duties- governance includes close monitoring on financials and compliance

NB: The baseline is rising

Director Liabilities Directors may incur personal liability, both civil and criminal for

their acts or omissions in directing the company. In the UK these are areas of major focus :-1. Company Directors’ Disqualification Act 1986

- Can be 2-15 yr ban usually poor conduct, compliance or unfit2. Insolvency Act 1986

- Wrongful trading–make personal contribution to co. assets- Fraudulent Trading –make personal contribution if intention to

defraud creditors 3. Health and Safety At Work Act 1974

- Personal liability for breach if consent, connivance or neglect – potential fines and imprisonment and disqualification

4. Corporate Manslaughter and Corporate Homicide Act 2007 - If failings by an organisation’s senior management are substantial

element in any gross breach of duty of care owed to employees or members of the public which results in death – unlimited fine and publish details of conviction and fine

2. BOARD EFFECTIVENESSComposition, Structure and Practices

2. BOARD EFFECTIVENESS2.a. The Balanced Effective Board

Nine key success ingredients – discuss and assess

1. Proper distinction of roles

2. Need for key checks and balances in any structure

3. Importance of Non-Execs & outside view with creative & controlling aspect

4. Need for breadth of wisdom and experience

5. Importance of succession and board renewal, balancing old and new ideas

6. Quality is vital

7. Acceptable and definable structure

8. Structure reviewed so does not duplicate work of others

9. Open and honest disclosure – adequate, timely and relevant information

Questions Board focus is changing: how? (i) risk oversight

(ii) remuneration (iii) pension (iv) debt (v) sustainability (vi) corporate ethics Who sets the board agenda? How are proposals made to the board? How do NEDs ensure that they have the necessary

information? How do boards resolve disagreements? What happens if there is a vote? How do board committees function? And who has the final say?

Questions (contd.) Size: How many directors in total? How many

executives on the board? What determines this? Balance between independent and executive /

interested directors Who should be Chair? How is he/she appointed? Some companies appoint their ex-CEO. What are the

pros and cons of this? Period of appointment (tenure). Why is this important? Where should you recruit independent directors & how? Is Director experience important? How? What about personal chemistry? Diversity: what sort of diversity is desirable? What are

the pros and cons?

Director Selection & Appointment Process The process of appointing directors raises two kinds of issues:

1. Legal requirements  Subject to the provisions of the company's Articles of Association private limited companies must have at least one director and

public limited companies must have at least two directors. The first directors of a company are appointed at the time of registration of the company at Companies House. Subsequent appointments are governed by the company's Articles but any Shareholders Agreement should also be checked.

Typically, Articles will provide for the board of directors itself to appoint a new director to fill a casual vacancy, or to appoint additional directors up to the maximum number permitted by the Articles. The board of directors will need to pass a resolution in the normal way ensuring that proper notice of the meeting is given, that it is quorate and the resolution is passed by a majority of the votes cast.

To protect the shareholders, some articles of association require directors appointed by the board of directors to retire at the next AGM and seek reappointment by the shareholders. This is becoming more unusual.

On appointment all directors (executive and non-executive), must signify consent to the appointment by signing form APO1 which must be filed at Companies House. The director should be reminded to acquire the share qualification (if any) specified in the Articles. An executive director should be given an employment contract (sometimes called a Service Agreement). A non-executive director should also be given a contract confirming the conditions of appointment (this is sometimes in the form of a letter).

Additionally the director should be invited to give a general notice of any interests in contracts involving the company. Directors of quoted plcs are required to declare their interest in the company’s shares under the Disclosure and Transparency Rules. 

2. Recruitment Process Because directors play such an important role in companies, their recruitment demands a correspondingly systematic and

professional approach. Key factors to take into account are:

the board should clearly identify the skills gap that it wishes to fill, based on its corporate objectives and priorities over the next five years. Doing so will make it easier to provide an accurate profile of the person who needs to be appointed;

a search plan should be devised to target prospective candidates. Here it may be cost-effective to use an exec. search specialist firm;

a remuneration package should be offered that is both compatible with the company’s financial status and is likely to attract the kind of candidates the company requires.

Director Selection, Appointment and Appraisal Processes

An efficient appointment and appraisal system are key areas where board effectiveness can be improved. Developing an effective board depends on a process of appointment, induction and appraisal linked to a process of continual development. This enables directors' performance to be monitored and improvements made.

There are many benefits to a company, and to its board, of a regular review. They help to clarify the individual and collective roles and responsibilities of directors; raise awareness of any current or future skills gaps with a view to filling them; improve working relations between the board and managers encouraging greater candour between directors' and senior managers (they also show that the board is leading by example), and finally they help keep the board focused on improving its effectiveness.

The appraisal process involves:• Defining board tasks and objectives; • Measuring board resources and capabilities; • Consultation with board members; • Consolidation and review of the results.

Distinction Between Direction v’s Mgmt Role of the Board and the duties and responsibilities of a

director are at the heart of the distinction between direction and management – they determine the qualities required by directors and distinguish them from managers Legal and Financial knowledge Strategic Awareness and perspective rather than

departmental Awareness of boardroom issues and practiceIndependence and a willingness to ask probing questions Balanced and holistic perspective

What makes a good NED?

1. Breadth of experience and area of expertise 2. Team players without huge egos3. Independent advisors, able to support and challenge4. Committed and prepared5. Articulate communicators, good listeners6. Sharp minds and good judgment7. Visionary, creative, passionate about business8. Build strong relationships, act as ambassadors9. Self-confident, not dogmatic10. Welcome feedback, act on it

Company - Due Diligence questions Review of Memorandum and Articles – Memorandum – the activities the company is authorised to undertakeArticles – min and max number of directors, min number of board meetings,

quorum, votes to pass resolution, shareholder meeting needs and how to run, AGM items, notice for meetings, disqualification rules, director shareholdings before appointment, share cert issuing, appt of Chairman etc.

