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Leadership Lessons From the Intentional Chair

February 1, 2018

Posted in: WATSON Views

February 1, 2018
Letter #3

Dear Chair,

Every board is unique. Sector, organization, strategy and directors around the table guarantee no two boards are alike. Yet, when it comes to leadership, many new chairs may have more in common than they think. There are aspects of the chair role that consistently trip up new chairs. And although effective leadership can be learned in a classroom, the best teacher is experience.

Here are five leadership challenges Intentional Chairs have learned the hard way. Learn from their experience in the boardroom.

1. Thinking you need to have all the answers

No one expects you to know it all overnight. In fact, experienced chairs are the first to admit that they don’t have all the answers, even after years in the role. A great chair doesn’t need to have all the answers, but they do need a process to get to the right outcome. Intentional Chairs have confidence in their ability to seek good information but also understand that they are part of a team and can rely on their team for information, support and guidance.

Tips:

  • Reflect on what you need to know and know who to ask – whether it’s the former chair, CEO, committee chairs or experienced chairs in your network
  • Establish norms around two-way dialogue between meetings with key governance players to ask questions and test ideas
  • Engage external experts when needed to fill out knowledge gaps

2. Doing things the way they were done before

It’s easy to take on a chair role and pick up where your predecessor left off. They did a fine job, so if it ain’t broke, don’t fix it… right? Not quite. Even if things aren’t broken, part of the purpose of chair renewal is to bring in a fresh perspective and new ideas. At the same time, great chairs don’t come in and do things differently for the sake of change.

Tips:

  • Observe, listen and reflect; use this knowledge to make thoughtful, informed (and sometimes incremental) changes. Take meeting materials for example: ask directors what worked well and didn’t work well in the past and propose changes to address past issues and get to the root of what the board wants to accomplish with its limited time.
  • Set goals for the upcoming year that will help the board move forward in a focused manner

3. Being too forgiving

Bad board behaviour and dysfunction can quickly spiral and spread. Chairs don’t always have the luxury of settling into the role before dealing with these challenging issues.

Tips:

  • Work with the board to set clear expectations for directors
  • Put your emotional intelligence to the test and proactively address issues and diffuse damaging dynamics before they emerge

4. Not ending a conversation when it has run its course

One of the trickiest things to balance as a chair is allowing fulsome discussion and dialogue without letting a conversation continue past the point of diminishing returns. People need to feel heard. As chair, you need to ensure all issues, risks and alternatives are sufficiently fleshed out and all questions are satisfactorily addressed. However, when the conversation starts to go around in circles, it is time to call it.

Knowing when to end the conversation is only half the battle. The other half is knowing how to end the conversation. Conversations usually conclude in one of two ways – a decision is made (preferably by consensus) or a specific plan is put in place to do something before making a decision. The latter may involve assigning a person or group to investigate the issue further, gather more information, or develop options and recommendations, within a specified timeframe.

Tips:

  • Guide the conversation and apply your insight to focus or broaden the discussion, as needed
  • Practice active listening to summarize multiple points of view
  • Use the further investigation option sparingly, as it can be an easy way to avoid making a hard decision

5. Not understanding the line between governance and operations – in practice

Most directors understand the line between governance and operations in theory; however, it is one of the most difficult practices to apply in the boardroom.

The chair must be cognizant of the line and play a role in drawing the line. Intentional Chairs leverage the line and their relationship with the CEO to foster an “us and us” connection between the board and management. Great chairs don’t shy away from talking about the line, recognizing its dynamic nature and the need to shift the line in different circumstances.

Tips:

  • Clarify expectations, respective roles and guiding principles for the board – management relationship and within the board itself
  • Don’t be afraid to acknowledge when the conversation is too operational and needs to be brought back up above the line

And so brave chair, I hope these words of wisdom and tips will make your transition to your new role easier. You have taken on a great challenge. Don’t be afraid to make a mistake, the best learning comes from experience. The missteps of new chairs stem from human nature and are mitigated through experience and the humility and confidence that come from it. But, with any luck, being alert to these common challenges will prepare you to face them boldly and confidently if and when the time comes.

 

Yours sincerely,

The Intentional Chair

The Intentional Chair is the collective voice of over 30 exceptional chairs who kindly shared their insights, thoughts and experiences with WATSON in support of our passion for real, practical governance learning.

