High Performance Boards Improving and Energizing your Governance

A comprehensive guide to transforming boards and achieving best-practice governance in any organisation.

When practising good governance, the board is the vital driver of organizational success, while fostering positive social impact and economic value creation. At all levels, executives around the world are faced with complexities rising from disruptive business models, new technologies, socio-economic changes, shifting political circumstances, and an array of other sources. High Performance Boards is the comprehensive manual for attaining best-in-class governance, offering pragmatic guidance on improving board quality, accountability, and performance.

This authoritative volume identifies the four dimensions, or pillars, which are crucial for establishing and maintaining best-practice boards: the people involved, the information architecture, the structures and processes, and the group dynamics and culture of governance. This methodology can be applied to any board in the world, corporate or non-profit organization, regardless of size, sector, industry, or context. Readers are introduced to a fictitious senior board member – an amalgamation of board members from well-known organisations – and follow her as she successfully handles real-life challenges with effective governance. Drawn from the author's 20 years of practice and confidential work with boards across the world, this book:

• Demonstrates how high-performance boards innovate and refine their practices
• Discusses examples of board failures and challenges, including case studies from both for-profit and non-profit organisations including international organizations and state-owned agencies or even ministries
• Provides a proven framework to create best-in-class governance
• Includes a companion website featuring tools for board assessment and board practice

High Performance Boards has inspired more than 3000 board members around the world. This book is essential reading for professionals and managers interested in governance and board members, senior managers, investors, lawyers, and students of governance.

DIDIER COSSIN is a professor at IMD, Switzerland and the founder and director of the IMD Global Board Center. He is the originator of the Four Pillars of Board Effectiveness methodology and an advocate of stewardship. He is the author and co-author of books such as Inspiring Stewardship, book chapters (such as Governance Risk: A Guide for Investors) and many articles in the fields of governance, investments, risks and stewardship, several of which have obtained citations of excellence or other awards.

Didier works with asset owners, government officials, central bankers, boards and senior leaders to provide the latest thinking on best- in-class governance, board effectiveness, the governance of investments, board dynamics and strategy design. He favors an adaptive and interactive approach to finding distinctive solutions for organisations on a wide range of governance topics. His latest research focuses on stewardship, how we can foster organisations to have long-term positive social impact while creating economic value for all. His past research has dealt with optimising governance in critical decision-making situations (large investments, key personnel changes, M&As, strategic turnarounds and organisational threats). Didier also supports some leading non-profit organisations at fine-tuning their governance for impact.

About the Author xvii

Acknowledgements xix

Preface xxi

Part I: The Four Pillars of Board Effectiveness 1

Joanne Marker and Board Service 3

Chapter 1 The Four Pillars of Board Effectiveness 9

The First Pillar: People Quality, Focus, and Dedication 11

The Second Pillar: Information Architecture 14

The Third Pillar: Structures and Processes 15

The Fourth Pillar: Group Dynamics and Board Culture 17

Chapter 2 Governance Challenges around the World 20

Scientific Lessons from Natural Selection 22

What is Transformational Leadership? 23

Should We Trust Leaders? 24

The Governance DNA 26

Chapter 3 The Successful Director: Values and Character 28

Duty of Care 30

Duty of Loyalty 32

Integrity: A Key Characteristic of Board Directors 32

Chapter 4 The First Pillar: People Quality, Focus, and Dedication 35

Quality 35

Focus 38

Dedication 41

Chapter 5 The Second Pillar: Information Architecture 45

How Complete is Your Information? 46

Chapter 6 Board Structures and Processes 50

Processes 51

Committee Structure 52

Board Secretary 53

Lead Director or Vice Chair 55

Chapter 7 Group Dynamics and Board Culture 56

Understanding Group Dynamics 57

Coalitions Within a Board Are Inevitable – and they Feed into Politics 60

Boards Fall into Traps 63

Drawing Strength from the Board’s Potential 66

Developing Self-Awareness 67

Board Culture 69

Part II: Board Failures and Challenges 77

Chapter 8 Four Areas of Board Failure 79

Chapter 9 Risks and Ensuring the Right Board Risk-Philosophy 82

Chapter 10 A Board Member’s Practical Guide to Risk Thinking 85

The Physical Health Check: Technical Risks 86

The Mental Health Check: Behaviours 89

The Strategic Risk Check 93

The Governance Risk Check 94

Chapter 11 Elements of Advanced Risk Techniques for Board Members: From Quants to Cyber 97