Statement of Board Reserved Powers – decisions and responsibilities of BoardBoards Work Plan for the Year (see later)

Company Structure List of associated companies and locations and activitiesOrganisation chart

PerformanceFinancial results – last 3/5 years and mgmt figuresOperating Results – cf, budgetStrategy papers and Business Plan – IT and People Plans

Due Diligence (cont) Performance (continued)– Comparison with competitors – reports and analysis – benchmarking – DTICustomer SurveysMinute BookHR Reports - surveys, understanding goals, morale, turnover cf. industry

Risk ManagementRisk types identified – likelihood / probability and impact assessedWays to handle and minimise the effects, establish preferred ways of handling,

test these, report to board on progress and tests, board discussion muinuted

Board Minute Book to include:-- Important incidents, risk management plans adopted/tested with results,

result of Internal Audit reviews or internal controls and systems, current financial exposures, financial risk plans

Regulations Public liability, Environmental Regulations – Health and Safety, Others

What regulations surround the XXX?How does the XXX operate?How is the XXX organised and administered?What is the XXX recent and current financial position? Trends?What are the XXX long term goals? What progress has been made towards achieving the long term goals? How is the XXX organised? Who are the stakeholders? – mapping?What are the legal arrangements and memo and articles?What exclusive powers does the Board have and what are the Board’s responsibilities?What are the XXX’s long term goals?How has XXX performed against its own targets, long term plans and competitors?How does Board monitor current operations and hold management accountable?What are the XXX customers ‘ attitude to the products and services? What are the opinions of those who are not customers?What are the staff attitudes towards the XXX?What are the Board’s legal obligations?What are the laws and the legal framework within which the XXX works?Do I need to register any interests anywhere?What contribution is expected of me?What remuneration/compensation can be expected? What other duties are expected? How well do the individuals on the Board work together and how well can I work with them?  

DUE DILIGENCE (CONT)

Role and Structure of Sub-Committees Nominations Style and standard of contribution can be improved if a “professional” methodical, semi-

independent approach is made to the recruitment of directors. Board are encouraged to adopt rigorous, formal and transparent procedures for the recruitment of new directors.

Purpose of the Nominations Committee is to vet and present potential new directors, especially NED’s. UK common and increasingly so in USA.

Remuneration or Compensation Predominantly or exclusively NED’s (may include HRD) determine the pay and

prerequisites of directors and top managers. Purpose: Avoids involving the executives in a hassle about each other’s

salaries/remuneration etc.

Audit Wide-ranging powers, including the ability to seek independent professional advice Purpose is to provide a check on both the company’s financial controls and its auditing

processes

Finance >33% US co’s have these compared to @15% in UK. Attend: Chair, CEO, FD & 2/3 NED’s Purpose: Consider accounting reports, funding mix & cash flows, banks, accountants etc.

2.B. BOARD PRACTICES2. Board Effectiveness: Composition, Structure and Practices

An Effective Board develops and promotes its collective vision, its culture, its

values and the behaviours it wishes to promote provides direction; through strategy and structure Delegates to management pays attention to what is strategically important not just what is

urgent focuses on improving future performance rather than on

monitoring past performance makes well‐informed and high‐quality decisions

creates the right framework for members to meet their legal duties

is accountable to shareholders manages reputation and relationships; looks outwards as well

as inwards acts transparently with effective decision making processes

What should we do to begin? …Ensure we understand the following:-

What the organisation does? How the organisation operates and does what it says?How the organisation is structured and administered?

What is the external market and industry context in which the organisation operates? eg. the regulations surrounding the organisation, competitiveness of the sector

What does the organisation wish to achieve? The organisation’s long term goals

What has the organisation achieved? What progress has been made towards achieving the long term goals?The organisation’s recent and current financial position

What is still to be done? What are the priorities and quick wins?

What has the organisation done to manage the risks it faces?

How to begin? Confront Reality …

Is the Board proactive or reactive?

Is it a learning board?

Has it recently carried out a review of its function, composition and operations?

So the directors understand what is expected of them in the boardroom?

Do they work together as a team?

•Defined the powers and authority of the Board and of management?• Produced a clear statement of the company’s long term goals• Identified the resources needed to achieve the long term goals and taken action to ensure these are available.• Actively monitored current operations• Held management accountable for the actual financial and operating results compared to targets, long term goals and the results of competitors• Considered the views and needs of shareholders, customers, staff and other stakeholders when making decisions• Considered the work and recommendations of sub-committees and taken action• Reviewed the remuneration of senior management• Produced policies (courses of action) and strategies (long terms plans of action) for major parts of the business•Finance, people, risk management, environment, compliance with regulations, customer and products• Regularly received, debated and made decisions on reports covering:-•Customers attitude to products and services•Competitor strengths•Staff attitude to the company, understanding of long-term goals, whether they have the •resources needed to achieve the goals•Current and future financing for the XXX•Managing the adverse effects of changes in financial markets•Managing the adverse effects of business risks facing the XXX• Worked on an annual plan of work• Met its legal obligations in good time• Kept clear records of its meetings

CHECKLIST FOR A BOARD

Board Tasks and Good Practice ..RateA. Establish and maintain vision, mission and values

A. Determine/maintain the company’s vision and mission to guide and set the pace for its current operations and future development

B. Determine/maintain the values to be promoted throughout the company.C. Determine/maintain and review company goalsD. Determine/maintain company policies.

B. Decide Strategy and StructureA. Review and evaluate present and future opportunities, threats and risks, SWOT analysis B. Determine strategic options, select those to be pursued and decide the means to implement and

support them.C. Determine the business strategies and plans that underpin the corporate strategyD. Ensure that the company’s organisational structure and capability are appropriate for implementing

the chosen strategies. C. Delegate to management

A. Delegate authority to management and monitor and evaluate the implementation of policies, strategies and business plans.

B. Determine monitoring criteria to be used by the BoardC. Ensure that internal controls are effective.D. Communicate with senior management

D. Exercise accountability to shareholders and responsible to relevant stakeholdersA. Ensure that communications both to and from shareholders and relevant stakeholders are effective.B. Understand and take account the interests of shareholders and relevant stakeholders.C. Monitor relations with shareholders and relevant stakeholders by gathering and evaluation of

appropriate information. D. Promote the good will and support of shareholders and relevant stakeholders.