Hone your chair skills and join your peers at one of WATSON’s 2018 Chair with Intention™ courses


Timing is Everything:
Seven Factors Effecting CEO Transition Timing

January 24, 2018

Posted in: WATSON Views

In the world of CEO succession planning, timing is everything. Unless your board is clairvoyant, pinpointing the perfect moment to change CEOs is almost impossible, but there are practices that can get you close. It all starts with a shift in board mindset from the wait-and-see to the optimal timing approach.

Determining the optimal CEO transition time is the board’s most important and most difficult job. And the sad fact is, most boards don’t think about it enough, and almost completely ignore it in the early days of CEO tenure or when performance is strong. Too many boards wait for the CEO to make the first move and declare a retirement date, and even when given considerable lead-time, boards unconsciously fail to put the best interests of the organization ahead of the CEO’s.

Consider the case of the CEO who respectfully gives her board two and a half years retirement notice. The board takes that as their order ticket and gets to work. There is plenty of time to determine the skills needed, hire a search firm, develop internal candidates and hone their interviewing skills. But what makes two and a half years the optimal time? Boards need to stop blindly accepting the CEO’s timeline and start asking, “what is the best time for the organization?”

The Optimal Time for CEO Transition

Early in their tenure, new CEOs come up the learning curve and perform well for a few years or maybe many years but eventually, performance falters, if only because the CEO is 100 years old.

The optimal time to change out the CEO is just before the decline. But what are the chances that your board will achieve this optimal timing? Highly unlikely. The board’s job is to constantly look into the future, predict the arc of the curve and tackle transition before performance drops. There are situations when the CEO leaves while performance is still strong, as in the case of unforeseen illness, retirement or in pursuit of another opportunity. The board has less control in these scenarios. But in many cases, strong organizational performance lulls boards into a state of succession planning complacency and early warning signs are dismissed. As one director reflected after a later-than optimal transition, “yes, performance slipped a little and a couple of directors had some criticisms, but with his long track record, the board remained confident that he was doing a good job.”

It is not unusual for boards to avoid the touchy topic of transition until poor financial results or a failed initiative jolt them out of complacency. Too often it takes them a long time to see the decline in the CEO’s performance, reach consensus to terminate the CEO and then orchestrate the departure. The optimal timing approach requires your board take a different tack.

Seven Factors Effecting CEO Succession Timing

Your board may never achieve optimal timing, but it is your job to get as close to optimal as possible. Consider these seven factors when your board thinks about the timing of CEO succession.

Major factors that get you in the ball park

1. CEO Wishes When does the CEO plan to leave? The CEO may be reluctant to share this too far in advance for fear of being labeled checked out and / or lacking in commitment. They may also be afraid of the permanence of the decision – What if I change my mind? What if this speeds up the process? Ask the CEO what they have in mind, even if it is a range of possibilities. For a CEO approaching retirement, financial matters may be a driver. Be cognizant of the CEO’s Personal Financial Calculator, the ongoing tally of the value of their pension, incentive plans and vesting of shares or options that might shape their preferred retirement date. For younger CEOs, understand that they might want to have one more gig or other challenges in their career. Do you really want a 48-year old CEO to stay in the same role for another 15 years?

2. CEO Performance Invest in a robust CEO performance evaluation. Ensure the full board is engaged in the process and has the opportunity to provide feedback. Examine how well the CEO is doing separate from the organization’s performance. Understand the strengths and the weaknesses of the CEO and weigh carefully if this adds up to the right leader at this time.

3. Future Demands In concert with strategy development, assess the CEO’s mandate for the future. How is the role changing? What will the CEO need to do in the future? How might that differ from the past?

Minor factors that may tweak the timing a little sooner or a little later

4. Major Business Event Adjust CEO transition timing in light of major events within the organization or the industry; for example, an upcoming IPO, completion of a massive capital project or completion of a major negotiation.

5. Chair Succession Stagger Chair and CEO turnover so both roles don’t turn over within 18 months of each other. Allow time for the incumbent to learn from the outgoing party and secure organizational continuity.

6. Key Executive Turnover Identify potential turnover of key executives and either accelerate or slowdown the CEO or the executive’s transition timing. Key roles may vary based on industry, for example a COO in a mining company or Chief Investment Officer in an asset management company. Pay particular attention to the role of CFO.

7. Readiness of Successors If your board has identified potential internal successors, factor in the sweet spot for transition. Be prepared to delay or accelerate transition. For example, if a high potential candidate needs one more year to be ready, consider asking the CEO to stay on for a year, or, in the case of a potential candidate flight risk, move up the transition timing.