The Why and How of Quantitative Risk Assessment for Boards 98

Integration of Risks 101

The Outcome of Risk Assessment 102

Cyber Risk 104

Chapter 12 Crisis Management 107

Crisis as a Turning Point 110

There is Work to Be Done In Peaceful Times 111

Communication Principles 111

Another Powerful Weapon: Gathering Information 113

A Crisis Will Shed Light On Boardroom Fissures 115

Procedure vs. Authenticity 117

Communicate Your Way to Rebuilding Trust 118

Chapter 13 The Four Tiers of Conflicts of Interest 120

Tier-I Conflicts: Individual Directors vs. Company 122

Tier-II Conflicts: Directors vs. Stakeholders 124

Tier-III Conflicts: Stakeholders vs. Other Stakeholders 131

Conflicts of Interest within a Group of Stakeholders 135

Tier-IV Conflicts: Company vs. Society 136

Chapter 14 High-Level Fraud and Active Board Oversight 141

Why Does High-Level Fraud Happen? 143

Injustice 147

Lax Oversight 148

Problematic Culture 149

Financial Illiteracy 151

How to Create an Effective Oversight Environment 152

Preventing Injustice: Broaden the Notion of Conflict of Interest 152

Preventing Lax Oversight: Build Appropriate Frameworks 153

Preventing Toxic Behaviours: Create a Positive Culture 156

Strengthen Board Oversight Expertise with Special Focus on Legal, Compliance, Risk, Fraud, and Financial Reporting 159

Tools For Anti-Fraud Activities: Assessment, Prevention, Detection, and Investigation 160

Assessment 161

Prevention 161

Detection 161

Investigation 162

Part III: Board Best Practices 165

Chapter 15 The Board as a Strategic Asset 167

Five Definitions of Strategy 168

Clarifying the Board’s Role 171

Taking Context into the Mapping Process 174

The Impact of Context on Strategic Views and Roles of the Board 175

The Board’s Ultimate Strategic Significance 176

Chapter 16 A Primer on Finance Essentials for Directors 177

Reading Financial Reports 178

Understanding Ratios to Analyse Operating Strategies 179

Interpreting Between the Lines of Financial Statements 181

How to Identify Red Flags in Financial Statements 182

Implementing Desired Capital Structure 184

Understanding Valuation Fundamentals 185

Making Better M&A Decisions 187

Overseeing Risk 189

Joanne Marker and Board Values at Comfre 193

Chapter 17 Board Leadership and Values 197

Quality Boards Live and Breathe Integrity 198

Which and Whose Values? 199

Board Values vs. Organisational Values 202

Family Values in Business 203

Chapter 18 The Intricacies of Subsidiary/Holding Governance 204

Structures 206

Culture 208

Chapter 19 Fostering Entrepreneurship from the Board 210

‘Best Practice’ Governance vs. Entrepreneurship 211

Boards Should Actively Encourage Entrepreneurship 212

Chapter 20 The Board’s Oversight Framework for M&As 217

Creating a Deal-Making Mindset 218

Seeing the Bigger Picture 220

Staging Deals with Maximum Precision 220

Integration 225

Confronting Litigation Involving M&As 226

Joanne Marker Confronts Failing Board Culture 229

Chapter 21 The Chair–CEO Relationship 233

The Role of the Chair 233

Chairs are Increasingly Active 237

Chair–CEO Dynamics – the Hallmarks of a Productive Relationship 238

Tests of the Chair–CEO Relationship 240

The Ideal Attributes of a Chair 242

Chapter 22 The Board–Management Relationship 244

Supervision 244

Support 246

Blurring the Board–Management Relationship 247

Writing Governance Codes is Easier Than Changing Behaviours 248

Chapter 23 Effective Diversity 251

Diversity is Good . . . But Why; and When? 251

Diversity as a Considered Choice 252

Gender 253

Culture 255

Personality 256

Age 257

Social Background 259

We Have Embraced Diversity . . . Now What? 260

The Chair’s Role in Building and Nurturing Diversity 262

Chapter 24 The Talent Pipeline 265

The Board’s Responsibility for Talent Management 265

The New Talent Dynamic: Culture, Values, Community 268

Chapter 25 Boards and Social Media 272

JP Morgan’s Failed Foray into Twitter Q&A 273

Why Boards Should Understand Social Media 274

What Boards Should Do 276

Chapter 26 Boards and Investors 279

The Move toward Increasing Shareholder Engagement 281

Chapter 27 Managing Stakeholders 283

Shareholders vs. Stakeholders: A Definition 284

How to Identify a Company’s Key Stakeholders 285

The Board Can Be Instrumental in Shaping the CEO–Stakeholders Conversation 285

Anticipating Stakeholders’ Influence and Impact 286

Chapter 28 Stewardship from the Board 289

Building Upon a Rich Cross-Disciplinary Legacy of Thought 291

Psychological, Organisational, and Cultural Influences on Stewardship 291

Steward Leaders Build on their Unique Strengths to Drive Stewardship 292

Steward Leaders Deliver Long-Lasting, Meaningful, and Inclusive Impact 293

Becoming a Steward Leader: What it Takes 295

Stewardship Risks 297

Boards Are Key to Fostering Stewardship 297

Conclusion 299

Index 301

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