Agenda To be sent out on writing or email listing items to be discussed no later than 3-

7 days prior to the meeting Chairman approves the items on the Agenda although they are probably set

by the Executive members/Secretariat Items should include Action Points from Previous Meetings, Work Plan

Actions and New Issues Standing agenda items should also include Company Performance, People

and Policy and Plans Proposed dates, venues and times of subsequent meetings Board reports are a key to success and must be:-

– submitted on time and circulated promptly – Complete and succinct (Performance, People, Policy/Plans and Points for

Action/Recommendations/Decision required)– Measured and compared to budgets/targets and prior year

Directors should familiarise themselves with the Agenda and Pack and arrive on time, well briefed and fully prepared to take part in discussions and decision-making

Required Information in Director Board Packs

Background Reports on Industry and Economic Factors Operating results compared to targets Forecast operating results compared to long term plans Actual and forecast Key Performance Indicators (Balanced Business

Scorecard) Actual and forecast financial position and exposures Actual cash flow compared to forecast Operating commentary from MD & other Exec. Officers (Board Reports) Reports and recommendations from Board sub-committees Detailed reports on any major items for discussion at the following meeting Customer Surveys- Complaint procedures and monitoring Competitor Survey and Activities Employee Surveys

NB: Is information USEFUL and USED – the quality determines board success

Voting The Chairman and Executive members shall have voting rights

Other Board members may be given voting rights at the discretion of the Executive

Decisions shall be passed by the majority agreement of those entitled to vote on the matter.

In the event of an even vote, the Chair shall have a casting vote

Members should declare any Conflict of Interest before a vote. Members declaring such a conflict may vote at the discretion of a majority of the Board

Board Minutes Board minutes to be taken by the Secretariat and copies distributed to

Board Members within 7 days of each Meeting. They are a permanent company record.

Minutes to be accompanied by Action Points clearly marked as to who is responsible for actions and date to be done.

An update on Action Points should be provided to the Secretariat by the person responsible for such action, either 7 days prior to the date of the next Board meeting or within 7 days after the Action date whichever is the sooner.

Board members should advise the Secretariat of items for Board Agenda at least 7 working days prior to the date of each Board meeting.

The Agenda for each Board Meeting will be sent to members together with updates on Action Points, and any other relevant papers, at least 3-7 working days prior to each Board Meeting.

Conduct of Board Meetings This Board is a decision making Board and directors must ensure they

have the information to do their job Members of the Board should vote on each item as required, and

should only defer voting if further information is required to bring the matter to vote.

Papers for topics for discussion at Board Meetings should always be circulated to members before the Board

A short summary of each Businesses performance etc. should be given by each Director/Business Head as part of each Board Meeting – these should be a maximum of xx minutes for each Business. Directors should provide the Secretariat with a copy of their comments by e-mail within 3 working days following each Board Meeting. These will form the Minutes for that part of each Board meeting as no additional minutes will be made on Directors reports.

Meeting Dates Board meetings will be held monthly for executive board members

and permanent non executive board members. Dates for the meetings will be notified to members by the Secretariat

as soon as possible at the beginning each year Board members will be expected to attend each meeting or to

nominate an alternate if not available Board discussions may, at the discretion of the Chairman, be also

held by audio telephone conference A weekly teleconference call may be set up for executive and

permanent non executive board members A special board planning meeting will be held quarterly/half-yearly to

include other non executive members /outside expertise

What a Board Work Plan includes:- By Month

Approve annual budget or profit planReview and approve Interim and Annual Accounts and Shareholders ReportDecide on Interim Dividends and Recommend a Final Dividend for the YearReview the policies for marketing, customer relations, product development, personnel,

finance, investor relations, social responsibility, health and safetyExamine the survey of staff morale and satisfactionReview reports and recommendations from the Board’s committeesReview the company’s current and forecast operating and financial performanceReview financial and operating risk exposuresExamine actual performance against goals Approve communication with stakeholders, particularly shareholders, staff and bankers

and ensure that the strategy and the results achieved are communicated to themApprove senior management remuneration

Ten deadly sins of non-performing Boards1. Wrong structure – too large, wrong balance, politics

2. Information (especially financials) is inadequate

3. Major decisions taken without challenge, inadequate debate or by cabals

4. No post-mortems to see if decisions correct or not

5. Board does not stretch management on succession, investment in training,

R & D, performance or technical development

6. Financing arrangements not kept under review

7. A “yes man” board that will not take hard and unpleasant decisions

8. Domination of an all-powerful person or influence

9. Meetings = social occasion + inadequate time for discussion/rubber stamp

10. No evidence of rigorous review

"Gentlemen, I take it we are all in complete agreement on the decision here." The assembled General Motors executives nodded their heads in

agreement.”

"Then, I propose we postpone further discussion of this matter until the next meeting to give

ourselves time to develop disagreement, and perhaps gain some understanding of what the

decision is all about." Sloan

GROUPTHINK–BOARD CAPTURE

What limits good decision making?a dominant personality on the board,

which can inhibit contribution from others; insufficient attention to risk, and treating

risk as a compliance issue rather than as part of the decision‐making process;

failure to recognise the implications on the organisation given self interest and/or other poor ethical standards

Good decision‐making capability can be facilitated by:

high‐quality board documentationobtaining expert opinions when necessaryallowing time for debate and challenge,

especially for complex, contentious or business critical issues

achieving timely closureproviding clarity on the actions required,

and timescales and responsibilitiesavoiding ‘Groupthink’

3: IMPROVING BOARD EFFECTIVENESS

3.a. Overview of Corporate Governance Frameworks and Practices

Do Boards do a good job?

Whose interests are they representing? How do boards ensure transparency to

shareholders? Do they do enough? How should independent directors behave

towards the executive directors? Support or challenge?

How can shareholders register disagreement? And what can they challenge?

Do boards assess their own performance?

Winnie the Pooh

“Here comes Edward bear down the stairs, bump, bump, bump,

on the back of his head.

He is sure there must be a better way; if only the bumping would

stop long enough for him to think of it” A A Milne

Criticisms of Boards

Poor performance: But performance of what? Slow to identify risk (especially in financial sector) Growing unease over senior reward: Is this justified? Lack of clarity over M&A performance Pensions & debt Some stakeholders feel powerless and under-

represented

Self Criticism of Boards Surveys for “Creating Excellence in the Boardroom “ and “Developing Directors” by

Colin Coulson-Thomas revealed:-• Most Chairman believe the effectiveness of their company’s board could be

improved, but few boards undertake any form of periodic review of their structure, size, composition and operation.