At least once a year, have an explicit discussion with your board about the optimal succession timing, without the CEO present. This will get your board started on the right foot and make it more likely to achieve the best leadership for today and for the future.

Hey WATSON, if boards know they should plan for transition, why is there so much reluctance to engage in the succession planning process?

The simplest answer: it is darn hard work complicated by personal relationships. Loyalty clouds perspective. Too often we hear boards lament, “we owe it to him” or “who are we to take her out of the job?” For many boards, avoidance is easier than awkwardness. In the absence of annual discussions, boards fear giving the wrong impression to the CEO when they start talking about succession. “If we are talking about it, the CEO might think a change must be imminent and it’s time to call the search firm”. This is a myth. Regular ongoing dialogue is a sign of healthy succession planning, not a failure in leadership.

Have a governance question?

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The optimal timing model is neither a prediction nor a locked-in plan. It is a powerful focal point for planning. It influences the list of potential candidates and their development plans. It changes the board’s work plan. It changes what gets communicated to whom. Over time you may change the focal point, but it will set the pace and keep the board on track.

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2018 Chairing Resolutions

January 15, 2018

Posted in: WATSON Views

January 16, 2018
Letter #2

Dear Chair,

For many of us, January is about renewal – a time for a fresh start and an opportunity to become the best you can be – including in the boardroom.

I learned long ago that being chair is an ongoing learning experience. And reflection and goal setting go hand in hand as part of that journey. That’s why every January I sit down, reflect on my chairship over the past year and think about how I can be a better chair in the year ahead.

In the spirit of giving, I thought I would share this year’s chairing resolutions with you. (By the way, studies show that writing your goals down increases the likelihood of achieving your goals by as much as 10 times). Here are my top four goals for 2018.

Goal #1. Spend more time with my governance family

When I became chair, I sat down with every director and member of the management team to get to know them and discuss what was on their mind. I pledged to make this an ongoing practice but, over time, things have gotten busy and I have been less diligent.

This year, I will meet in person with all directors and members of senior management. I want to know:

  • How they’re feeling about the board and the organization
  • What’s keeping them up at night
  • What kind of learning they’ve been engaged in through their job or board work
  • What areas of board focus are important to them for the year ahead

I will also check in periodically with all directors between meetings to get their sense of the issues and trends we should be paying attention to. This will be invaluable over the coming year to help the CEO and me frame the board’s agenda. These conversations can also provide me with the opportunity to offer coaching and mentoring to directors, with a longer view on board renewal.

A practice of intentional, ongoing discussions will shape our board’s culture. I will do all I can do to bring out the best of the board, and that means bringing out the best of each individual around the table. Regular check-ins become even more valuable when contentious issues arise – they create a true “open door” policy so that negative situations don’t fester.

Goal #2. Build a healthy chair/CEO partnership

I will meet with the CEO before and after each meeting – in person whenever possible. It’s hard to find the time to connect, but when we do meetings are more focused, management materials are on point and my fellow directors are, as a result, more effective.

Before each meeting, I will meet with the CEO to discuss objectives, share insights from directors and isolate potential hiccups or pitfalls. These meetings will drive an agenda that is connected to our organization’s strategy, with sufficient time allocated to the most important topics.

After each meeting, I will share the “mind of the board” with the CEO – key messages from the in camera session, clear directions on next steps and any feedback for the CEO or their team. I know that a healthy relationship is characterized by communication, trust, honesty and mutual respect and my relationship with the CEO is no different.

Goal #3. Learn something new about ourselves

I will ensure we properly evaluate both our board’s performance and our individual contribution. Even when things are going well, I know how important it is to stop, reflect and consider what is working well and what isn’t. I will ensure we conduct a formal board evaluation process to seek feedback, discuss the results, set goals and hold ourselves accountable to the goals we set for ourselves.

I will also be a champion for director evaluation. We’ve been doing board evaluations for years but haven’t yet made the jump to evaluating ourselves individually (including me as chair). It’s time to change that – I want feedback to get better and I know that, if done properly, directors will glean valuable feedback to improve their performance. Feedback is a gift – as chair, I will set the tone for both giving and receiving it.

Goal #4. Exercise control of the meeting

I will flex my chair muscles by owning and managing board meetings. This one always seems to make it on my list of chairing resolutions – it’s an endless work in progress.