• Few directors are prepared, either formally or informally, for their boardroom roles • The distinction between direction and management is generally confused, and

routes to the boardroom are usually mysterious and hidden• Most boards fail to provide their organisations with a distinctive and compelling

rationale for existence. People may work long hours and struggle to keep alive an entity that has no real purpose.

• Many boards craft excellent strategies without ensuring motivation, commitment, empowerment and other enablers are in place to turn aspiration into achievement. It might look good, and the numbers may add up but outside of the boardroom nothing has happened or is likely to happen

Are Boards doing a good job?• Litmus Test:

- Growth and involvement of “activist investors” • David Beatty, Conway Chair of the Clarkson Centre

for Board Effectiveness “They are apparently doing badly enough that their has been a huge growth in activist firms...a direct comment on boards and their past performance”.

• Collapse of banks in early 21st century• Shareholder value:

• Financial Sector destroyed $1.2 trillion• Recent Mining Sector issues - $900 Bn

• Huge growth in activist firms !

Board EvaluationPractice grown up substantially in last decade Boards can and do formally sit-down and

appraise themselves – robustness?In-house or via third-party evaluator

Facilitator (Chair or External) or Bespoke

Formats -Paper Form -Electronic Surveys eg. http://www.board-evaluation.co.uk/-Face to face interviews

Review of Board EffectivenessHas the Board:- Defined the Powers and authority of the Board and of the management team? Produced a clear statement of the company’s long term goals Identified the resources needed to achieve the long-term goals and taken action to ensure these

are available Actively monitored current operations Held management accountable for the actual financial and operating results compared to targets,

long-term goals and the results of competitors Considered the views and needs of shareholders, customers, employees and other stakeholders

when making decisions Considered the work and recommendations of sub-committees and taken action Reviewed the remuneration of senior management Produced policies (courses of action) and strategies (long term plans of action) for major parts of

the business – finance, people, risk management, environmental, compliance with regulations, customers and products/services

Regularly received, debated and made decisions on reports covering:-– Customers attitudes to products and services– Competitors strengths– Employee attitudes to the company, understanding of long term goals, whether they have the resources

needed to achieve the goals– Current and future financing of the company– Managing the adverse effects of changes in financial markets– Managing the adverse effects of business risks facing the company

Worked to an annual plan of work Met its legal obligations in good time Kept clear records of its meetings

Performance evaluation of Boards – discuss & assess1. How well has board performed against any performance objectives set?

2. What has been board’s contribution to testing and development of strategy?

3. What has been boards contribution to ensuring robust and effective risk management?

4. Is composition appropriate? With right mix of knowledge and skills to maximise performance in light of future strategy?

Are relationships inside and outside the board working effectively?

5. Has the Board responded to any problems or crises that have emerged and could or should have been foreseen?

6. Are there matters specifically reserved for the board the right ones?

7. How well does the board communicate with the management team, employees and members? How effectively does it

use mechanisms such as AGM and annual report?

8. Is the board as a whole up to date with latest developments in the regulatory environment and the market?

9. Is appropriate, timely information of the right length and quality provided to the board and is management responsive

to requests for clarification or amplification? Does the board provide helpful feedback?

10. Are sufficient board meetings of appropriate length held to enable proper consideration of issues? Is time used

effectively?

11. Are board procedures conducive to effective performance and flexible enough to deal with all eventualities?

2.C. BOARD’S ROLE IN EVALUATING ORGANISATIONAL PERFORMANCE AND CEO

2. Board Effectiveness: Composition, Structure and Practices

All Aboard–Rotman Mag. Fall 2015– Jonathan Bailey & Tim Koller

Clarkson Centre for Board Effectiveness (CCBE) reported in 2013 that over period from 1998-2012, Canadian-publicly-listed family firms outperformed the S&P/TSX Composite Index by a total of +25%

Governance is different and not always recognised and understood– Key areas of beliefs:– i. Highly independent boards and committees help to ensure appropriate and impartial oversight of

strategy, operations and management – ii. Enhanced disclosure of executive compensation leads to a level of rigour that can withstand

external scrutiny– iii. Majority voting policies provide minority shareholders with greater influence over the composition

of the board of directors, who are their rep’s– Key Areas where The Long View differs materially – i. CEO/Chair split is NOT required – but aware of inherent conflict so appoint people to ensure

rigorous independent operation– ii. Director Interlocks are Acceptable – enable overview of strategic and financial interests and

enhances efficient flow of information – iii. Regular meetings without management – enable independent and effective decisions

Harvard Business Review –Jan/Feb’15- Dominic Barton and Mark Wiseman

Where Boards Fall ShortCore Mission: Provide strong oversight and strategic support for management

efforts to create long-term value

McKinsey Survey in 2013 of 772 directors 34% agreed Boards on which they served fully comprehended their company’s strategies 22% said Boards completely aware of how their firms created value 15% claimed Boards had a strong understanding of the dynamics of the firms industries

Further Survey with CPPIB of 604 C-Suite Exec’s globally Which source of pressure was most responsible for organisations over-emphasis on short-term financial

results and under-emphasis on long-term value creation 47% Said “the company’s Board” – the most frequent answer 74% of the 47 responses who identified themselves as sitting directors on public company boards

pointed the finger at themselves

HBR Idea in Brief The Problem

Most directors confess that the boards they serve on don’t fully understand their companies’ strategies, how those firms create value and the dynamics of their industries.

Directors also admit that they themselves are the main source of the pressure to focus too much on maximising short-term results.

Why it happens?Boards fail to recruit members who are independent thinkers and have relevant expertise. Director’s don’t spend enough quality time discussing strategy and are too influenced by Investors who care only about the short term.

The Solutioni. Select the Right People : Invest more effort in attracting the right expertise. Hire board advisors with deep, specialised knowledge. Apply retirement rules in a way that balances the need to refresh the board with the need to retain valuable experience.

ii. Spending Quality Time on Strategy ; Foster longer and richer strategic conversations. iii. Boards engaging more with key long term investors and iv. Pay directors more, especially for long-term performance.

Board Evaluation – Agreeing Process The board should agree in advance to the following:

• Scope and purpose of the evaluation: Board directors should have a shared commitment to the scope and purpose of the evaluation.

• Designated party : If done internally, the board should agree on a board member or committee to oversee the evaluation; alternatively, boards must appoint an independent, specialised external consultant to conduct the evaluation.

• Methodology and subjects included in the process: This should include how the evaluation is conducted (e.g. questionnaire, individual interviews or both) and whether the evaluation extends from board to committees and to individual directors.

• Areas of evaluation : The board should agree in advance on the main areas to be examined. These include board agendas, information flow, the effectiveness of board meetings, the performance of individual committees, the relationship between the board and senior management, board’s approach to strategy, board’s approach to governance.

• A post-evaluation review should identify issues or threats, should embrace opportunities and adopt reforms which may be required.

Board Evaluation – Co. Performance 1 Stakeholder accountability and governance. The board is the representative of the stakeholders and steward of their interests.

However, it is important that an individual board member, and the board as a whole, does not cater to special interest groups, but considers what is best for the organisation as a whole. Criteria may include:

– effectiveness of shareholder meetings (annual meeting); – process of director selection; – stakeholder communication; – annual report is presented to shareholders– The financial soundness & an adequate capital base for the organisations current & future needs.

Board operations. Criteria may include:– an organisational chart has been established; effectiveness of committee structure.– board job descriptions established; – meeting pack that include agenda, clear written reports, recommendations or options from the CEO and committees (mailed

prior to meeting); – length of board meeting; – board discussions and participation; – policies regarding board terms, elections, officers, meeting attendance, committee structure; – orientations of new board members; procedure for board training and development;– are decisions made in a timely manner? – written record of board policies and decisions; – executive sessions; – annual board calendar; and board manual; – job description and training and development of MD/CEO; – procedures for appraisal and compensation of MD/CEO;

Board Evaluation – Co. Performance 2 Legal responsibilities. To direct affairs of the organisation within the guidelines provided by the

act of incorporation, articles, bylaws, and any regulations governing the organisation.Criteria may include:

– degree in which board members are informed; – board members are knowledgeable of articles, bylaws, policies; – articles and bylaws are reviewed (annually) by the board; – board reads and approves minutes of each meeting; and – written policies on board ethics and conflict of interests.

Financial overview. To establish financial plans and policies and to monitor the organisation's operations for soundness and stability. Criteria may include:

– financial policies reviewed and updated; – capital and operating budgets approved annually; – goals/policies for important financial ratios established; – board receives regular financial reports; – insurance program reviewed and updated annually; – policies established for member equity/redemption; and – procedure for annual audit.

Board Evaluation – Co. Performance 3 Planning. To approve the organisation's mission, the goals and objectives, major plans and

programmes, capital and operating budgets. Planning is a culmination of all the board's responsibilities. It is the process that pulls all of the elements together and makes the board's vision for the organisation become real. Criteria may include:

– board approves mission and vision statements; – board approves annual business plan; and reviews and approves a 3-to-5 year plan; – board evaluates mechanism(s) for stakeholder input into the planning process; and – board is adequately informed about the business and market environment.

Board-management relations. The line between board and management roles is understood. Board and management responsibilities (delegation from board to management) often change as firms grow and/or boards and management mature. Established procedures and strong communication are important. Criteria may include:

– job description of MD/CEO; procedure for MD/CEO annual review and compensation; – MD's/CEO's reports to the board; – board chair or executive committee's relationship with MD/CEO; – board and management work together to determine the direction of the organisation – does the board focus on goals and results and leaves day-to-day decisions, methods, to management?

Review Board Performance–please self rate

AnalysisIdentifying

Options

Stakeholder expectations

Capability

ImplementationChoice

Environment

Evaluating Options

Selecting Strategy

Managing Change

Planning

Structure & Culture

Strategic Awareness & Operational Effectiveness

Un-navigated Ship ‘Visionary’ Under-Achievers

Myopic Innovators Successful Orienteers

Un-Strategically Aware

Strategically Aware

OperationallyIneffective

OperationallyEffective

Atherton & Hannon (1997)

Going ForwardBoardroom Attributes, Characters and Skills Typology (BACS Typology)

High

Social & Political

Awareness

Low

Charlie’sAre aware of the boardroom context

and see agenda unfolding but cannot invoke it themselves - skill

and status. They can also be aware of their own lack of power within the

boardroom therefore the passive acquiescence allows other to act.

Alpha’sConsciously aware of the context

and the use of linguistic and status resources to manage relationships

and drive their agenda

Delta’sIndividuals who are unaware of the

boardroom context or of the discourse that surrounds them and

but lacking the ability to navigate the political bounds – functionally

focused keeps attending but does not influence.

Bravo’sIndividuals naturally gifted in

discourse skills & subconsciously see social protocols that govern events and their adherence to

process – reactive to the processes but not necessarily consciously

aware of agenda being set

Low HighLinguistic Skill

Board Assessment of CEO - Rationale Boards have solid business reasons for undertaking MD/CEO evaluations.

Apart from helping directors to meet their fiduciary responsibilities, CEO -evaluations can bring benefits that include:

Aligning the strategic direction set by the board with the CEO’s capabilities; Promoting better board and CEO relations to ensure an appropriate and

productive collaboration; Allowing boards to have greater objectivity about CEO remuneration; Setting an example of accountability for the organisation as a whole –

signalling that performance management is a core culture of the organisation; Encouraging the CEO’s personal development; Providing an early warning system for possible problems.

Board Assessment of CEO - Principles

These principles are that any CEO evaluation must:

Align CEO performance with the objectives of the organisation; Be based on clear expectations developed & agreed in advance with the CEO; Have a clear, transparent and agreed link between performance outcomes and

remuneration; Encourage the CEO to set developmental goals and plans and provide specific

direction as necessary from the outcomes of the evaluation process; Be conducted in a manner conducive to ongoing good governance; Be tailored to the specific needs of the organisation; and Comply with relevant standards for accountability and communication of the results for

the organisation.

Board Assessment of CEO - Expectations / Criteria

Clear expectations form the basis for all good performance relationships.

While boards should feel free to develop their own categorisation of expectations (often called key performance indicators (KPIs), key results areas (KRAs) or critical performance areas (CPAs), we recommend a holistic evaluation of the CEO’s performance including some targets or expectations with respect to the following:

Leadership and management; Strategy; Working with the board; Financial performance; Human resource management; Personal qualities; and Communication.

Board Assessment of CEO - Success

A successful CEO evaluation process will have a number of key traits; it should:

Be critical, but not adversarial;

Have both a past and future focus; – Provide sufficient mechanisms to bring directors’ instincts to the surface;– Provide for multiple sources of input;– Allow for (re)setting of future CEO goals; and– Emphasise the CEO’s personal development.