I will drive the agenda setting process. I will make sure we stick to the agenda as much as possible, while maintaining some flexibility. I will stop tangents, tirades and trivial conversations before they spiral out of control. I will make sure everyone has a chance to voice their opinion, and ensure no one voices their opinion three or four times. Gone are the days of the dog with the loudest bark. I will stop the conversation when we have, collectively, done sufficient justice to a topic. I will do this calmly and kindly, with respect and grace. The more I exercise my chair muscles, the stronger they will be.

It’s time to get organized and make the most of the year ahead – it’s going to be a great one! To make sure I stick to my chairing resolutions I am going to implement a technique I learned from a master chair: at the first meeting of the year, I am going to share these resolutions with the board and management team. That way, I’m not just accountable to myself – my entire team will be watching me. This has made a tremendous difference in achieving previous chairing resolutions.

What are your chair resolutions? I invite you to borrow one of my resolutions and bring it to your boardroom.

From my board to yours, cheers to a happy, healthy and hardworking 2018.

 

Yours sincerely,

The Intentional Chair

The Intentional Chair is the collective voice of over 30 exceptional chairs who kindly shared their insights, thoughts and experiences with WATSON in support of our passion for real, practical governance learning.

Hone your chair skills and join your peers at one of WATSON’s 2018 Chair with Intention™ courses


2017 – A Year in Review

December 21, 2017

Posted in: WATSON Views

2017 brought us enough stories to last a lifetime. We witnessed the first coast-to-coast eclipse in 99 years and devastating back-to-back-to-back hurricanes. Powers shifted on the political stage – the swearing in of the 45th American President, the Paris Climate Accord, and continued instability across the globe. We raised our voices, joined the Women’s March in January, took a knee on the field and tweeted #metoo. We saw toppled regimes, monuments and moguls.

The big issues – climate change, increasing polarization of societies, changing demographics, income disparity and universal rights for all – trended across our smartphones, dominated the water cooler talk and filtered into the boardroom. Conversations changed, and so too did board focus. Disruption and geopolitical instability crept into the boardroom forcing directors to turn their attention to cybersecurity, trade, business disruption and ethics, as they found themselves governing in an increasingly complex environment.

We watched boards take a good look at the world around them and reflect on the implications for their governance – from who is around the table to how they do their work. Four boardroom game changers – board composition, peer evaluations, CEO and chair succession planning, and culture oversight – resulted in WATSON declaring People Focus as the leading governance practice in 2017.

Game Changer #1 – Board Composition

It goes without saying that the quality of individual board members underpins the board’s ability to provide leadership and effective governance. High-contributing directors not only bring needed skills and experience, but also have the characteristics and behaviours that lead to productive dialogue and good decisions. Board composition held a prominent place on many board agendas in 2017. Shareholders continued to raise their concerns about board composition and pushed for more diversity, regular turnover and directors who are current on the evolving business context. Boards themselves focused on assembling the best team possible.

Yet, despite these efforts, there is still work to be done. In a recent US-based survey, almost half of directors said a fellow board member should be replaced, and 20% went so far as to say two should be replaced. In light of only 60% of directors reporting that they adequately question management’s assumptions, investors are seeking assurance that boards challenge management on strategy and results. And while the benefits of diversity are commonly acknowledged, recent reports indicate that not enough progress has been made in this area. Women only hold 14% of corporate board seats in Canada and other dimensions of diversity are still in their infancy.

Composition should remain at the forefront of boardroom conversations in 2018. Boards need to take a long hard look in the mirror at who they need to drive the organization forward to help achieve their strategic priorities. Economic turbulence, geopolitical instability, massive business disruption – what’s on your directors’ minds? What experience and voices do you need at the table?

Game Changing Tactics

  • Review and update your skills matrix on an annual basis to reflect changing needs and circumstances. Pay attention to character and behaviour, not just skills
  • Round out the team – balance directors who have broad skills and experience with others who possess deeper, more specialized knowledge
  • Consider the ‘younger’ demographic who typically have less board experience but may bring with them valuable skill-sets and experience in technology and cybersecurity
  • Hire a search firm to help get the right people around the table (AND to help identify what you need around the table)

Hey WATSON, where are we at with diversity?

Things have started to change since “comply or explain” was introduced, but not fast enough. We have seen pockets of advancements in the area of diversity, particularly gender, and are hearing boards talk about it, set their own targets, and create accountability by publishing targets. But boards still can and should do better.

Do you have a question about governance?