3: IMPROVING BOARD EFFECTIVENESS

3.b. The Business Case for Board Effectiveness

THE BUSINESS CASE FOR CORPORATE GOVERNANCE

From board selection and strategic decision making to day-to-day operations and legal compliance, corporate governance “is a way for companies to create a framework for sound business practices, sustained growth, and risk management”. At its core, corporate governance entails an internal control system for transparent decision-making that protects shareholders’ value. However, the significance of corporate governance goes far beyond this basic definition.

Companies need good corporate governance for long-term sustainability and to become integrated into the global supply chains.Corporate governance does not take place in a vacuum and external factors are very important to making it work. From the availability of accountants and independent auditors to the presence of financial media and appropriate laws, regulations, and institutions, the environment in which companies operate determines how easy or challenging it is to follow good governance practices.

THE BUSINESS CASE FOR CORPORATE GOVERNANCE Corporate Governance allows companies:-- to access capital, attracting greater investment at lower cost- strengthens corporate strategy and its implementation- clarifies accountability- enhances shareholder protection and - helps to attract and retain quality employees. - enables a way of reconciling divergent interests- to plan for strategy and succession, - cultivate a company image in the community - ensures better legal compliance.

Implementing good corporate governance is not a matter of simply ticking boxes. It is a process through which core values become integrated into a company’s strategic direction and daily operations and also institutionalised in a broader sense

Board Effectiveness – Considered Effectiveness can be constrained or enhanced by the limitations or strengths

of its individual members A confident board is open about the extent to which it adds value and is

willing to identify, discuss and tackle barriers to its own contribution

In relation to the formulation and communication of vision and strategy, it might ask the following questions:-

Do board members share a common, clear and compelling vision? Has the board identified what represents value for customers, and the processes that deliver this

value? Are there hidden barriers to improved customer satisfaction that fall between departmental responsibilities?

Are the directors committed to an agreed and realistic strategy for the achievement of the vision? How effective are they at communicating with customers, employees and business partners?

Have the necessary resources, capabilities, skills, motivations, empowerment, roles and responsibilities and the “vital few” programmes for successful implementation been assembled? For example, is remuneration related to business goals and customer-related objectives?

Board Effectiveness–Short v LongTerm Boards should maintain a balance between short-term priorities and

securing the long-term future of the enterprise. Care needs to be taken not to emphasise one over the other Short-term pressures should not be allowed to drive out longer-term

considerations. A board could give certain directors special responsibilities for

projects that stretch beyond a financial year, such as strategic business developments

“Facilitating directors” responsible for reshaping an organisation and establishing and supporting its process and systems requirements, could implement longer-term changes while colleagues tackle current issues

A more drastic solution might be a two tier board, the “top” tier having a particular responsibility for looking into and preparing for the future.

Corporate Governance 2.0 HBR Mar ’15by Guhan Subramanian

Reconceptualisation of what sound corporate governance means Stakeholders views differ and shareholder activism – need alignment Use Negotiation techniques and base discussion on functional

perspective (what we are trying to achieve) Achieve desired goals in holistic negotiation rather than adversarial

and reactionary perspective (ie. should we surrender or do we fight)

3 common principles identified – assumed 1. Board should have right to manage the Company for the Long Term 2. Board should install mechanisms to ensure the best possible people in

the boardroom 3. Board should give shareholders an orderly voice

Corporate Governance 2.0 HBR Mar ’15by Guhan Subramanian

Shareholders Boards Corporate Gov 2.0

Earnings guidance Yes Mixed Replace with long-term goals

Staggered Boards No Yes Staggered board that can be dismantled

Exclusive forum provision

No Yes Yes

Age and/or term limits

Yes No Meaningful board evaluations

Shareholder proxy access

Yes No Should be considered as a backstop

Defensive measures generally

No Yes “Orderly voice”

Poison Pills No Yes “Advance notice” pills

3: IMPROVING BOARD EFFECTIVENESS

3.c. Leading and Implementing Boardroom Change

Leading and Implementing Organisational Change

What is Change?Should we try to manage change or just let it happen?

How do you think we can bring about real change that isn’t superficial?

How do you know when have you changed something?

Nothing endures but changeHeraclitus

(540 BC - 480 BC)

Types of Organisational Change Planned Change

– A process of moving from one state to another through a series of pre-planned steps.

Emergent Change– A continuous and unpredictable process of aligning and re-

aligning an organisation to its environment.

Models of Planned Change

“All models are wrong, some models are useful.”

George Boxquoted in Burnes (1992)

Why is this true?

Some Change Models – A Quick Tour

Power!

“People” Readiness for change

For corporate process improvement involving systems investments:

28% are abandoned 41% come in behind schedule and/or over budget80% are NOT used in the way they were intended, or NOT USED AT ALL, 6 months after completion of installation

Gartner Group, 2003

Role of the SponsorA Clear Charter of Responsibilities Sets Up the Team For Success

What processes are the team responsible for and why are they are important to the organisation? What requirements or boundaries are given for this team? What is the reporting relationship to the sponsor? What authority to act or decision making power does the team carry? On what issues is the team expected to consult or inform the chartering agent? What deliverables are expected? What milestones and time lines? How will the team be measured?

Sponsor’s Contracting Suggestions

Provide Support: Financial – Staff – Verbal - Feedback (all levels, positive & constructive) - Be visible

Represent changes at all levels: Attend meetings, be involved , “2 minute Brief”, At team meetings with peers and manager

Provide access: Change agent with sponsor team, Change agent with management i.e., two levels above or more

Build consensus with: Sponsor’s team & Sponsor’s boss

Incorporate into performance objectives: Key performance measures, Recognition & Reward

Successful Change Management

“Overwhelmingly, participants cited executive sponsor participation as the

single greatest contributor to the success of their change management programme.”

Prosci’s Change Management

Best Practices Study 2000

PARADIGMS

“If you want to create incremental change, focus on behaviour. But if you want a

real breakthrough, change the paradigm.”

Covey

Kurt Lewin

‘Force Field Analysis’ – (1951)Two sets of forces

– Restraining forces - those striving to maintain the status quo.

– Driving forces - those pushing for change.To create change

– increase driving forces– reduce restraining forces

Reflect on a change you were/are involved in…. Was it your choice originally? How did you feel initially? How did those feelings change at different stages? What/who helped you and how? What/who hindered you and how? How did you help/hinder yourself? What have you learned from this experience and what

would you do differently next time?

The Kolb ModelBefore the CHANGING

Asking WHY?

Finding WHAT?

Discovering HOW?

Looking at IF?

Testing

Theorising

Thinking

CHANGE STAGES/STEPS Kotter’s 8-stages Anderson’s 9-steps

Stage 1 CREATE ) CREATE URGENCY 1. Prepare to lead

Stage 2 CHANGE ) POWERFUL COALITION 2. Commitment/capacity

Stage 3 CLIMATE ) VISION FOR CHANGE 2.Vision

3. Assess & determine

4. Design Desired State

5. Analyse impact

6. Organise implementation

Stage 4 ENGAGE AND ) COMMUNICATE VISION 7. Implement change

Stage 5 ENABLE WHOLE ) REMOVE OBSTACLES

Stage 6 ORGANISATION ) SHORT-TERM WINS 8. Celebrate

Stage 7 IMPLEMENT & ) BUILD ON CHANGE 8. Integrate new state

Stage 8 SUSTAIN CHANGE ) ANCHOR IN CULTURE

Stage 9 9. Learn/correct/improve

What is Change Management?https://www.youtube.com/watch?v=__IlYNMdV9E

CURRENT STATE

TRANSITION STATE

FUTURE STATE

1. Leading the

Change

2. Framing the Shared

Need

3. Describing

the End State

4. Mobilising Commitment

5. Identifying Systems and Levers

for Alignment

6. Communicatin

g the Change

7. Tracking Progress

Define Define the the

ChangeChange

Develop aDevelop aDetailedDetailed

ImplementationImplementationPlanPlan

Step 1

Step 2

Step 3

Leading Change Model

Checklist for Creating Sustainable Change• Reinforce consistently – keep communications coming.

• Demonstrate your commitment.

• Integrate new initiatives into on-going work processes.

• Sustain your attention.

• Incorporate learning from past mistakes.

• Accept ambiguity in the midst of change.

• Expect and measure results, but focus on learning.

• Redirect, let go or move on, when necessary.

A Riddle for Paradigm ChangeIf I continue to take in information as I’ve always taken in

informationI’ll continue to think as I’ve always thought.

If I continue to think as I’ve always thoughtI’ll continue to believe what I’ve always believed.

If I continue to believe what I’ve always believedI’ll continue to act as I’ve always acted.

If I continue to act as I’ve always actedI’ll continue to get what I’ve always gotten.

Thank You

Team CompositionSponsor Team:

Categories Members

Change Initiative Team Categories Members

Resource Teams: Categories Members

.

Sponsorx x

x x

xx x

x x

x x

x x x

xxChange Agents

R R R

In the spaces below - identify the categories of stakeholders that should be represented on the team. Also, identify and list specific individuals to invite to be team members

Team Composition

Lewin’s Three Step Model

LEWIN’S 3 STEP MODEL – Lewin (1951)

The 6-key Components of Change

1. Know what to change – be specific & detailed

2. Know why you need to change – the rationale

3. Understand how you are going to change – the methodology phases/stages

4. Establish who will be included & who will be excluded

5. Outline when you are going to action & agree timescales

6. Then make it happen – Review, Evaluate & Further Action – continuous cycle.

Action PlanningKnow what to change – be specific & detailed

Know why you need to change – the rationale

Understand how you are going to change phases/stages

Establish who will be included & who will be excluded

Outline when you are going to action & agree timescales

Then make it happen What is the evidence to show it has happened successfully?

Change action 1

Change action 2

How it all works together

T x C = E (Effectiveness of Change)

C

T

T = Technical Plan C = Culture, People, Organisational Commitment, Political Plans

M&S - Lewin If change occurs due to INCREASED DRIVING FORCES, MUCH MORE TURBULENT

reducing restraining forces less resistance, less tension, more effective strategy

M&S – Restraining forces

• strong traditional culture• brand and image (traditional, quality)• buy British (expensive)

– Driving forces change• falling profits• competition from dept stores/ supermarkets• cost pressure on textile industry• UK sourcing

Stakeholder Management: Theory & Practice

Corporate Stakeholder Management

What is a Stakeholder?A stakeholder can be a person, a group of people, an

organization, a company, or all of the above. The important part that makes them stand out is that they have an

interest in your organization’s mission, cause, or program. This includes your visitors, members, volunteers, donors,

etc.

Stakeholder is any individuals, group or organization, community, with an interest in the outcome of a

programme/project

Power – 7 Forms1) Coercive based on fear. Failure to comply results in punishment (position

power)

2) Connection based on “connections” to networks or people with influential or important persons inside or outside organisations (personal þ political power)

3) Reward based on ability to provide rewards through incentives to comply. Is expected that suggestions be followed (position power)

4) Legitimate based on organisational or hierarchical position (position + political power)

5) Referent based on personality traits such as being likeable, admired etc thus able to influence (personal power)

6) Information based on possession to or access to information perceived as valuable (position, personal + political power)

7) Expert based on expertise, skill and knowledge, which through respect influences others (personal power)

Greene & Elfrers (1999, p. 178)

Key & Primary StakeholdersThey are the person or group of people that have an immediate interest and

investment in what your organization is doing.

This definition of stakeholders includes both winners and losers, and those involved or excluded from decision-making processes.

Primary stakeholders are those ultimately affected, either positively (beneficiaries) or negatively.

Secondary stakeholders are those indirectly affected.

Tertiary Stakeholders those who have an interest or have an influence

Key stakeholders are those who can significantly influence, or are important to the success of the project - power

Strategic Analysis: A Stakeholder Approach

Step 1: Identify the stakeholders

Who have a vested interests in the outcomes of environmentalism?

Step 2: Determine the stakes What is each group’s stake in the issue? Is the stake large or small? What specific issues do they revolve around?

Step 3: Determine how expectations are met

Assess the gap between stakeholder expectations and corporate performance

Step 4: Adjust the strategy To deal constructively with the stakeholder

expectations and minimise the gap in performance

(Polonsky, 1995)

Assess:

Interests, aspirations (share the vision?)