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Game Changer #2 – Peer Evaluation

As composition changes, so too does the board’s appetite for evaluation. Institutional investors are demanding more regular director evaluation and boards are starting to respond. There is also an increasing willingness and interest amongst more progressive and senior boards towards providing candid feedback to directors. WATSON is seeing boards invest more than money when they engage in a peer evaluation process. They are investing time and a commitment to continuous improvement. Directors are taking their own evaluation seriously and appreciate the impact on both strengthened individual and board performance. To help create open, honest and transparent conversations with a goal of improved outcomes, more and more, we see organizations engaging a third party to help develop a culture of trust, objectivity and candor in director evaluations. We predict that 2018 will be the Year of the Peer in many boardrooms.

Game Changing Tactics

  • Focus the conversation by drawing out themes from the feedback
  • Partner with the chair to develop an action plan to improve performance
  • Practice meaningful conversations on individual and board performance in camera. Make feedback part of every board meeting
  • Seek feedback from management to round out director feedback
  • Be bold – invite individual directors to share a specific behaviour for improvement with their peers. It can have a profound impact on board culture and contribution

Game Changer #3 – Succession Planning

Countless books and online search results illustrate the importance and impact of solid leadership on both organizations and boards. Boards have stepped up their approach to CEO and chair selection processes resulting in more robust recruitment practices. However, what some boards are still failing to realize is that succession planning is a continuous process. It doesn’t start with the first whisper of retirement nor end with the welcome party for the new CEO or chair. It is a board constant, where the means is equal to the ends. Every board needs a mechanism to ensure a solid stream of future leaders. And core to the process is the coupling of evaluation and succession planning. 2017 saw boards start to devote time and effort to building a sophisticated CEO and chair evaluation process integrated with long-term succession planning.

Game Changing Tactics

  • Invest in chair succession. Take a page from CEO succession and apply similar processes and practices, including developing performance criteria for the chair
  • Add “fosters a culture of feedback and learning” to your chair attributes when recruiting new chairs
  • Switch up committee chairs to build a board leadership pipeline
  • Lock succession planning into your forward calendar and agenda
  • Focus on future leadership needs – it’s not about what is needed today but the leadership of tomorrow

Game Changer #4 – The Board and Organizational Culture

It has never been easy for boards to draw a clean line in the murky waters of culture oversight. 2017’s sexual harassment scandals, toxic tech firms and unscrupulous banking and sales tactics now make it impossible for boards to bury their heads in the culture sands. There has never been a better time for boards to dig into culture and define their role in oversight. Boards are tackling this soft issue with hard processes – clear board, committee and individual director responsibilities, policies, education and reporting. They are also setting very clear expectations of management – regular culture assessments and reporting, risk mitigation tactics, harassment policies, whistleblower avenues and recognition and reward systems that support desired company culture versus unintentionally undermining it.

Game Changing Tactics

  • Draw the lines on oversight – assign committees to take responsibility for specific aspects of culture (for example task the Compensation Committee to monitor compensation and recognition systems)
  • Elevate culture to the same status as strategy and risk. Monitor performance, develop policies, and recruit directors with organizational experience around culture
  • Move culture up the list of CEO criteria in recruitment, succession planning and evaluation
  • Go public with your shareholders and stakeholders by communicating how your board is addressing its role in cultural oversight

In a world of external complexity and disruption, it’s more important than ever to be thoughtful about who is inside the boardroom and how you carry out your board duties. Who is on the board, how boards evaluate individual performance, how they develop leadership for the future and how they define their role in cultural oversight are four forces creating a palpable shift in the boardroom. Board scrutiny was not new in 2017; stakeholders have been steadily raising expectations on board performance. However, in a world where anyone can weigh in on social media, boards need to be poised for a steady stream of citizen stakeholder questions (and, of course, comments).

As boards look ahead to 2018 and the need to provide leadership in an increasingly complex environment, we encourage you to think strategically on how best to meet this responsibility. While many important and new strategy and risk-related topics will be added to your agenda, we recommend first and foremost a continued focus on the essential role of people – ranging from ensuring the most qualified team on the board, to planning for leadership succession to gaining more meaningful insight into the organization’s culture.

So, as the year winds down, take the time to reflect on the advancements your board has made. And, as always, we encourage you to look to the future and be curious and open to new ideas. Celebrate the people around the table who together can make a difference in 2018.

From all of us at WATSON, we wish you and your board a wonderful 2018.

 


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