Problem perception (each one sees different aspects of the same problem – which aspect?)

Resources (capability & motivation to participate and contribute?)

Roles. How to enlist participation - how to involve them – their use in changes can happen?)

Plotting stakeholders can determine their potential influence…

  Level of Interest

 Power

  Low High

Low A Minimal effort B Keep informed

High C Keep satisfied D Key players

Mendelow Matrix [1991]

Internal Stakeholders

Evaluating Key Stakeholders Positions/PowerCriticality to Success

Cur

rent

Orie

ntat

ion

Low Medium HighR

esis

tant

Neu

tral

Supp

ortiv

e

CEOCEO

BusinessBusinessUnit AUnit ALegalLegal

BusinessBusinessUnit BUnit B

FinanceFinance

TaxTaxAuthoritiesAuthorities

AutomotiveAutomotiveCustomersCustomers

MarketingMarketing

HRHRSheetSheetMetalMetal

SuppliersSuppliers

Evaluating Key Stakeholders PositionsStakeholderStakeholder Criticality to Criticality to

SuccessSuccessCurrent Current

OrientationOrientationDegree of Degree of InfluenceInfluence

CEO Medium Supportive LargeBusiness Unit A High Resistant LargeBusiness Unit B Medium Neutral Medium

Marketing Medium Neutral SmallFinance High Supportive Medium

Legal Medium Resistant LargeHR Low Resistant Small

Automotive Customers

High Neutral Medium

Sheet Metal Suppliers

Low Resistant Small

Tax Authorities Medium Neutral Medium

Stakeholder Analysis: Involvement Requirements

Stakeholder Group Unaware Aware Understand Collaborate Commit Advocate

Clinical Units

Health Authority Leaders

Physicians

Nurses

Pharmacists

current desired

Given ownershipGiven accountabilities

Given meaningful roles

Participate in the projectKept informedStrategy

Stakeholders take initiatives to improve and sustain the performance

Stakeholders proactively communicate and take action required in support of the change

Stakeholders support the change, believe it is worthwhile, and would act if prompted

Stakeholders have a sound understanding of the benefits and implications of the change for them

Stakeholders are aware of and under-stand change purpose and progress

Definition

AdvocacyCommitmentCollaborationUnderstandingAwareness

Given ownershipGiven accountabilities

Given meaningful roles

Participate in the projectKept informedStrategy

Stakeholders take initiatives to improve and sustain the performance

Stakeholders proactively communicate and take action required in support of the change

Stakeholders support the change, believe it is worthwhile, and would act if prompted

Stakeholders have a sound understanding of the benefits and implications of the change for them

Stakeholders are aware of and under-stand change purpose and progress

Definition

AdvocacyCommitmentCollaborationUnderstandingAwareness

Lewin’s Force Field Analysis (1951)

Driving Forces

CompetitionFalling ProfitsGrowing Org. SizeNew Technology

Restraining Forces

Employee AttitudeOrg. Culture

Management SkillsLack of Training

Quasi-stationary equilibrium

Transition Cycle

Shock

Defensive Retreat

Adjustment

Acknowledgement

Leicester University, England, John Fisher's model of personal change - The Transition CurveLeicester University, England, John Fisher's model of personal change - The Transition Curve

Kubler-Ross, E. (1971). On Death and Dying . NY: Macmillan. Elisabeth Kubler-Ross

The Change Curve

Describes 4 normal responses to change: Denial – the change won’t affect me Resistance – I really don’t want to deal with this Exploration – How might I cope with this? Commitment – I can see how I can make this

work for meJaffe, D. T. and Scott, C. D. (2003). Mastering the Change Curve (Second Edition). King of Prussia , PA : HRDQ.

Kotter & Schlesinger (1979)

Education & Communication

Participation

Facilitation and Support

Negotiation

Manipulation

Coercion

Parochial self-interest. Some people are more concerned with the implication of the change for themselves and how it may affect their own interests, rather than considering the effects for the success of the business.

Misunderstanding. Communication problems; inadequate information.

Low tolerance of change. Certain people are very keen on feeling secure and having stability in their work.

Different assessments of the situation. Some employees may disagree with the reasons for the change and with the advantages and disadvantages of the change process.

Reasons for resistance to change Six approaches to deal with resistance to change

Bullock and Batten’s Planned Change

Bullock and Batten (1985)

Beckhard and Harris’ Change Formula

For change to happen, the forces for change must outweigh the perceived costs of change

(effort, discomfort, exposure, difficulty, risk).

C = ABD > XC = change.A = level of dissatisfaction with status quo.B = desirability of proposed change or end state.D = Practicality of the change (minimum risk and disruption).X = cost of changing.

Beckhard and Harris (1987)

Johnson and Scholes (2002) Clear mission and corporate values Loose-tight system Support from top management – ‘Change Heroes’

Incremental Change– Small, smooth steps– Builds on existing skills, knowledge– Gains commitment of people– Danger of ‘strategic drift’

Transformational Change– Major shift in strategy / structure etc.– Uncomfortable; liable to cause conflict– Response to major external force or ‘strategic drift’

Transformational / Fundamental

change times of crisis

Most times wait for crisis!

Leading Strategic Change……

John Kotter’s Eight Stage Process for change 1 Establish a sense of urgency2 Form a powerful guiding coalition3 Create a clear and compelling vision4 Communicate the vision5 Empower others to act on the vision6 Create short-term wins7 Consolidate and build8 Institutionalise the new approaches

Kotter, J. (1995) Leading Change

Leading Strategic Change……

John Kotter’s (1995) Eight Key Management Errors: 1 Allow too much complacency2 Fail to create sufficiently powerful coalition3 Underestimate the power of vision4 Undercommunicate the vision5 Permit obstacles to block the vision6 Failure to create short-term wins7 Declaring victory too soon8 Neglecting to anchor changes in corporate culture

Kanter et al 10 commandments for bringing about lasting change 1. Analyse the organisation and its need for change2. Create a shared vision and common direction3. Separate from the past4. Create a sense of urgency5. Support a strong leadership role6. Line up political sponsorship7. Craft an implementation plan8. Develop enabling structures9. Communicate, involve people, and be honest10. Reinforce and institutionalize the change

Kanter, Stein, and Jick. (1992) The Challenge of Organizational Change. Free Press,, Page 383